Arizona Adjuster Practice Exam

Which statement BEST describes additional coverage under a DP 3 policy for upgrading an electrical system after an explosion due to local ordinance?

1. Ordinance or law is an additional coverage on a DP 3

2. It is covered under general liability

3. It must be added as an endorsement

4. Coverage is limited to $1,000

The correct answer is: Ordinance or law is an additional coverage on a DP 3

The statement that best describes additional coverage under a DP 3 policy for upgrading an electrical system after an explosion due to local ordinance is that ordinance or law is an additional coverage on a DP 3. This is because the DP 3 policy, which is a dwelling policy, includes coverage for losses that arise from the enforcement of ordinances or laws that regulate the construction, repair, or demolition of buildings. This is particularly relevant in scenarios where repairs or upgrades to systems, such as electrical systems, are necessitated by legal requirements following a damaging event like an explosion. In the context of insurance, this additional coverage allows policyholders to receive benefits that exceed the standard limits for a loss, specifically for costs incurred to upgrade existing systems to comply with current standards or ordinances. This is important for ensuring that the property not only gets restored to its previous condition but is also brought up to code, which is often mandated by law after major damages. The other options do not accurately reflect the provisions of a DP 3 policy: - General liability coverage is a separate type of insurance that typically does not cover property damage or upgrades incurred from a property policy. - While endorsements can expand coverage, the ordinance or law coverage is already built into the DP 3