I do not have ARMA 3 - I use VBS3 with Dev Tools which comes with O2 for setting up models and I believe it's the same process used to create ARMA 3 content.
I have been using O2 for a few years now but this is the first time I have had to do anything which requires the setup of an Underground LOD. I am setting up a building with a basement and as per the documentation I have setup the Underground LOD and I can successfully travel down to the basement without the Terrain interferring, however the objects which I have placed in the basement via proxies are all clipped i.e. can only see the top-half of the model. The model used in the Underground LOD is basically a massive box which exceeds the building dimensions so I do not believe this is causing the clipping. Any advice would be greatly appreciated.
Screenshot from VBS showing the bottom of proxies are masked/clipped from view
Underground LOD showing that proxies have clearance.