What Is a DP3 Policy and What Does It Cover?

A DP3 policy is a type of dwelling fire insurance specifically designed for non-owner-occupied properties. It provides comprehensive property coverage for landlords, protecting their investment in rental homes, duplexes, or other residential structures. This policy is distinct from a standard homeowner’s policy because it addresses the unique risks associated with properties where the owner does not reside. Its primary purpose is to safeguard the landlord’s financial interests against various perils that could damage the property or interrupt rental income.

Scope of DP3 Policy Coverage

A DP3 policy offers robust protection for the dwelling and other structures on the property on an “open perils” basis. This means the policy covers all risks of direct physical loss to the building unless a specific exclusion is listed in the policy document. For instance, damage to the main rental house, detached garages, or sheds would be covered for any cause of loss not explicitly excluded, providing broad protection for the physical assets. This approach simplifies claims by placing the burden on the insurer to prove an exclusion applies, rather than on the policyholder to prove a peril is covered.

Personal property owned by the landlord, such as appliances, window treatments, or furniture provided for tenant use, is covered on a “named perils” basis under a DP3 policy. This coverage is more restrictive, meaning only those perils specifically listed in the policy will trigger a payout for personal property damage. Common named perils include fire, lightning, windstorm, hail, explosion, riot or civil commotion, and damage from aircraft or vehicles. Coverage also extends to smoke damage, vandalism, malicious mischief, and theft.

Loss of Fair Rental Value is a component of DP3 coverage for landlords. This provision compensates the property owner for lost rental income if the property becomes uninhabitable due to a covered peril. For example, if a fire covered by the policy renders the property unrentable for several months, the policy would pay the fair rental value the landlord would have collected during the repair period. This coverage helps mitigate the financial impact of unexpected property damage, ensuring a steady income stream even when the property cannot be occupied by tenants.

Specific DP3 Policy Exclusions

Standard DP3 policies contain several specific exclusions that limit the scope of coverage. For example, damage resulting from ordinance or law, which includes the increased cost of repairs due to updated building codes or demolition requirements, is excluded. This means that while the direct damage might be covered, the additional expenses incurred to comply with new regulations during reconstruction would not be. Similarly, earth movement, encompassing perils like earthquakes, landslides, mudslides, and sinkholes, is excluded from standard DP3 policies.

Water damage is another common area with exclusions in a DP3 policy. While sudden and accidental discharge from plumbing might be covered, damage caused by floods, surface water, or water that backs up through sewers or drains, or overflows from a sump pump, is not covered. These types of water damage require separate insurance policies, such as a flood insurance policy, to obtain protection. Power failure originating off the insured premises is also excluded, meaning if a regional blackout causes damage to the property, it would not be covered.

Additional exclusions encompass situations such as neglect, where the policyholder fails to take reasonable means to protect the property from further damage after a loss. War and nuclear hazard are also standard exclusions. Intentional loss, where the policyholder or someone acting at their direction causes the damage, is not covered. Actions taken by governmental authority, such as the demolition of a property to prevent the spread of fire, are excluded unless the action is taken to prevent further loss from a covered peril.

Target Properties and Policyholders

DP3 policies are designed for landlords who own residential rental properties that are not occupied by the owner. This includes single-family homes, duplexes, triplexes, and other multi-unit dwellings. Landlords need this specialized coverage because a standard homeowner’s policy (HO3) is intended for owner-occupied residences and would not provide adequate protection for a rental property, particularly regarding liability and loss of rental income. The policy focuses on protecting the physical structure and the landlord’s business interests.

Beyond traditional rental properties, DP3 policies are suitable for other non-owner-occupied properties where a standard homeowner’s policy is inappropriate. This can include seasonal homes or vacation homes that are occupied only periodically by the owner. It also extends to vacant properties. A DP3 policy acknowledges the absence of the owner and provides tailored coverage.

The purpose of a DP3 policy in these contexts is to address the insurance needs of property owners who do not reside on the premises. It provides coverage for the structure itself, the landlord’s personal property within the dwelling, and financial protection against lost rental income. This specialized policy ensures that property owners are protected against the financial consequences of damage to their investment. It fills a gap in insurance offerings for properties not used as primary residences.