In addition to physical damage caused by an insured peril, there may be significant costs incurred by an insured to remove debris following a loss. Most property insurance policies include payments for debris removal as an “additional coverage.” Typically, if the total of the debris removal expenses plus the amount for direct physical loss exceeds the policy’s limit, the policy provides an additional amount for the debris removal expenses.
In a recent decision,1 a New York federal court held that the dismantling of a building after it suffered a covered loss constitutes “Debris Removal” under an insurance policy. In that case, a fire caused damage to part-but not all-of the insured’s multi-story residential building. The insurer paid the insured the full policy limit for damage to the building. The insurer also paid the insured approximately $340,000 for debris removal, which consisted of the costs to cart away and dispose of material that had been removed and/or dismantled from the building, as well as the costs of supervisory labor.
Under the policy, there was an additional limit of up to $500,000 for “Debris Removal” that was triggered if the sum of the damage to the building and the debris removal expense exceeded the limit of insurance. The insured claimed it was entitled to the remaining balance of the “Debris Removal” additional limit because it was necessary to tear off and dismantle the debris still attached to the fire-damaged building. However, the insurer maintained the cost to physically detach material from a damaged building constituted “demolition costs” rather than debris removal, and therefore could not be included or paid for under the separate additional limit for debris removal.
The court held that a commonsense interpretation of the policy’s terms clearly leads to the conclusion that the dismantling of the destroyed building constituted “Debris Removal.” The court noted that it logically follows that the “necessary and reasonable clause” within the “Debris Removal” provision addresses the fact that often debris cannot be removed without the expense of first extracting it from the building. The court declined to follow a previous New Jersey federal court’s determination that “debris removal” costs did not include the costs of demolition of the damaged property, but were limited to the costs of removing debris from the property and transporting it away from the damaged property.
1 Annal Mgmt. Co. v. Travelers Excess & Surplus Lines Co., No. 19-1450, 2020 WL 5659508 (S.D.N.Y. Sept. 23, 2020).