After a major fire, the bill for reinstatement is the largest item, but far from the only one. The ruins of the burnt-out hall have to be demolished and taken away; the fire brigade's firefighting water soaks the remaining structure, the machinery and the stock; the remains of burnt insulation, batteries, paints and chemicals are hazardous waste, which only a licensed company may remove; and the fees of the structural engineer, the fire safety expert and the loss adjuster are a separate line. As a broker, I see this as the most common “we didn't think of that” point in large fire losses: the company sizes the sum insured for the building and the machinery, but the policy conditions treat these additional items not as part of the reinstatement cost but as a separate, limited cost reimbursement. In this article I go through which costs belong here, where the typical limits lie, what the position is on firefighting water and hazardous waste, and what is worth doing when taking out the policy and when a loss occurs.
- According to guidance from MABISZ (the Hungarian insurers' association), debris removal costs and expert fees are covered separately in commercial property insurance, with a stated indemnity limit – they are not paid automatically on top of the sum insured for the property.
- In Hungarian policy conditions, the limit is typically a few per cent of the sum insured or a separately fixed amount; several sets of conditions expressly exclude the removal and disposal of hazardous waste from the definition of debris removal.
- In Hungarian policy conditions, damage caused by firefighting is typically part of the fire damage or a named cost reimbursement item, and under the indemnity insurance rules of the Hungarian Civil Code (Ptk.) the necessary costs of loss mitigation are borne by the insurer – but both have to be supported with invoices and photos.
Why is debris removal a separate item?
The logic of property insurance is simple: the sum insured expresses the value of the property – the building, the machinery, the stock – and within that framework the insurer pays for the damage to the property. Debris removal, demolition and the removal of rubble, however, are not part of the value of the property but a new cost that arises because of the loss. That is why the policy conditions treat them separately: the information notice on property and engineering insurance issued by the Industrial and Technical Insurance Committee of MABISZ (the Hungarian insurers' association) lists among the usual elements of property insurance “cover for debris removal costs and expert fees arising in the event of a loss, with an indemnity limit specified”. In practice, this means that the policy or the conditions contain a cost reimbursement limit – in Hungarian conditions typically a few per cent of the sum insured or a separately fixed forint amount, varying by insurer and product – and the insurer pays these costs up to that limit. Some conditions pay these costs only if the contract specifies a separate sum insured for them – if this line is missing from the policy, there is no cover for debris removal at all. If the limit applies to the entire site, the demolition and removal costs of one large hall can easily exhaust it, and the difference stays with the company. The article on the anatomy of fire and explosion losses describes the structure of the main loss – this article is about the additional costs that are only mentioned there.
Firefighting water and demolition during firefighting: fire damage or a separate cost?
Firefighting itself causes damage: firefighting water and foam soak the lower floors, the warehouse stock and the electrical equipment, and the firefighters break open walls, roofs, doors and windows to stop the fire spreading. Hungarian policy conditions typically treat damage caused during firefighting as part of the fire insured event, or name firefighting and salvage costs among the cost reimbursements; the commercial fire and natural perils conditions of one Hungarian insurer, for example, list “salvage, firefighting, demolition, debris and remains removal costs” as an insurable cost item, with a separate sum insured to be specified. Not every set of conditions says this as clearly, so it is worth reading the definition of fire and the cost reimbursement clause of your own conditions together: if damage caused by firefighting is part of the fire damage, it is paid from the sum insured of the property; if it is a cost reimbursement, it is paid from the cost limit. In a large fire, the difference can run into millions of forints. Demolition ordered by an authority is a separate question: if the building authority orders the demolition of a structure that is a danger to life, under the policy conditions this is typically part of the demolition costs, but the extra cost of building to a more modern standard than the pre-fire condition because of new regulations is typically covered only by a separate clause. Damage caused by firefighting water to a neighbouring property, on the other hand, is no longer a matter for your own property insurance but a liability question – this is covered in the article on the boundary between your own loss and damage you cause.
Hazardous waste: the most expensive and most often excluded item
Part of the debris after a fire is not ordinary construction waste. Burnt plastic, thermal insulation, oil-contaminated soil and the remains of batteries and chemicals may qualify as hazardous waste under Act CLXXXV of 2012 on Waste, and the holder of the waste may hand it over only to an operator licensed for this purpose, in a documented way. This item is expensive, and this is exactly where one of the sharp boundaries in the conditions lies: the commercial fire insurance conditions mentioned above expressly exclude from debris removal costs “the costs related to the removal, placement and destruction of hazardous waste”. Other conditions cover the removal of contaminated soil with a separate limit or clause, while still others exclude all costs connected with environmental pollution – this varies by insurer, and few people check it when taking out the policy. As a broker, my recommendation is that anyone who stores chemicals, batteries, oil or large quantities of plastic should specifically look for the sentence on hazardous waste in the conditions, because in a loss this can be the largest unreimbursed cost.
Experts, loss mitigation, official requirements
According to the MABISZ notice, expert fees are also limited cover, and the conditions often make them subject to a further condition: the conditions mentioned above, for example, pay them only “if the insurer has given its prior written consent to the involvement and appointment of the expert”. Anyone who appoints their own structural engineer or fire safety expert the day after the loss may therefore find out afterwards that the insurer does not reimburse the fee – it is worth asking for the insurer's written approval before making the appointment. The cost of loss mitigation rests on a different legal basis: under the indemnity insurance rules of the Ptk., the necessary costs of loss mitigation are borne by the insurer within the limits of the sum insured even if the mitigation was unsuccessful. Temporary roofing after the fire, pumping out water, removing the remaining stock and drying belong here – but these, too, can only be proven with invoices and with photos taken before and after the loss. Finally, an important distinction: the extra cost of a temporary plant, a rented hall or outsourced production is not a cost reimbursement under property insurance but the subject of business interruption insurance; if you have not taken out such cover, the insurer does not pay this under that heading, however justified the expense was.
What should the company do when taking out the policy and after the loss?
When taking out the policy, ask how high the limit for debris removal, demolition and expert costs is, whether it is a percentage of the sum insured or a separate amount, whether it applies per site or per asset group, and whether the removal of hazardous waste and contaminated soil is included. If the site has a large mass to be demolished or a lot of hazardous material, raising the limit or adding a separate clause is typically a small item compared with the premium – raising the cost limit does not change the underinsurance assessment of the property, but some conditions also apply proportional indemnity to cost reimbursement – this varies from one set of conditions to another. After the loss, collect every additional invoice separately: demolition, skips, transport, the documents proving the handover of hazardous waste, pumping, drying, temporary protection; ask for the insurer's written consent before appointing an expert; keep the documents from the fire brigade and the authorities – the course of the first days is described in the article on the first days after a fire. The primary route for reporting a claim is the insurer's claims line; if the case gets stuck or becomes disputed over the cost items, I help where I can on the company's behalf – by reviewing the conditions and the loss calculation item by item. I cannot promise anything: the insurer pays only for what is an insured event under your contract, and only up to the limit set in the policy for cost reimbursement.
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Sources
- MABISZ (Hungarian insurers' association) Industrial and Technical Insurance Committee: Information notice on property, engineering and business interruption insurance (closed 20 December 2019) – Chapter I: cover for debris removal and expert costs with an indemnity limit
- CIG Pannónia: Special policy conditions for commercial fire and natural perils insurance (CP-10200, effective from 15 July 2021), clause 5.4 – salvage, firefighting, demolition and debris removal costs; exclusion of hazardous waste; expert costs subject to prior consent
- Hungarian Civil Code (Ptk.) – Act V of 2013, indemnity insurance rules (necessary costs of loss mitigation, sum insured)
- Waste Act (Ht.) – Act CLXXXV of 2012 on Waste (obligations of the waste holder, handover of hazardous waste to a licensed operator)
