6 ADJUSTINGTODAY.COM and homeowners policies and has been subject to change over time. Under typical homeowners policies debris removal is covered under the limit for the type of property insured (the dwelling, related private structures or contents). An additional 5 percent of the applicable limit is provided to cover debris removal costs if the loss payment and debris removal costs (combined) amount to more than the limit. This requires allocation of debris removal costs to different types of property — quite a challenge if an adjuster is dealing with a pile of rubble or a smoldering ruin. Under commercial property policies debris removal coverage is provided separately from the applicable property limit and the amount of coverage is linked to the policy deductible rather than the limit of insurance. Up through the late 1900s debris removal coverage typically amounted to 25 percent of the loss payment and deductible combined; a commercial insured received an additional quarter of the cost of the loss to remove the debris. The amount of insurance available for debris removal has generally increased with the release of new commercial property forms by ISO. In 2002 ISO modified its debris removal provision to add another $10,000 in coverage (in addition to the 25 percent of payment and deductible) in situations where (1) the loss payment and deductible exceeded the applicable limit, or (2) the cost of debris removal alone exceeded 25 percent of the loss payment. In 2012 ISO increased the additional amount from $10,000 to $25,000 and extended debris removal coverage to cover costs of removing property of others cast onto an insured location. These changes help address the impact of postdisaster demand surge on debris removal costs and they demonstrate the importance of reviewing policy form issue dates and specific policy provisions. Ordinance/Law Coverage The growing frequency and severity of natural disasters has prompted many jurisdictions to implement or update building codes to mitigate disaster losses. The more such codes there are, and the more they are updated, the greater the chance that a property owner will have to upgrade a structure after a loss to meet new standards. This often entails demolishing and replacing undamaged portions of a building. As with debris removal, this additional cost is covered differently under homeowners and commercial property policies. Under the most common homeowners policies insureds are entitled to use up to 10 percent of the dwelling property limit for additional costs needed to bring damaged or undamaged property into compliance with building codes or ordinances. This “ordinance or law” coverage is provided in addition to the dwelling limit but remains dependent on that limit. An otherwise adequate dwelling limit could still leave a homeowner underinsured for additional costs to comply with building codes. In commercial property, basic policies typically exclude coverage for increased costs due to enforcement of building regulations; if desired, the coverage must be purchased by endorsement. Commercial ordinance/law coverage endorsements include complex provisions addressing damaged and undamaged portions of an insured structure, and whether the cause of loss was a covered peril. WHAT TO WATCH FOR Is an insured structure at risk of requiring increased cost for reconstruction to meet building codes? Is the “ordinance/law” limit sufficient for likely losses?
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