1. Forms
2. CP
3. CP-04-02

Form CP 04 02 - Debris Removal Additional Insurance

1. What the form is

The CP 04 02, Debris Removal Additional Insurance endorsement, is a commercial property insurance form used to increase the amount of coverage available for debris removal expenses following a covered loss. The standard Building and Personal Property Coverage Form (CP 00 10) includes a basic level of debris removal coverage as an Additional Coverage. This base coverage is typically limited to 25% of the amount paid for the direct physical loss or damage, plus the deductible. If this amount, plus the direct loss, exceeds the Limit of Insurance, or if the debris removal expense itself exceeds that 25% threshold, an additional, often modest, amount (e.g., $10,000 or $25,000 depending on the policy edition) is provided. The CP 04 02 endorsement allows the insured to purchase a higher, specific limit for debris removal that applies in addition to these automatically provided amounts, ensuring more adequate coverage for potentially significant clean-up costs.

2. Classes of business it applies to

This endorsement is relevant for a wide range of commercial enterprises, particularly those with a high potential for substantial debris following a loss. Examples include:

• Manufacturing facilities: Businesses with heavy machinery, raw materials, and finished goods can generate significant debris if a fire, explosion, or other covered peril occurs.
• Warehouses and distribution centers: Large inventories of stored goods can result in extensive debris requiring removal.
• Older buildings or those with complex construction: Demolition and removal of debris from such structures can be more costly. For example, a historic downtown building undergoing renovation that suffers a partial collapse due to a covered windstorm would likely incur substantial debris removal costs.
• Businesses with significant outdoor property: While the standard debris removal coverage primarily addresses debris of Covered Property, and has limitations for outdoor items like trees and shrubs, extensive damage to buildings can scatter debris over a large area, increasing cleanup costs.
• Properties in areas prone to natural disasters: Businesses in hurricane, tornado, or earthquake-prone regions may face widespread debris. Imagine a coastal retail shop heavily damaged by a hurricane; the cost to remove building remnants and storm-deposited debris could easily exceed standard limits.
• Tenant-occupied buildings where the tenant has a contractual responsibility for debris removal.

3. Special considerations

• Adequacy of Limits: The primary consideration is whether the standard debris removal coverage provided in the CP 00 10 (or other applicable coverage form) is sufficient. A significant loss can easily exhaust the basic limit, leaving the insured with substantial out-of-pocket expenses. For instance, if a $1 million building is a total loss, the base 25% for debris removal would be $250,000. If actual debris removal costs $400,000, the CP 04 02 would be crucial.
• Reporting Requirement: Debris removal expenses must typically be reported to the insurer in writing within 180 days of the direct physical loss or damage.
• Covered Debris: Coverage applies to debris of "Covered Property" damaged by a "Covered Cause of Loss." There may be limited coverage (e.g., $5,000) for removal of debris of property not owned by the insured but on the insured's premises.
• Pollutants: The standard debris removal coverage often includes the extra cost of cleaning up and disposing of hazardous materials that are part of the Covered Property debris. However, it generally does not cover the cost to extract pollutants from land or water, or to remove, restore, or replace polluted land or water. Separate Pollutant Clean Up and Removal coverage may be needed for such exposures.
• Valuation: The cost of debris removal is not typically subject to a coinsurance penalty in the same way direct property damage might be, but the underlying direct damage loss payment (which forms the basis for the 25% calculation) can be affected by coinsurance.
• Interaction with Ordinance or Law Coverage: If building codes require demolition of undamaged portions of a building, the debris removal costs for that undamaged portion might fall under Ordinance or Law Coverage (CP 04 05) rather than, or in addition to, the standard Debris Removal coverage.

4. Key information for agents and underwriters

• Risk Assessment: Underwriters need to evaluate the potential for debris generation based on the insured's operations, building construction, materials used, and geographic location. A plastics manufacturer will likely have different (and potentially more expensive) debris removal needs than an office building.
• Pricing: The premium for the CP 04 02 will be based on the additional limit of insurance selected. This reflects the increased exposure the insurer is taking on.
• Coverage Gaps: Agents should discuss the potential for debris removal costs to exceed the automatic coverage provided by the CP 00 10, especially for clients with high-value properties, complex structures, or those handling materials that are costly to remove or dispose of. It's crucial to explain that the base coverage is a percentage of the paid loss, not necessarily the total property value.
• Underwriting Guidelines:
  • Consider the type and amount of personal property and building materials. Heavier, more hazardous, or difficult-to-access materials will increase debris removal costs.
  • Proximity to disposal sites and local landfill costs can significantly impact the expense.
  • The potential for contamination (e.g., asbestos in older buildings) should be factored in, though pollution exclusion limitations must be kept in mind.
  • For businesses undergoing construction or renovation, the Builders Risk Coverage Form (CP 00 20) also has debris removal provisions and may also need to be supplemented by the CP 04 02 (or its equivalent, CP 04 15 for Builders Risk).
• Loss Scenarios: Presenting clients with realistic loss scenarios can help illustrate the need for this additional coverage. For example, a fire gutting a multi-story manufacturing plant could result in debris removal costs that are a significant percentage of the total property value, far exceeding the standard 25% of the direct damage payout plus the small additional flat amount.