1. Forms
2. DP
3. DP-05-41

What the form is

The DP 05 41 "Limited Coverage For Earthquake - California" is an endorsement to a Dwelling Property insurance policy. Its primary function is to add a restricted scope of coverage for property damage resulting directly from an earthquake. A key feature of this endorsement, especially noted in its 1998 revision, is the inclusion of a specific definition for "actual cash value" (ACV) to clarify loss settlement terms. This endorsement is designed for use specifically in California.

Classes of business it applies to

This endorsement is used in personal lines insurance for dwelling properties. It can be attached to various Dwelling Property forms (such as DP 00 01 Basic Form, DP 00 02 Broad Form, or DP 00 03 Special Form). Examples of where this form might be used include:

• Insuring a tenant-occupied rental dwelling in California where the owner seeks some level of earthquake protection.
• Providing limited earthquake coverage for an older home where the cost of comprehensive earthquake insurance might be prohibitive.
• A seasonal or secondary home in California that requires basic earthquake coverage.

Special considerations

• California Specific: This endorsement is tailored for the unique seismic risks present in California.
• Limited Scope: The term "Limited Coverage" is significant. The protection offered is typically narrower than what a standalone comprehensive earthquake policy would provide. It will likely have specific sub-limits for certain property, and a high deductible (often a percentage of the dwelling's coverage limit, e.g., 10%, 15%, or 25%).
• Actual Cash Value (ACV): The endorsement's definition of ACV is crucial for understanding how losses will be paid. ACV generally accounts for depreciation, meaning the settlement might not cover the full cost to replace damaged property with new property.
• Regulatory Context: California law generally requires insurers offering residential property insurance to also offer earthquake coverage. This endorsement can be one way insurers meet this requirement, providing a more basic and potentially more affordable option.
• Not a Replacement for Comprehensive Coverage: Policyholders should understand that this endorsement is not a substitute for a broader earthquake insurance policy if more extensive protection is needed or desired.

Key information for agents and underwriters

• Risk Assessment: Underwriting properties for this endorsement involves evaluating factors such as the dwelling's location (proximity to active fault lines), age, construction type (e.g., wood frame, masonry), foundation type, and soil conditions.
• Pricing and Deductibles: The premium for this endorsement will reflect the limited coverage and the specific risk characteristics. Agents must clearly explain the deductible, which is usually a substantial percentage of the dwelling coverage limit and applies separately to earthquake losses.
• Coverage Gaps: It is vital for agents to highlight the limitations and exclusions of this endorsement. This includes what is not covered (e.g., certain types of property, landscaping, pools, detached structures unless specified) and the impact of the high deductible.
• Comparison with Other Options: Agents should be prepared to discuss how this limited endorsement compares to more comprehensive earthquake policies, including those offered by the California Earthquake Authority (CEA) or other private insurers.
• Documentation and Disclosure: Given the specific nature of earthquake risk and coverage in California, thorough documentation of coverage explanations and policyholder acknowledgments is important. The 1998 revision concerning the ACV definition, which was a response to a court decision, underscores the importance of clear policy language.