Understanding debris removal coverage, costs and settlements

The intent of debris removal extensions is to provide coverage for this service in the aftermath of a large loss.

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Question: Does the 5% Debris Removal Additional Coverage in a homeowners' policy require that the amount of the 5% be actually spent in order for the entire 5% amount to be owed?

The coverage says that if the amount of loss and the debris removal expense exceed the policy limit for coverage A, that there is an additional amount (5%) of insurance for debris removal is available.

My position is that if the conditions for the additional amount of insurance to kick in, are met, that the 5% Additional Coverage is then fully compensable as part of the loss, even if the actual cost of the debris removal is less than the 5% additional coverage.

— Kentucky Subscriber

Answer: The debris removal coverage is for the extra expense above the policy limit; there must be that expense before the full 5 % can be applied. Otherwise, the insured would be profiting from his loss, which is not the principle of insurance.

The policy states that:

“If the amount to be paid for the actual damage to the property plus the debris removal expense is more than the limit of liability for the damaged property, an additional 5% of that limit is available for such expense.” (Emphasis added).

Note the last words; the additional 5 % is for actual expense. If the additional 5 % is $12,500 but the additional debris removal expense is only $6,000, the insured does not get the full $12,500; he only gets the $6,000 for the actual cost of debris removal. He does not get an extra $6500 to do what he likes with it.

Is debris removal part of actual cash value (ACV)?

Question: There was a fire loss to the insured's home. I have reached agreements for the coverage A (building) portion of the claim on both replacement cost and actual cash value basis. Both replacement cost and actual cash value losses are below the policy limits.

The insurance company has taken the position that it will not pay the debris removal potion of the ACV loss until it is incurred by the insured. I must add the fact that the building is not a physical total loss. It needs to be completely gutted, and have one-third of the roof structure removed & replaced.

It is my position that the debris removal is part of the ACV loss and is payable at the time of settlement under the coverage A portion of the policy.

Shouldn't the only requirement of the insured to collect be to submit to the insurance carrier a duly executed Sworn Statement in Proof of Loss showing the agreed figures?

— New York Subscriber

Answer: In the ISO HO 00 03 10 00, the policy clearly states regarding debris removal that: “This expense is included in the limit of liability that applies to the damaged property.”

There are no requirements that the insured first incur the expense and then look for reimbursement from the company.

Particularly in your situation, the debris must be removed first before the repairs can be started. So we agree with you that the insured should not have to pay debris removal expense out of pocket up front.

Debris removal coverage and coinsurance provision

Question: I'm adjusting a loss on a property that is insured on an ISO commercial property form CP 00 10 04 02.

The loss includes a building debris settlement. The property was underinsured, so there is a coinsurance penalty on the direct property loss settlement.

Should I apply the same coinsurance penalty to the debris removal payment?

— Ohio Subscriber

Answer: You should not apply a direct coinsurance penalty to the debris removal settlement. However, an indirect penalty is applied when the property is underinsured because the debris removal clause provides for up to 25% of the amount paid for the direct loss, not 25% of the amount insured. Therefore, if a coinsurance penalty was applied to the direct loss settlement, the debris removal amount would be 25% of an already penalized amount.

Is repair/replacement required as part of debris removal coverage?

Question: Our client has a small warehouse insured on a CP 00 10 04 02. The building was completely destroyed and, since our insured does not intend to replace it, the insurer has agreed to an actual cash value settlement.

At issue, however, is the additional $5,000 debris removal coverage, which will be needed when the building is completely leveled. The insurer states the building must be repaired or replaced before this amount can be paid.

We disagree. Can you help?

— Kansas Subscriber

Answer: There are no requirements in the policy that the building be repaired or replaced before this coverage is available.

The policy states that if the sum of the direct physical loss and debris removal expense exceeds the limit of insurance, or if the debris removal expense exceeds the 25%, then an additional $5000 for each location in one occurrence is available.

Neither here nor under the loss payment conditions is the requirement for repair or replacing the building imposed on the insured.

Calculation challenges and the 5% debris extension

Question: There is a 5% extension for debris removal of covered property under the HO-3 forms.

Stated coverage under the dwelling, other structures, and contents have been exhausted.

A contractor charged the insured a lump sum for removing covered debris, which exceeds the total remaining 5% coverage available. He refuses to provide a breakdown, because he says he cannot separate the cost to remove the contents from the cost to remove the dwelling debris.

I am required to do so on the premise that each 5% limit is a separate limit, and the cost to remove contents should only be a few hundred dollars and not exceed the 5% limit, while the dwelling debris will greatly exceed the limit. What was the intent of the coverage?

Is it an aggregate limit to be applied to debris removal since it is impossible to separate the covered debris?

— Pennsylvania Subscriber

Answer: The debris removal provides an extra 5% of the limit that applies to covered property if the actual damage and removal exceeds the limit.

While the dwelling coverage and personal property coverage are stated separately on the declarations page, if the insured suffers a total fire, how is someone supposed to be able to separate burned contents such as bookcases from burned walls?

Ash is ash, and while the sinks and bed frame may be recognizable, most other items won't be.

The intent of the coverage is to provide coverage for debris removal for large losses. As with any insurance policy, when the language is ambiguous, the insured gets the benefit of the doubt.

If you have a situation where the contents damage and its debris removal fit within the contents limit, and the dwelling damage and debris removal are well over the stated limit plus and extra 5%, then pay the contents and their removal under C, and the dwelling and its debris removal under A and the additional debris removal coverage.

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