Our insured has an office building insured on a commercial property form for $125,000 on a replacement cost basis. There is a 64' x 64' warehouse located behind it. The warehouse is not insured for any additional amount. When the current owner purchased the building two years ago, he simply transferred the insurance, with the company's approval.

There is an additional coverage in this form (it is not a standard form) that allows the insured to apply up to 5% of the limit of liability shown for coverage A—Buildings to other structures on the insured premises that are not attached to the insured building by more than a utility line, fence, or similar connection. That gives $6,250 coverage for the warehouse.

Recently the warehouse was nearly destroyed by a high wind, with the result that the local building inspector has ordered it to be demolished and the debris removed. The adjuster states that the $6,250 is the most that will be paid; in short, the $6,250 is the policy limit including the amount necessary for debris removal. Our insured has an estimate of $7,850 just to demolish the warehouse and haul away the debris, to say nothing of what it will take to replace the structure.

We think the covered property is all the property on the premises—in other words, the $125,000—so the debris removal should be included under that amount, with the $6,250 available to replace the warehouse.

May we have your opinion?

Oklahoma Subscriber

The form you enclosed with your question is quite different from, say, an ISO commercial property or businessowners form. Unlike these forms, your form states the insurer covers “reasonable expenses incurred in the removal of debris of covered property…. Payment will not increase the amount of insurance applying to the (emphasis added) covered property.” Further, there is no additional amount available if the sum of the debris removal expense plus the amount of the loss exceeds the limit of insurance.

The word the with reference to covered property can only refer to the debris of the damaged property. If the intent was to provide debris removal coverage within the total limit of insurance, the form could omit the. Therefore, the $6,250 is the most that will be paid.

We also considered the extra expense coverage as a possible source of recovery, but in this form any consequential loss is not covered.

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