DEBRIS REMOVAL CONCERNS

(June 2019)

demolished

BACKGROUND

After a covered property loss, the insured incurs costs to remove debris the loss caused. This is often an unexpected expense, especially if the insured has never been involved in a major loss.

Commercial property coverage forms offer valuable debris removal expense coverage that is frequently misunderstood. The insured should be aware of the limitations in the coverage so that the limits provided are sufficiently high to cover the damage to the property as well as the cost to remove the debris.

HOW IS DEBRIS REMOVAL COVERAGE PROVIDED?

Debris removal expense coverage is an Additional Coverage in the following Coverage Forms:

CP 00 10–Building And Personal Property Coverage Form
CP 00 17–Condominium Association Coverage Form
CP 00 18–Condominium Commercial Unit-Owners Coverage Form
CP 00 20–Builders Risk Coverage Form
CP 00 99–Standard Property Policy
CP 00 20–Builders Risk Coverage Form
CP 00 80–Tobacco Sales Warehouses Coverage Form

WHAT DEBRIS IS COVERED?

Debris is created when property is damaged or destroyed. The coverage form does not intend to cover all debris, so limitations are placed on the coverage.

The debris must be the result of a covered cause of loss occurring during the policy period.
The debris must be of either Covered Property or be other debris that is on the described property.

Note: The wording is slightly ambiguous regarding what debris must be on premises. Prior versions of this wording did not require that debris be on premises. The explanation of the 10 12 version of this form states the intent of the revision is to broaden coverage by providing coverage for other property that is on the premises. There is no statement regarding any reduction in existing debris removal coverage. Therefore, it appears that Covered Property debris is not required to be on premises and only the “other debris” must be on a described premises.

WHAT REMOVAL EXPENSES ARE COVERED?

In order to be covered, debris removal expense must be all of the following:

Incurred by the named insured
Reported to the insurance company within 180 days of the direct damage loss
The result of a covered cause of loss
The result of a direct damage loss occurring during the policy period
The result of damaged covered property or other property that is on the premises

Examples:

Scenario 1: Fred has a building filled with obsolete personal property. He insures the building but not the personal property. A fire destroys both the building and the personal property. In this case, debris removal coverage pays the expenses to remove building debris but not personal property debris.

Scenario 2: Mary insures both her building and its personal property coverage under a commercial property coverage form. Heavy rains cause the river nearby to overflow its banks and flood the building. The personal property is ruined and must be removed. The expenses to remove the personal property debris are not covered because Mary's policy does not cover flood.

Scenario 3: A fire destroys Jerry’s building. He decides to not rebuild, takes the actual cash value settlement option, and the insurance company agrees to take over the property. Jerry does not receive any debris removal expense payment because he did not incur any debris removal expense.

Scenario 4: Pedro’s policy period is 05/01/19 to 05/01/20. A loss occurs on 04/30/19 but the debris is created on 05/01/19. The debris removal is not covered under this policy term because the loss occurred prior to the policy period.

WHAT DEBRIS REMOVAL EXPENSE IS NOT COVERED?

The cost to remove the following is not covered:

Debris that belongs to the named insured or is under the named insured’s control that is either not insured or is considered property not covered under the policy.

Example: Cary decided to not insure a small storage building on his premises. Lightning destroys it during a rainstorm and wind scatters its debris. The cost Cary incurs to remove the debris is excluded because he did not insure the building.

Landlord’s property when the named insured is a tenant. However, it is still covered if the named insured is contractually obligated to insure the property.
Any property described in Coverage 2. Property Not Covered. This also applies to property that has limited coverage under 5. Coverage Extensions e. Outdoor Property.

Note: This means that debris from tree, shrubs, plants, and fences is excluded.

Example: Lightning also struck several trees on Cary’s premises during the rainstorm. The debris removal expenses are excluded because they are considered property not covered. The cost to remove their debris is excluded. Their debris removal may be covered under Coverage Extensions e. Outdoor Property.

Any property of others that this coverage form considers property not covered

Example: A windstorm picks up a boat from a nearby pond and deposits it on Cary’s premises. The cost to remove the boat is not covered because boats are not covered property.

Mud or dirt deposited on the grounds of the premises during a covered loss
Any pollutants from land or water
Polluted land or water. The cost to restore or replace polluted land or water is also excluded.

WHAT IS THE MAXIMUM AVAILABLE TO PAY FOR DEBRIS REMOVAL EXPENSE?

The maximum available to pay for debris removal expense is developed as follows:

Step 1: Determine how much the insurance company actually pays for the direct damage loss.

Step 2: Add the deductible amount to Step 1.

Note: The amount paid by the insurance company for the loss is the starting point. This means that the amount of available debris removal expense cannot be determined until the direct damage loss has been resolved.

Step 3: Multiply Step 2 by .25.

Step 4: Add $25,000 to Step 3.

Step 5: Determine the actual debris expenses incurred

Step 6: Compare Step 4 to Step 5. The lower amount is the maximum payment available.

Example: Roger’s building sustains a covered loss. His maximum debris removal amount is developed as follows:

Step 1: The insurance company pays him $150,000 for the loss.

Step 2: The deductible was $5,000. $150,000 + $5,000 = $155,000

Step 3: $155,000 X .25 = $38,750

Step 4: $38,750 + $25,000 = $63,750

Step 5: Roger’s debris removal expenses are $40,000.

Step 6: The maximum payment available is $40,000.

IS THE DEBRIS REMOVAL EXPENSE PAYMENT FURTHER CAPPED?

There is one additional cap on the amount of debris expense that will be paid. The sum of the direct damage loss plus the actual incurred debris removal expense cannot exceed the limit of insurance for the damaged covered property plus $25,000.

The maximum debris removal expense payment is developed as follows:

Step 1: Subtract the direct damage loss payment from the limit of insurance.

Step 2: Add $25,000 to Step 1

Step 3: Determine the actual debris expense incurred

Step 4: Compare Step 2 to Step 3. The lower amount is the maximum payment available.

Example: Roger’s limit of insurance is $150,000.

Step 1: $150,000 - $150,000 = $0

Step 2: $0 + $25,000 = $25,000

Step 3: Roger’s debris removal expenses are $40,000.

Step 4: The capped amount of debris removal expense paid is $25,000.

WHAT IF THE ONLY DEBRIS IS OTHER PROPERTY?

According to the coverage form, when there is no direct damage loss, the maximum debris removal expense payment is $5,000 at each location.

CAN THE $25,000 DEBRIS REMOVAL ADDITIONAL INSURANCE BE INCREASED?

CP 04 15–Debris Removal Additional Insurance endorsement is available. The amount scheduled on the endorsement replaces the $25,000 in the coverage form. This increase applies only when the debris is due to a direct damage to covered property. There is no endorsement to increase the $5,000 other property limit.