Pollution Risk At Elder Care Facilities Pose Real, But Underappreciated Threat

But elder care facilities can present an even greater risk and loss exposure to their owners than a manufacturing plant, refinery or waste disposal site that is closely monitored through a loss control program.

Elder care facilities face some of the most dangerous pollution risks of any industry. Their environmental risk profile is much higher because of their full-time occupancy of a fragile population, which completely changes all the rules that apply to other commercial facilities.

The compromised health conditions of the residents that live in these facilities create a "hot zone" where a pollution condition could result in serious injury or death.

To most of the population, pollution conditions such as mold, bacterial outbreaks and viral contamination are little more than an annoyance, whereas they are potentially devastating to elderly residents.

If these conditions result from facility-based causes, such as Legionnaires disease outbreaks from HVAC systems, mold conditions or improper handling of medical waste, the organization in question could potentially face catastrophic exposure to substantial bodily injury claims, including the much-feared class action lawsuit.

In a less dramatic but equally expensive fashion, the fragile resident population could also be physically impacted by conditions not often thought of as pollution: fumes from freshly applied paint, petroleum-based materials in carpeting and furnishings, and properly applied pesticides and herbicides.

Outside air pollution sources, such as industrial and vehicle emissions from loading docks, dumpsters, unsanitary debris or building exhausts near air intakes all present serious everyday risks to these residents.

An intangible but important factor that should be considered when assessing the elder care pollution risk is the greater awareness of environmental issues by newer generations.

Baby boomers and their families have experienced the evolution of environmental issues from Superfund, the Exxon Valdez oil spill, asbestos litigation, toxic mold and even anthrax attacks. Because of these events, they understand there is legal recourse if they are affected by pollution incidents.

RAISING AWARENESS

The understanding of environmental risk and insurance has continued to evolve among a growing variety of industry sectors as risk managers and administrators become more aware of the risk factors that could affect their organizations.

Over the past couple of years, a significant part of this awareness includes the fact that the absolute pollution exclusion contained throughout their standard insurance program took away any chance of recovering financial losses caused by environmental incidents.

One industry that really understands the benefits of specialty environmental insurance as a risk management tool is real estate. Owners of every type of commercial and large residential property have recognized that their exposures to environmental loss, with particular emphasis on indoor air pollution incidents, has produced large judgments and legal expense arising from alleged or real injury and even death to individuals working, visiting and living in their facilities.

From an insurance perspective, the critical lesson this industry learned is that claims resulting from the indoor environment are as much a pollution incident as a leaking oil tank or chemical spill.

Agents are challenged to place an environmental insurance policy for any type of client, but making certain an elder care organization has proper coverage proves much more difficult. Environmental insurers will consider insuring pollution risks involving most industry sectors, but when faced with providing coverage for elder care facilities, they generally take a very conservative underwriting approach.

In view of the magnified risk factors, these policy proposals can be severely limited as to the types of pollution conditions that are covered, with bacterial, mold and viral contamination often, if not always, excluded.

High deductibles and premium cost can also occur with endorsements limiting or eliminating critical coverage such as first party clean-up of pollution conditions and business interruption.

The agent with an elder care facility client should rely on a specialty broker who is not only knowledgeable in environmental risk, but also able to specifically accommodate the unique challenges of this industry.

The conversation an insurance agent never wants to have with a client is one that informs them that there is no coverage available to cover the claim they have just filed or for the damage to their facility.

Pollution-based incidents are one of the most common topics of those conversations, and being unprepared–not having the appropriate environmental coverage solution–could be both the client's and agent's worst nightmare.

A common example is when the discovery of a serious mold condition causes the insured to face a big clean-up and some bodily injury allegations.

The coverage questions will confront the agent in rapid-fire style: Is there a mold exclusion? Does the property policy pay for cleaning up mold? Is there coverage for repairing building damage caused by the mold cleanup? Is mold actually pollution?

The answers will vary from policy to policy, adjuster to adjuster and perhaps lawyer to lawyer, but one thing remains constant–clients want their insurance professionals to make certain their claims are paid.

Introducing environmental risk and insurance to a client is difficult for most agents simply because they don't know that much about it. The easiest way for the agent to assess the pollution risk of their elder care account is to explore with the client the types of incidents that could occur at the facility that would be defined as pollution.

A simple guideline to follow is that pollution takes place when the release of a manmade or organic material into a structure, soil, air or water causes harm to humans or the environment. Once everyone at the table concurs as to what pollution is or is not, then informed decisions can be made on whether to obtain insurance.

Without this process, the agent could someday be locked in an uncomfortable situation with his or her client.

When agents discuss this risk with their clients, it's typical for facility owners to maintain that nothing like that has ever happened, and to question why they should worry about it now.

The fact is that by now, most Americans should know that our ability to predict our economic future is extremely limited. When it comes to environmental matters, the future is not only unpredictable, but whatever rules have been established in the past can change at any moment.

The only way to prepare for an unforeseen crisis is by making certain the elder care client understands how pollution relates to their facilities, and that if they choose to not be covered, then they are bearing those risks on their own.

Communicating this fact should be considered at minimum the responsibility of every agent.

THE BOTTOM LINE

The good news is that environmental insurance is highly affordable and typically will only increase the total cost of the insurance program by a few percentage points.

Equally important as having the coverage to pay claims and expenses is the fact that the insurers provide the highly specialized legal and technical support needed when pollution events occur.

Even without regard to the financial element, an elder care facility is completely unsuited and ill-prepared to respond to pollution incidents that call for multiple sets of attorneys, scientists, mechanical and environmental consultants, and contractors.

The time and personnel required to manage what effectively becomes an environmental insurance claims department can be worse than the cost associated with the appropriate insurance add on.

John Butler leads the environmental insurance practice of Program Brokerage Corp., a provider of specialist expertise to retail brokers throughout the United States and Canada. In addition to the elder care industry, he has developed environmental insurance solutions for energy, manufacturing, banking and real estate. He can be reached at JButler@programbrokerage.com.

This article was originally published by American Agent & Broker magazine, a member of Summit Business Media's P&C Magazine Group, which includes National Underwriter.