Reality Bites

Naturally, when facing such Orwellian nightmare scenarios, where does America turn its eyes? The Oval Office? Deity? FEMA?

No, they look to insurance!

While most people wouldn't automatically seek insurance coverage for what is basically a pest control problem, the sometimes amazingly high estimated costs of ridding a commercial property or residence of these pests raises the natural question of whether current policy forms will provide at least some financial relief. And after a great deal of deep policy language review and complex coverage analysis, I have arrived to a conclusion.

Related: Read Chris Amhrein's September column, "Oh the places we swim."

Before providing this conclusion, it has evidently become standard industry practice to insert some form of disclaimer here to the effect that this article is for informational purposes only, there is no legal advice being suggested or proffered, the author assumes no responsibility or liability for actions taken or not taken by the readers based upon such information, and any quotations from ISO forms are with permission and/or only utilized for educational purposes. In summary, for legal purposes, you're not reading this and I never wrote it.

In the great legal tradition of Internet sites and software packages, if you are still reading, it is conclusively presumed and assumed you have read and accepted the preceding disclaimer. Based upon that assumption, which I'm not saying is legally binding, although I'm sure it must be (see disclaimer above), herewith is my bed bug direct property coverage conclusion.

Not a chance.

Although it would be nice to assume that most of you will simply take my word for it (being a published writer and all), there are no doubt skeptics out there who would appreciate some proof I didn't just pull this off a Magic 8-Ball.

First, from the ISO standard homeowner forms, we find that special causes of loss (ISO HO 00 03 10 00) will not pay for loss caused by (g) Birds, vermin, rodents or insects.

Second, in commercial special causes of loss forms, there is a similar exclusion that even more clearly addresses the issue, reading as follows (from the ISO CP 10 30 06 07): We will not pay for loss or damage caused by or resulting from any of the following: nesting or infestation, or discharge or release of waste products or secretions, by insects, birds, rodents or other animals.

Particularly in the commercial forms (and I've heard the new ISO homeowners forms will update the insect exclusion to wording similar if not identical to the commercial exclusion), it is clear the exclusionary wording hits the question right on the head. The entire uproar over bedbugs arises from the idea that this is not merely a pest problem, but more akin to the insect version of H1N1 flu–a veritable entomological epidemic! "Nesting or infestation" describes the issue quite well.

Note the second part of the exclusion addresses what otherwise might have seemed a potential coverage loophole–or in insurance lingo, an otherwise ensuing cause of loss or concurrent causation. While the pest control/removal or eradication of the insects is excluded, what of ensuing damages? The only specific such damage mentioned to this point in the bedbug discussions are the stains left behind by the bug's nocturnal feeding habits. In fact, those stains appear to be the main evidence of the infestation, as the bugs themselves are quite small and often seemingly disappear during daylight hours. And much of the direct damages due to the bugs may arise from the treatment and removal of same, typically requiring destruction of infested bedding, furniture or other materials. In the named peril forms, there is apparently no specific "ensuing cause of loss" to cite (although explosion might be an interesting idea, if the little buggers suck so much blood they literally go "blooey!" on your mattress). And in the special causes of loss forms, such bloody stains are clearly due to the "release of waste products or secretions" of the insects.

Another potential form of loss or damage to commercial firms would be loss of income, especially if the infestation proved so massive as to require a complete shutdown of the business while the bugs were destroyed, the infested property removed, measures to prevent future infestations applied and new property installed. Because the ISO business income forms utilize the same causes of loss forms as direct property, the coverage conclusions would be the same.

So now that we have reviewed the specific forms language, permit me to re-summarize my property coverage findings: not a chance.

To this point, I haven't seen any big discussion of liability or disease issues arising from the bedbug problem. In fact, much I have read indicates there is no evidence the bugs' blood-sucking habits go beyond nuisance, annoyance and what we scientifically refer to as the "yuck" factor. Of course, for our office workers or other employees, workers' compensation will be the source of recovery.

One thing is clear: the standard liability forms, either personal or commercial, have no exclusionary wording specifically relating to insects. No doubt some enterprising adjuster is even now working up a strategy for citing the pollution exclusion, but I'm not sure that will hold for more than clean-up or pest control damages. For example, if a guest at a hotel claimed bodily injury due to bedbug bites, the pollution exclusion does not appear to bar recovery. But we'll have to wait and see how the specific "bedbug liability" issues arise, if any.

So what, then, is someone begging for a bodacious bedbug blight balm to do? After all, the reported costs of treatment and repair are significant. For example, the full professional treatment for a deeply infested home is estimated to run $2,000 to $3,000.

First, as a long-time proponent of risk management solutions beyond insurance, may I point out insects have long been a thorn in the side of man, and most have survived quite well without the succor of insurance coverage. Termites are a classic example. The latest statistics show that each year, termites and similar pests cause an estimated $30 billion in damage to crops and man-made structures in the U.S. A homeowner who discovers termite damage will spend an average of $3,000 to repair the damage. More than 600,000 homes each year report termite damage. Compare this with U.S. Fire Administration statistics for residential fires in 2008: 403,000 homes and total damages of $8.55 billion (or $2,122 in damages per house). Bugs rule!

Yet while everyone talks fire insurance, we seem to do quite well letting pest control firms (along with their bonds, guarantees and liability coverages) and home remedies address the termite issue.
Second, if the issue continues to gather attention and estimated damages escalate, it's possible, particularly in this soft market, that some creative insurance type will dream up a DIC or customized coverage approach, at least for the major commercial risks.

Bottom line is that just like most of the goblins and ghouls of Halloween, the bedbug issue may be less about the actual damages and more about the mental mayhem. After all, that banshee in "Darby O'Gill and the Little People," the headless horseman of Sleepy Hollow and thousands of campfire ghost stories give millions of kids nightmares, largely because they only come out at night, in the scary darkness where all manner of beast and monster lurk. In the light of day, even the starkest reality never quite seems as frightening as what the dark can do with our imaginations. And here we have our bedbugs: striking only at night, sucking our blood as we sleep and then disappearing with the dawn, leaving only bloody traces to confirm their trespass.

Come to think of it, no wonder the topic has lately caught the imagination of the media–bedbugs are just tiny vampires! Coming soon to a bookstore and theater near you: "Twilight: Breaking Bug" and HBO's new series "True Bug: Bitten in Bon Temps!"

Count Floyd would have loved it