Pollution Liability Cover Helps Clients Fight Mold Exclusions While insurers seek protection from protracted and expensive mold claims through exclusions, insurance brokers have developed answers for their commercial clients insurance needs by utilizing programs designed to deal with environmental liabilities.
By using these programs, explain brokers, both clients and carriers gain control over a risk that has proven costly, and strive to eliminate the circumstances for that risk to thrive in.
"It is an evolving risk issue that the environmental risk industry is learning how to deal with it," observed Alan Bressler, senior vice president, environmental practices for Marsh, the insurance broker arm of Marsh and McLennan Companies based in New York. "And by and large, it is an issue that the property-casualty industry has learned to deal with by excluding coverage for it."
"We see that there are very few carriers in general liability and excess who have not slapped on specific exclusion," he said, noting that the exclusion goes by a lot of different names. "Some just call it a mold exclusion. Some say it is a fungi and microbial spores and matter exclusion. [But] virtually all the casualty carriers forms have excluded it from primary and excess casualty policies."
Filling this void, he explained, is the environmental practices business that is developing coverage for commercial clients. Initially, he said, participants in the environmental insurance market excluded mold from their policies. Later, they would provide coverage, but with very small sublimit. No one, he said, was willing to give full coverage for mold.
However, the situation is changing. With a full risk management program in place, these insurers are beginning to provide more coverage for commercial properties, but it depends on the risk, he said. A manufacturing plant is more likely to get higher limits on coverage than a habitation risk, apartments and office buildings, Mr. Bressler said.
Generally, he explained, before taking on a risk, insurers are steering their clients to consultants that help them develop operations and maintenance programs "in an attempt to help clients to become aware of mold intrusions."
One problem with the mold issue is how quickly it has developed into a risk no one ever contemplated.
John Butler, vice president, PBC Environmental, a wholesale environmental insurance broker in New York City that is part of Kaye Group, noted that the issue only began to take on new meaning beginning in 1999. And it is only within the last two years that the risk has taken on the costly magnitude it has today.
"It is a risk [that] insurers never contemplated insuring," Mr. Butler observed. "Insurers have had to craft language" to deal with a risk "they never contemplated underwriting in the first place," he said.
In his practice, as more and more exclusions arose, Kaye (a subsidiary of Chicago-based insurance broker Hub International) sought its coverage alternative through the environmental insurance marketplace. Like Mr. Bressler, he said the first policies excluded mold, and the risk needed to be added to the policies.
What is different about the environmental market, Mr. Butler notes, is that a partnership develops between the carrier and insured. The partnership takes the initiative by addressing mold early and dealing with any immediate problems before a policy is issued.
Once dealt with, the partners then actively create a program that effectively deals with the issue should a potential mold-causing situation arise.
Insurers are even willing to foot the bill for consultants, beforehand, provided the client purchases its policy, he said.
"Mold has been around for millions of years," said Mr. Butler. "The key is to avoid water intrusion from the outside, or from the inside from leaky plumbing or faulty heating and ventilation systems."
To obtain the policy, Mr. Butler, like Mr. Bressler, said the policyholder must make sure a program is in place that deals with potential problems.
The importance of this is not just that it minimizes the exposure for the insurer, but it also helps a policyholder avoid a contamination problem that the policyholder wants to avoid in the first place.
In return, the insured gets an environmental insurance policy that covers cleanup of pollution conditions, third-party bodily injury and property damage claims arising from pollution conditions, and legal defense costs arising from claims or litigation caused by pollution.
Mr. Butler added that what is critical to getting the endorsement on the pollution policy is putting in place the response plan to prevent mold in the first place. And as far as price is concerned, "it is not a back breaker," he noted. It will add to the insurance costs, but not substantially, he said.
If there is one positive development coming out of this situation, noted Kenneth W. Ayers, chief executive officer of Willis Environmental Practice for London-headquartered Willis Group, Ltd., it is the extension of mold coverage to include the potential for biological contamination. This, he explained, developed among hospital clients who worried about insurance in the case of terrorism.
The concept has so far met with success, he said, as these programs are developed and bound.
Another benefit for the insured, the brokers pointed out, is that the policies cover a three-year period and are renewable.
"Its a good first step," said Mr. Ayers. "The coverage is evolving, and it is not so much that the forms have to be different but [that] the underwriting has to get better. As limits increase, we will get a better underwriting basis for it."
Reproduced from National Underwriter Edition, February 17, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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