Hi folks,I'm in the home stretch of picking up a (very) expensive California Fair Plan (CFP) policy to get fire coverage for a 4 Plex since State Farm has dropped me.My questions is - CFP seems to classify 4 units or less as a "Dwelling" policy and 5 units or more as "Commercial", but they also seem to say that "Business owned" properties are Commercial. 

It can have a dwelling or we can build new. 

Quite 1 progressive insurance Premium 3200Section I - PropertyCoverage A - Dwelling 495,000Coverage B - Other Structures 49,500Coverage C - Personal Property 247,500Coverage D - Loss Of Use 148,500 Quote 2: Farmer's InsurancePremium 1,652Section I - PropertyCoverage A - Dwelling 359,000Coverage B - Other Structures 17,950Coverage C - Personal Property 197,450Coverage D - Loss Of Use 71,000 Can't answer this question with the information provided. 

Both buildings are included under the same address.Can I legally insure the 1 bed 1 bath as a shop even if I am renting it out, or does it have to be insured as a separate dwelling?

"[2] A maximum of two dwelling units are permitted for lots less than 1,440 sq. ft. in area.

While the whole 40+ page policy can be a lot to get through, I'd start with the occupancy requirement, how vacant is defined, and how they define a building or dwelling structure if your work has begun.Generally, there is an occupancy requirement with some buffer, maybe 30 days, maybe your policy gives you 45 or 60 days.

In my experience, most standard dwelling fire policies (DP3 is the most common insurance form used for single family homes) will not allow for two separate buildings with habitational units to be insured on the same policy. 

It's led me to the permitted uses in that zone, which includes "single-family dwelling units."

In fact, using an HO5 on a rental could lead to claim denials, since the property’s use has changed from personal to commercial.The DP3, also known as a dwelling fire policy, is designed with landlords in mind.

If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct.