Find the first part of this story here.
Who needs IAQ coverage?
Most insurance producers and buyers have no idea that pollution and fungi/mold/bacteria exclusions can make indoor air quality issues excluded causes of loss.
“Because of these exclusions, every school, commercial building, hotel, condominium and apartment building needs a specially modified environmental impairment liability insurance policy to fill the resulting coverage gaps,” Dybdahl says. “Less than 1% of these buildings have functional environmental insurance in place today.”
That said, some types of buildings need the coverage more than others. As a rule of thumb, older buildings tend to have fewer problems with indoor air quality than newer ones. That’s because they are less airtight, so more fresh air is able to get in from outside and circulate around the building.
And any facility that may have health compromised people in it – hospitals, senior care centers, nursing homes, day-care centers – needs particularly robust coverage for indoor air quality exposures, Pritchard says.
Insurance professionals also may not realize that most general liability policies have a pollution exclusion that applies to a wide range of contaminants, especially in the standard market. Thus, industry experts agree, contractors and consultants tend to have woefully inadequate coverage for indoor air quality exposures, either for bodily injury claims or property damage that could ensue.
“Most of them are completely uncovered from that indoor air quality standpoint,” says Jim Ziogas, assistant vice president at Rockhill Environmental. “When it comes to artisan contractors – plumbers, roofers, HVAC specialists and the like – the vast majority are uncovered.”
At the same time, there has been a growing awareness on the part of the public that they can hold people responsible for environmental exposures, including those having to do with indoor air quality. Homeowners in every state are filing against all manner of contractors, “from the general contractor to plumbers to roofers and even general handymen, alleging that their shoddy work has led to the growth of mold,” Ziogas says. “If they have anything to do with water, they have the possibility of getting sued when it is alleged that the homeowner suffered because of exposure to mold.”
Many contractors go years without facing that kind of a suit, “but all it takes is one uncovered claim for a contractor to realize how expensive it can be to defend against that homeowner who is alleging a wide array of health effects from mold or even carpet fumes,” Ziogas says.
Consultants who are in the business of measuring and testing indoor air quality are also at risk. “Indoor air quality suits tend to revolve around judgment,” Ziogas says. “Consultants make a living testifying, not only to the results of their testing, but their opinion as to the causation of the mold or even the effects of it. I’m concerned as to whether the consultant has adequate coverage in place to backstop those things.”
There are a number of specialized environmental policies that can resolve the gap in coverage for indoor air quality exclusions. These policies can be split into two broad categories: those that cover the buildings themselves (premises or site-specific coverage) and those covering people such as contractors and consultants.
Buildings require an environmental impairment liability [EIL] policy – a basic type of environmental insurance that is written for a specific location and provides coverage for pollution conditions at or emanating from that site. Contractor’s environmental liability insurance covers the same things as EIL, but instead of insuring a specific location, it insures a contractor’s operations. Contractors and consultants must also carry specialized professional liability insurance – without a pollution exclusion – to cover their environmental exposure.
Trends, challenges and opportunities
For a long time, environmental insurance professionals battled the reputation that coverage was too expensive. But today, the soft market means that premiums are at their lowest point in history – making for a buyer’s market and a potentially easy sell for brokers.
“We have seen minimums fall by as much as 50% in a lot of cases,” Ziogas says. “What is available today is also a lot more robust than what was available just five years ago. Often we include optional additional endorsements and enhancements as standard offerings on things that used to be unavailable, or that required a lot of additional information.”
Underwriting also has become more streamlined. “It used to be brutally hard,” Pritchard says. “Now it’s not entirely different from other insurance products. It’s fitting in and becoming more mainstream. That’s a trend that will continue into 2016 and beyond.”
But according to Dybdahl, there is still a long way to go. “The challenge in the sector today is the distribution channel – insurance products are in oversupply,” he says. “Insurance agents either don’t pay attention to pollution exclusions, or what they think they know about them is technically inaccurate.”
Even when agents or brokers do attempt to fill the coverage gaps created by exclusions with environmental insurance, fundamental coverage flaws are very common. “This is especially true when an environmental insurance policy that was originally designed for outdoor use is sold to a customer who needs coverage for indoor environmental loss exposures,” Dybdahl says.
Producers hoping to tap into this market should spend some time examining their existing book of business to identify where there might be indoor air quality exposures.
“Look at the impact and what it would mean for an insured’s business if they had a significant environmental loss,” Pritchard says. “You would be surprised to find there are a number of accounts that would benefit from having more coverage – indoor air quality is an issue for so many Main Street-type businesses.”
To avoid coverage mistakes, most insurance agents and brokers will need to seek out specialists in environmental risk management and insurance. “All the training in the world on traditional property & casualty insurance does not prepare an insurance agent or broker to work with environmental insurance,” Dybdahl says. “A working knowledge of the environmental risks, laws and insurance drivers in certain classes of business is relatively easy to master with a good coach.”
Ultimately, Pritchard advises, “there are two conversations you should be having with your clients: How broadly can you buy coverage? And, how good are your controls? Insurance companies don’t give you everything you want just because you ask for it. Underwriters will give coverage for new conditions or for pre-existing ones, but you have to provide evidence that you have conducted your environmental due diligence before they can consider insuring you for unknown pre-existing conditions.”
“The biggest challenge for producers is to recognize when there is an exposure and to broach the subject,” Ziogas adds. “There is a tremendous opportunity in our marketplace.”
