A Difference in Conditions (DIC) policy is a form of property insurance that is purchased in conjunction with an underlying commercial property policy. Its purpose is to obtain coverage that is not provided in the underlying property policy, most notably for the perils of flood and earthquake. Some insurers offer DIC endorsements to their commercial property policies which serve the same purpose.
Originally, a DIC policy was referred to as a “gap filler,” because it provided coverage against all risks of loss (now more aptly referred to as open perils or causes of loss special form) and was written along with a property policy that limited its loss situations to those caused by specific named perils. A DIC policy can still be used for that purpose, but since it is more common today for property insurers to provide coverage on an all-risks basis, DIC policies are bought primarily by firms with a significant flood or earthquake exposure. In addition to providing coverage for flood and earthquake losses, a DIC policy may also be used to provide excess limits over flood and earthquake coverages that may be provided by endorsement in a commercial property policy, or through the National Flood Insurance Program (NFIP). For example, a primary commercial property policy may only offer $500,000 in flood or earthquake coverage, so the DIC will be used to write coverage excess over the primary limit.
It also may be used to cover other exposures that may not be covered in commercial property policies, such as property in transit or business interruption claims stemming from a transit loss. It also is noteworthy that some commercial insureds purchase DIC coverage to cover property at overseas locations.
Losses caused by flood or earthquake are excluded in commercial property policies. Although endorsements are available to add flood and earthquake coverage to a commercial property policy, some insurers are reluctant or unable to provide this coverage because of the catastrophic exposure associated with these perils. But there are other insurers that specialize in insuring firms with a high risk exposure to flood or earthquake. A DIC policy will be purchased when an insured has a significant flood or earthquake exposure and the commercial property insurer does not offer flood and earthquake coverage, cannot provide full limits for these perils, or offers this coverage at premiums that are prohibitive from the insured’s standpoint.