Under-insurance can have wider ramifications than some business owners realise, particularly when it comes to cleaning up after a catastrophic event. Even before you start to repair or rebuild, cleaning up is costly.

But it’s all covered by insurance isn’t it?

After going through the trauma of a natural disaster or other significant event such as a major fire, many business owners are surprised to find that there is a cap on the amount they can claim for the cost of removing debris. These are known as sub-limits and can be a set figure, say $100,000, or a percentage, usually 10% of the sum insured.

Neither of these may be adequate for a business which is under-insured.

In a recent example following the floods in Queensland, a building owner was surprised to learn that the cost of pumping out an underground carpark was $500,000.

The Managing Director of risk assessment advisers, LMI Group, Dr Allan Manning, warns that many sums insured may not be sufficient to cover clean-up, particularly if the debris includes toxic or dangerous waste such as asbestos product

In recent claims involving a paint manufacturer in one case, and a supplier of agricultural chemicals in another, the relevant State Environmental Protection Authority (EPA) insisted on very stringent procedures to remove the debris including the burying of the contaminated material in large concrete canisters. This resulted in the cost of removing the debris exceeding the cost of rebuilding the damaged building, he said.

Dr Manning said the location of the building, for example on a main road, may also have an impact on cost. This may involve traffic diversions or special parking permits. All this adds to the cost. In more remote locations the expense of removing environmentally dangerous debris can be considerably increased if there is no tip nearby that is licensed to receive the waste material.

“There have been reported cases where the EPA is not certain themselves on how to best dispose of some debris. This can mean the storage of the material for an extended period until agreement can be reached on how disposal is to take place, which again involves more cost.”

Another problem arises if a tenant abandons their debris leaving the landlord to meet the cost of removal. “An allowance for this eventuality is recommended as the time taken to track down and seek recovery from the tenants often slows down the reinstatement process. This is particularly the case where the tenant elected not to insure, not insure adequately or not insure for flood where the loss was caused by flood,” he said.

Dr Manning said an important aspect of typical packaged policies was that cover for the removal of debris usually included the insured’s liability to clean up nearby property as well as roadways, railways, and waterways.

“What many people do not appreciate is that Environmental Protection Authorities have the power to order an insured to remove the debris that escapes from their premises as a result of a fire regardless of what caused the fire. Remember that the soot and smoke from a fire does not necessarily go straight up and come straight down where it started. Similarly, water used to fight the fire will not necessarily be confined to the insured’s property.”

“What many people do not appreciate is that Environmental Protection Authorities have the power to order an insured to remove the debris that escapes from their premises as a result of a fire regardless of what caused the fire. Remember that the soot and smoke from a fire does not necessarily go straight up and come straight down where it started. Similarly, water used to fight the fire will not necessarily be confined to the insured’s property.”