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High School
High School
Water Damage
Water Damage
Puts Crews to
Puts Crews to
the Test
the Test
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Changing Times in the Water Damage Industry
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Media Blasting – Three Examples of the Application
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Growing Your Company Profi t in 2011
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w w w . R a n d R m a g o n l i n e . c o m
January/February 2011
About the Author David Dybdahl, MBA, CPCU, ARM is the president of ARMR.Network, LLC., an insurance brokerage and risk consulting firm. ARMR.Network specializes in insuring restoration contractors through independent insurance agents in every state. He can be reached at dybdahl@armr.net or at (608) 836-9590
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n 2004 I predicted that the insur-ance needs of cleaning and restoration contractors would change dramatically if the insurance industry went ahead with their plans to universally exclude mold claims from the insurance policies of property owners, contractors and even insurance agent’s professional liability in-surance policies.Specifi cally what I predicted was: •
• Insurance companies would force uni-versal exclusion for mold into insurance policies.
•
• Insurance companies would avoid writ-ing insurance on anybody involved with mold remediation.
•
• The environmental insurance market place would step in and insure cleaning and restoration contractors.
So what actually happened? The in-surance companies did introduce mold exclusions in property and liability insur-ance policies, just as predicted. But by 2006 the exclusions were more restrictive than I had anticipated. Not only does the typical mold exclusion delete the insur-ance coverage for being a mold clean-up contractor, they essentially exclude being in the water restoration and the micro-bial decontamination part of the cleaning business as well. Surprised? So was I.
Here is how the insurance companies eliminated a lot of the standard liability insurance coverage for cleaning, drying and mold contractors by the introduction of one exclusionary endorsement target-ing mold claims. Although the actual ex-clusions in insurance policies vary, a typi-cal Fungus/Bacteria exclusion produced by the Insurance Services Offi ces for use in Commercial General Liability insur-ance policies will read:
This insurance does not apply to:
Fungi Or Bacteria
Special Insurance
Special Insurance
Needs For Cleaning, Drying
Needs For Cleaning, Drying
and Restoration Contractors
and Restoration Contractors
By David J. Dybdahl
R e s to r a t i o n & R e m e d i a t i o n | J a n u a r y / F e b r u a r y 2 011
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Special Insurance Needs For Cleaning, Drying and Restoration Contractors Continued
a. “Bodily injury” or “property damage” which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any “ fungi” or bacteria on or with-in a buildwith-ing or structure, with-includwith-ing its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage.
b. Any loss, cost or expenses arising out of the abating, testing for, monitoring, cleaning up, removing, containing, treating, detoxi-fying, neutralizing, remediating or disposing of, or in any way responding to, or assessing the effects of, “ fungi” or bacteria, by any insured or by any other person or entity.
What does this exclusion on the General Liability insurance re-ally do to a contractor’s liability insurance policy? Well no body knows for sure because they are relatively new exclusions that have not been fully tested in civil court. In my informed opinion as an expert witness in multiple Federal courts on related top-ics, this exclusion eliminates a lot more insurance coverage than most people realize for any fi rm who works with cleaning bacte-ria, Category 3 water and/or mold.
Here is how the fungus/bacteria exclusion can take over an insurance policy anytime an insurance company wants to walk
away from a loss. First, this exclusion is an endorsement to the policy, so it automatically overrides the other provisions in the insurance policy. Although commonly referred to in insurance circles as the “Mold” exclusion, the word after fungus in the ex-clusion (which includes mold in its defi nition) is “bacteria.” As written, the exclusion blows out the liability insurance coverage for both sources of contaminates if the liability claim against the insured party is even partially based on the threatened existence of these materials.
Anybody who is IICRC mold-certifi ed knows that mold spores are omnipresent in the plant earth. The fi rst part of the exclusion becomes effective at the threatened existence of something that is already at every job site, wow. Referring back to S500, the IICRC water damage restoration standard, by defi nition this exclusion would also apply to Category 3 water, which would then include work on backed-up sewers and fl oods, common work for all water remediators and a lot of cleaning contractors as well.
The phrase in section “a” of the exclusion that begins “…regard-less of whether any other cause…..” was originally created for the fl ood exclusion in property insurance policies around 1983. In insurance lingo, that section of the fungus/bacteria exclusion is referred to as the anti concurrent causation section of the exclu-sion, although the words anti concurrent causation are not used in the verbiage.
This is the fi rst time the anti concurrent causation clause has been used in the General Liability policy. Although the affects of these terms in a liability insurance policy is not well known at this time, the effect of the anti concurrent causation clause on property insurance policies is very well known.
As any contractor who is trying to collect for their work under a property policy knows, a fl ood exclusion on a property policy knocks out all the insurance coverage if a fl ood in any sequence of events caused even part of the loss. Now the same words are sitting in the General Liability insurance policy of every cleaning and restoration contractor in North America. Note there is no reference in the exclusion to how much or what type of fungus or bacteria needs to be threatening to exist before this exclusion takes over the entire insurance policy.
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ity to deny a liability loss that involves even a threatened speck of any type of fungus or bacteria as part of or in any se-quence to the overall loss.
As tough as the fi rst part of the fungus /bacteria exclusion is, the second part of the exclusion, section “b,” is worse for cleaning and restoration contractors. With essentially any combination of events resulting in a claim that involves even a threatened speck of any type of fungus or bacteria being completely ex-cluded from the policy, what would the purpose of section b of the ISO fungus/ bacteria exclusion serve?
I can only think of one thing. This is the “you-cannot-be-in-the-water-resto- ration-mold-remediation-or-the-anti-microbial-cleaning-business” exclusion in the core business liability policy pur-chased by fi rms. Under the words in sec-tion b, the General Liability policy will become totally null and void once a con-tactor shows up at a job to “ in any way access or respond to fungus or bacteria.”
The main difference between this part of the fungus bacteria exclusion and the fi rst part is this section does not require expo-sure to or the threatened existence of the materials to take over the entire insurance policy including the insurance company’s duty to defend the insured. For example as soon as the contractor shows up at a job to access or respond to Category 3 water loss technically the GL policy is void when he or she walks in the door. If the contrac-tor causes a fi re on a Category 3 water loss, the fi re would excluded by section b of the exclusion even if there was no exposure to fungus or bacteria. That is because it is the job itself, not just a loss resulting from
ex-My crystal ball on prediction no. 2 was not as clear. Traditional insurance compa-nies continue to insure cleaning and res-toration fi rms, and why not sell insurance if you can charge top dollar on liability insurance policies with a “you cannot be
on their General Liability insurance poli-cies in spite of the fungus/bacteria exclu-sions. Apparently, from the loss runs we review in our insurance brokerage opera-tions, claims adjusters on liability claims against cleaning and restoration
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Special Insurance Needs For Cleaning, Drying and Restoration Contractors Continued
tors are not reading their fungus and bac-teria exclusions in reference to the IICRC S500 and S520 professional standards for water and mold remediation. As a result, many liability claims against contractors are being paid today under general liabil-ity insurance policies that are simply not covered because of the far reaching effects of fungus and bacteria exclusions.
It is only about a 20-minute project to connect the dots between the words in the fungus/bacteria exclusions and the words in the ANSI-accredited IICRC documents. With insurance company profi ts squeezed in 2010, eventually the claims adjusters will fi gure out how far reaching the fungus/bacteria exclusions in their policies really are. I do not expect the benevolent behavior of the insurance companies of not pulling the trigger on fungus / bacteria exclusions in General Liability insurance policies to continue.
Did prediction No. 3 from 2004 come true? That’s a defi nite yes; the environ-mental insurance market targeted restora-tion contractors for an area of growth in their product line. The number of sellers of Contractors Pollution Liability insur-ance has grown tenfold since 2004 and the price of insuring for mold, fungus , bac-teria, lead, asbestos, anti-microbials and a wide range of other “pollutants’ has fallen tenfold as well in the same time period.
Although the quality of the CPL cover-age varies a great deal in the various of-ferings in the market place, overall the CPL coverage sold today is better than the General Liability insurance being sold to water and restoration contractors. At least most CPL insurance policies do
not have a “you cannot be in the busi-ness” exclusion.
The only way to correct the material coverage defect in the General Liability policies sold to cleaning and restoration contractors is to purchase a combined General Liability and Contractors Pollu-tion Liability insurance policy from the environmental insurance market. (In the interest of full disclosure, let me tell you that I personally pioneered the adaptation of combined GL/CPL insurance policies, which were originally developed for nu-clear weapons plant cleanup contractors for use in the cleaning and restoration business. My employer actively sells these policies, which are now offered by 10 dif-ferent insurance companies. )
From reviewing hundreds of actual insurance policies sold to cleaning and restoration contractors, we know that 80% of all the cleaning and restoration contractors have fundamentally fl awed li-ability insurance programs in place today. The coverage fl aws are primarily because either the fi rm does not purchase CPL coverage, which is common with cleaning fi rms that mistakenly think the effects of fungus/mold exclusions are limited to mold contractors, or the contractor buys a separate CPL insurance policy and a sepa-rate GL policy.
In addition to wasting premium dollars in this ineffi cient design, the purchase of separate Contractors Pollution Liability insurance can never fi ll the gap in insur-ance coverage created by the “you can-not be in the business exclusion” in the General Liability policy. Any insurance program on a cleaning and restoration
fi rm that has these two vitally important liability insurance policy forms with sep-arate insurance companies is fundamen-tally fl awed in its design because of the irresolvable coverage gap between the GL and the CPL policy.
The combined GL/CPL policy forms sold to cleaning and restoration contrac-tors are not standardized in the insurance industry, they are not reviewed and ap-proved by insurance commissioners, and they vary a great deal in their quality.
To help insurance agents through the coverage morass in these unregulated policy forms, the Independent Agents of America has introduced a customized policy for cleaning and restoration fi rms. These insurance products are available in every state through any of their two hun-dred thousand member “Trusted Choice” agents in the United States over an Inter-net-based market access facility called Big I Markets. Contractors seeking a state-of-the-art solution for their liability insur-ance needs can now go to any independent insurance agent in the U.S. and access the customized insurance package that is es-sentially free of fundamental design fl aws. Allstate insurance agents also have access to customized insurance programs for cleaning and restoration contractors but it requires a home offi ce referral to access the product line. Good quality insurance for the cleaning and restoration business is readily available and accessible.
In summary, my predictions played out from the insurance company side. How-ever, the cleaning and restoration contrac-tors and the fi rms that employ them did not respond to the universal introduction of the “you cannot be in the business” ex-clusion in the way I had anticipated.
The current situation is actually irratio-nal from a risk management stand point. Why bother purchasing or requiring a li-ability insurance policy that fundamen-tally excludes what the fi rm does for a liv-ing? Because the fungus and mold exclu-sion are so little understood by insurance practitioners relative to the work of clean-ing and restoration contractors, we are stuck in this unfortunate state of affairs with cleaning and restoration contractors purchasing fundamentally fl awed busi-ness liability insurance packages.
