COVERAGE CORNER

BIG STORM = BIG MESS = BIG BUCKS FOR COMMERCIAL PROPERTY INSUREDS

By Kevin C. Amrhein, CIC

It’s September, and Americans are gearing up for the usual traditions: enjoying/recovering from football games, Labor Day vacays, and stressful evenings with Jim Cantore (if you don’t know this name then 1) you’re lucky, and 2) you should Google him because he haunts my dreams and it’s only fair that you experience the same).

Hurricane Season traditionally peaks in September, and I’m hopeful that your experience so far has been tame. But anyone who knows me knows I never miss an opportunity to tell anyone of two essentials: 1) some of the most powerful storms in American history have hit in September or later, and 2) your commercial property insureds absolutely do not understand Debris Removal insurance.

It’s likely I’ve written about this one coverage issue more often than any other. After seeing so many insureds and their agents have horrible claims experiences with it, I swore long ago to pound the Debris Removal drum as often as possible. I’m hopeful the info that follows will help you keep your commercial property insureds out of trouble if/when the next big one comes-a-blowin.

THE ISO BUILDING AND PERSONAL PROPERTY COVERAGE FORM (CP 00 10)

This form addresses coverage for the expense to remove debris from the premises under Additional Coverage A. – Debris Removal. It describes the limits available, triggers, and potential shortcomings. Here’s a rundown:

▲ Debris must be created by a Covered Cause Of Loss. For example, if the policy is written x-wind, the problem here is self-explanatory.

▲ For its removal to be covered, the debris must be stuff that’s described in the policy as Covered Property. For example, the cost to remove debris of anything listed as Property Not Covered, such as trees/shrubs/plants, may be severely limited or excluded.

▲ I’d be remiss if I didn’t mention the general insurance challenges faced by many commercial tenants. For example, inadequacy of the coverage secured by the landlord or cumbersome insurance requirements imposed by a lease. Count Debris Removal expense among the many reasons why your tenant insureds must have a clear understanding of their insurance requirements and needs.

HOW A LIMIT IS APPLIED TO A LOSS

First, the adjuster must calculate the paid loss amount for the direct damage. Assuming all conditions are met, the policy allocates up to 25% of this amount plus the deductible to cover the expense of debris removal. For example, say the total damage is calculated to be $400k. The adjuster indicates a paid loss amount of $360k (based on $400k loss less a $40k deductible). Under this coverage, the policy will pay up to $100k toward the expense to remove debris ($360k + $40k = $400k x .25). If this amount is not sufficient, the policy offers up to an additional $25k to cover the expense.

The good news: the aforementioned additional $25k is not subject to the limit of insurance.

The bad news: the 25% factor is subject to the limit. Thus, in the example above, if the loss wipes out the full limit of insurance applicable to the damaged property, the insured receives no more than $25k to cover the expense.

TAKEAWAYS FOR THE AGENT

▲ Not all commercial property forms use the same language as the ISO form. Some may do better while others may do far worse.

▲ The expense to remove debris is virtually impossible to predict. Factors that may have a significant effect on coverage include the cost of removal services (what is their current demand?), the nature of property located on the premises, what portions of the damaged property may be considered salvageable, etc. Agents should candidly express this concern to the property insurer and request guidance.

▲ An increase to the additional coverage amount offered in the unendorsed policy (in the ISO form, this is $25k) may be readily available from the insurer. This could prove a blessing for agents who talk with their insured about debris removal and a curse for those who don’t!

That’s all for now. Until the next round … cheers!

Kevin C Amrhein, CIC, is IA&B's education consultant. He works with our CISR and CIC programs, as well as our special topic seminars and live webinars. Catch him at one of our upcoming professional training offerings: IABforME.com