8.6 Difference in Conditions (DIC) Policy

Difference in Conditions (DIC) insurance is a specialized type of property insurance designed to help fill coverage gaps left by other property policies. Many standard property insurance policies exclude or restrict coverage for certain catastrophic perils, such as earthquake, flood, collapse, or subsidence.

A DIC policy may be written to provide coverage for some of these excluded or limited perils. For this reason, DIC insurance is often used when an insured needs broader protection than what is available under a standard property policy.

DIC insurance may also be used with a FAIR Plan policy. Because FAIR Plan coverage usually provides only basic property insurance, a DIC policy may help provide additional or more comprehensive coverage for risks that are not adequately covered by the FAIR Plan.

The key point for learners is that DIC insurance is not a replacement for every property policy. Instead, it is commonly used to supplement existing coverage by addressing specific gaps in protection.

There is no single standard Difference in Conditions (DIC) policy form. Because DIC policies are not standardized, the coverage, exclusions, and conditions may vary by insurer and by policy.

In general, DIC coverage is written on an open perils basis. This means the policy may cover direct physical loss unless the cause of loss is specifically excluded. However, DIC policies commonly exclude perils that are already covered under standard property insurance forms, such as fire, lightning, windstorm, and hail.

A DIC policy is intended to supplement existing property coverage, not duplicate it. For that reason, it is often structured to cover selected high-risk or catastrophic perils that are excluded or limited elsewhere.

DIC policies typically do not include a coinsurance requirement. This can make the policy easier to apply at the time of loss, but the insured must still carry adequate limits to protect against the types of losses the DIC policy is intended to cover.

DIC policies usually have higher deductibles than standard property insurance policies. For example, a DIC policy may include a deductible of $10,000 or more, depending on the insurer, the property, and the catastrophic perils being insured.

Coverage under a DIC policy may be written as either primary insurance or excess insurance. When written as primary insurance, the DIC policy responds first to a covered loss, subject to its terms and deductible. When written as excess insurance, the DIC policy responds only after another applicable policy has paid or after the underlying coverage has been exhausted.

This distinction is important because the way the DIC policy is structured affects how losses are adjusted and how much the insured may recover from each policy.

An Insurance Story

The Nelsons do not live in a community or area where NFIP flood insurance is available or required. However, they still want protection against the possibility of flood damage.

One option may be a Difference in Conditions (DIC) policy. A DIC policy can sometimes be written to cover flood losses that are not insured under another property policy. The same DIC policy may also be written to provide earthquake coverage, depending on the insurer and policy terms.

In this situation, the DIC policy could serve as an alternative to adding an earthquake endorsement to the Nelsons’ Homeowners policy or purchasing a separate earthquake policy. This example shows how DIC insurance may be used to fill important coverage gaps when standard property policies or government flood programs do not provide the protection the insured needs.