15 Jul How Much Debris Removal Coverage Does our Client Need?
I recently had a question from an agent regarding how much debris removal coverage a client needs. Debris removal expenses are unknown until after a loss, so it’s impossible to know how much is enough. I always say, “I don’t know how much coverage you will need, but I know that what you have is not enough.”
Only 5% of property losses are total losses, but in the event of a total loss, they will need a lot of money to remove the debris. This could easily be in the six-figure range or more. Ironically, when they need the most debris removal coverage is when they have the least.
Many commercial property forms provide coverage for debris removal expense as part of the stated limits of insurance, subject to a sublimit of 25% of the direct damage loss amount plus the deductible. An additional $25,000 of coverage typically applies if the direct damage loss and debris removal expenses together exceed the limit of insurance, or if 25% of the sum of the direct damage loss payment and the deductible is insufficient to cover the debris removal expense.
Some forms cover debris removal within the limit of insurance but do not specify a sublimit.
Because debris removal costs usually reduce the limit available to replace damaged property, it is important to consider these costs when establishing the property limit. The property limit should be high enough to pay for repairing or replacing that property once the debris has been removed.
Debris removal costs can be substantial. These costs are affected by factors such as the dump site fee, transportation costs to the disposal site, and accessibility of the property. Debris removal costs may be higher if the damaged property is in a remote area or if the terrain is difficult to navigate. Property containing hazardous materials like asbestos or lead may require special disposal methods. Also, if debris of covered property must be removed from land or a body of water located near the property, this may be challenging and costly.
Debris Removal Example 1 – Partial Loss:
- The insured’s building has a $1 million limit.
- The building is damaged by fire, and the cost of repair is $400,000.
- There is an additional $125,000 in debris removal expense.
- The policy will pay the $400,000 repair cost and $100,000 (25% of the damage plus the deductible), plus an additional $25,000 for debris removal.
Debris Removal Example 2 – Total Loss:
- The insured’s building has a $1 million limit.
- There is a total loss to the building caused by a tornado, and there is also $350,000 debris removal expense.
- Since the limit is exhausted paying for the damage to the building, the policy will pay $1,025,000 ($1 million damage plus $25,000 debris removal), leaving the insured to pay the additional $325,000 debris removal expense.
When a client asks, “How much do I need?” a good response would be, “How much can you afford?” or “How much are you comfortable with?” Rather than giving a specific figure, we can provide options. For example, we might use a “rule of thumb” of 25% of the building amount because that’s what the policy form uses. For example, a $1 million building might need $250,000 in debris removal. Since we don’t know for sure, we get optional quotes of $500,000, $750,000, and $1 million and advise them that more is available if they’re not comfortable with those amounts.
CP 04 15 Debris Removal Additional Insurance provides means to increase the $25,000 limit. Removal of a pollutant from land or water is limited to a $10,000 aggregate (per policy year). CP 04 07 Pollutant Cleanup and Removal Additional Aggregate Limit of Insurance can be used to increase the $10,000 aggregate.