What is difference in conditions (DIC) coverage for apartment buildings?

A difference in conditions (DIC) policy is a nonstandard property insurance form that provides coverage for perils excluded by the insured's primary commercial property policy. For apartment buildings, a DIC policy most commonly adds flood and earthquake coverage, but it can also cover other excluded perils such as landslide, mudflow, sinkhole collapse, and volcanic eruption.

DIC policies are particularly valuable for apartment owners in areas where standalone flood or earthquake coverage is either unavailable, prohibitively expensive, or subject to capacity limitations. Because DIC is a surplus lines product not bound by ISO standard forms, the terms are highly negotiable. Coverage can be tailored to fill specific gaps identified in the primary policy rather than duplicating coverage already in place.

A key advantage of DIC coverage is that it typically operates on a broader "all-risk" (special form) basis, meaning it covers any peril not specifically excluded, while the primary policy may operate on a named-peril basis for certain categories of loss. The DIC policy "drops down" to cover losses that fall within its broader terms but outside the primary policy's scope. For example, if the primary property policy excludes water damage from surface flooding but the DIC includes it, the DIC responds to that loss.

DIC policies are commonly structured with separate sublimits and deductibles for each covered peril. A typical DIC for a coastal apartment building might provide $5 million in flood coverage with a $100,000 deductible and $10 million in earthquake coverage with a 5% deductible based on building value. These terms are negotiated individually with the surplus lines insurer.

Apartment owners considering DIC coverage should work with a broker experienced in surplus lines placement, as DIC policies are not filed with state insurance departments and are not subject to the same rate regulations as admitted market products. The trade-off is less regulatory oversight in exchange for broader coverage flexibility.