When Owning Multiple Dwellings, Coverages Make All the Difference

It is understood when you own a home, you must have adequate coverage to protect yourself. When owning multiple single-family rentals, it’s important to understand the differences between individual DP-3 policies and a Commercial Property policy and when would be the right time to switch over.

For an owner’s multiple dwellings, separate individual DP-3 policies would be required, typically. However, sometimes an owner may not treat each of the properties the same, and he/she may have different coverages on different dwellings, lending the possibility for gaps.  Therefore, it may be prudent to have only one commercial policy covering all of the properties. This allows the client to keep track of only one policy and be assured of proper coverages for all of the properties,

There are differences in coverage between a DP-3 and a commercial policy. These policies could be considered similar, however that does not make them exactly the same. Understanding the differences and what they mean can give guidance as to what is right for you.

Insuring Agreement*

The insuring agreement for Coverage A on the DP 00 03 (Dwelling Property 3 – Special Form) reads (in part) as follows.

We cover:

The dwelling on the Described Location shown in the Declarations, used principally for dwelling purposes, including structures attached to the dwelling;

Compare that with Covered Property: Building on the CP 00 10 (Building and Personal Property Coverage Form).

Building, meaning the building or structure described in the Declarations, including:

  1. Completed additions;
  2. Fixtures, including outdoor fixtures;
  3. Permanently installed:
  1. Machinery; and
  2. Equipment;
  1. Personal Property owned by you that is used to maintain or service the building or structure or its premises, including:…

You see the differences. The different ways that the covered buildings are described may require updates to the valuation of the building in order to maintain proper coverage. This may not be a big deal, but then again it may. We have to pay attention to the differences.

Fair Rental Value

Consider also this coverage that is included on the DP-3 policy.

Coverage D – Fair Rental Value

  1. If a loss to property described in Coverage A, B or C by a Peril Insured Against under this policy makes that part of the Described Location rented to others or held for rental by you unfit for its normal use, we cover the fair rental value of that part of the Described Location rented to others or held for rental by you less any expenses that do not continue while that part of the Described Location rented or held for rental is not fit to live in.

The policy also provides a limit of insurance for this coverage.

Rental Value And Additional Living Expense You may use up to 20% of the Coverage A limit of liability for loss of both fair rental value as described in Coverage D and additional living expenses as described in Coverage E. This coverage is additional insurance.

This makes the fair rental value coverage a function of the coverage for the dwelling, which is another reason to make sure that the dwellings are properly covered.

This coverage is not included at all on the CP 00 10. It’s not that it cannot be covered. You already know that the insured could get coverage for Business Income (with or without Extra Expense) to make sure that they are covered in the event of a covered loss to the buildings. The upside of having that separate policy is that the insured can buy limits that ensure that they receive their business income in the event of a loss while the dwelling policy is limited to 20% of Coverage A.

Covered Causes of Loss

Another point of consideration must be the Covered Causes of Loss (or Perils Insured Against on the DP-3). The DP-3 reads in part as follows.

Coverage A – Dwelling And Coverage B – Other Structures

  1. We insure against risk of direct physical loss to property described in Coverages A and B.

Coverage C – Personal Property

We insure for direct physical loss to the property described in Coverage C caused by a peril listed below unless the loss is excluded in the General Exclusions.

When the CP 10 30 (Causes of Loss – Special Form) is attached to the Commercial Property Policy, the wording is a little different.

Covered Causes of Loss

When Special is shown in the Declarations, Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this policy.

The Commercial Property Policy allows this form to apply whenever it is selected, including business personal property. The DP-3 policy provides only those causes of loss as listed in the policy to apply to the personal property. This could be changed by endorsement, but it is one more thing that the customer and agent have to make sure is correct.

There are other places where the policies differ. And of course there are things that make different carriers more or less appealing (including price, deductibles, endorsements, and coverage extensions).


Sources:
https://www.insurancejournal.com/magazines/mag-features/2019/10/21/545849.htm>

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