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A landlord's ISO DP-3 has Coverage A of $400,000. A covered fire destroys the rental dwelling; the tenant's lease called for $2,500/month and the dwelling will take 8 months to repair. What is the maximum the policy will pay under Coverage D — Fair Rental Value, assuming no endorsement modifies the default limit?
A$20,000 — the lease total of $2,500 per month multiplied by the 8-month repair period, paid in full
B$40,000 — 10% of the $400,000 Coverage A limit, which is the DP fair rental value default
$80,000 — 20% of Coverage A — with actual payment limited to the fair rental value actually lost
D$400,000 — the full Coverage A dwelling limit, because fair rental value shares that limit
Why this is the answer
Coverage D — Fair Rental Value on the ISO Dwelling forms is automatically provided at 20% of the Coverage A limit, an additional amount shared with Coverage E (Additional Living Expense). On a $400,000 Coverage A, the cap is $80,000. The actual payment, however, is limited to the fair rental value of the portion rented less any expenses that do not continue (e.g., utilities the landlord no longer pays during the rebuild). The lease amount and repair period set the loss but the 20% cap is the policy ceiling (ISO DP 00 03 Section I Coverage D).
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