If a loss involves a minute quantity of Category 3 water, the
entire loss is likely excluded or severely sublimited through
the effects of universal fungus/bacteria exclusions in liability
and property insurance policies. Because water intrusion losses
are so prevalent in the built environment, they have loss
content approximating half the losses caused by the peril fire.
A significant part of all water losses involves Category 3 water
in some way.
For this much insurance coverage to be eliminated
without a whimper of protest from the affected stakeholders,
there must have been a Special Forces unit of the insurance
industry operating out of a secret underground bunker. Those
Special Forces commandos were ordered by the top brass in the
insurance industry to eliminate insurance coverage for Category
3 water on millions of water damage insurance claims. To have
such a broadscale effect on an entire industry, the Special
Forces unit actively coordinated its activities with specially
trained covert operatives in insurance companies on a
countrywide basis to protect the financial performance of the
insurance companies for which they worked. The Special Forces
accomplished their mission over 4 years, without detection, by
using the best available stealth technology in the business
world. Nobody knows where this Special Forces bunker is because
it is a dark secret, closely held by the insurance companies
that the Special Forces protect.
This is one explanation of
how Category 3 water losses were excluded or severely sublimited
on hundreds of millions of insurance contracts without being
detected by insurance regulators, insurance buyers, claim
adjusters, or the insurance distribution system. The US military
could take lessons from secret Special Forces operations in
insurance companies on how to operate in full daylight to
accomplish a covert mission affecting millions of people and
remain undetected for years.
Another more plausible
explanation of how Category 3 water exclusions were successfully
introduced into the insurance industry completely without
detection is that it is easy to keep a secret message if the
message is so obscure and complicated that nobody understands
the message unless the reader has a special decoder device. In
this article, I will use a special decoder device to reveal the
secrets of the three categories of water. The actual decoder
device I will use is the
IICRC S500
Standard and Reference Guide for Professional Water Damage
Restoration. The definitions of the
different categories of water in the S500 document dramatically
affect insurance coverage determinations because of the relative
recent addition of exclusions for fungi and bacteria into
virtually all forms of insurance contracts.
The public has
wide access to the S500 document; it is an actual book. Anyone
can purchase the S500 from the Institute of Inspection Cleaning
and Restoration Certification (IICRC) website at www.iicrc.org.
Every word in the S500 standard is drafted by a consensus
drafting committee. In the third edition, that consensus
drafting committee consisted of 60 subject matter experts who
also considered literally thousands of public comments on the
language in the standard. The S500 standard is accredited by the
American National Standard Institute and is used globally.
Originally published in 1994, the S500 is now going into its
fourth edition. The S500 standard is used by approximately
64,000 certified water restoration technicians who go to work
every day on projects mostly paid for through thousands of
insurance claim adjusters. The best-informed insurance adjusters
actually require that their water remediation contractors be
IICRC-certified under the S500 standards.
The Three Categories
of Water
The 64,000 IICRC-certified professional water
restoration technicians have learned in their certification
courses that there are three categories of water. The
information below is taken directly from the S500 standard.
9.6
Determining the Category of Water 1
The
Categories of water, as defined in this document refer to the
range of contamination in water, considering its originating
source and its quality after it contacts materials present on
the job site. Time and temperature can also affect the quality
of water thereby changing its Category.
Category 1
water—Originates from a sanitary source and does
not pose a risk from dermal, ingestion or inhalation exposure.
The cleanliness of Category 1 water can deteriorate to Category
2 or 3 due to … contact with building materials, soil …
Category
2 water—Contains significant contamination and
has the potential to cause discomfort or sickness if contacted
or consumed by humans.
Category 3 water—Is
grossly contaminated2 and can contain pathogenic, toxigenic, or
other harmful agents. Examples can include but are not limited
to sewage, toilet backflows that originate from beyond the
toilet trap regardless of the visible content or color; all
forms of flooding from seawater; ground surface water and rising
water from rivers or streams; and other contaminated water
entering or affecting the indoor environment such as wind driven
rain from hurricanes, tropical storms or other weather related
events. Such water may carry silt, organic matter, pesticides,
heavy metals, regulated materials, or toxic organic substances.
Contamination from bacteria
is one of the key distinguishing
factors between Category 2 water and Category 3 water. Category
3 water is classified as Category 3 because of the contamination
including bacteria and other microorganisms that it contains.
Because fungus- and bacteria-related losses are specifically
excluded or sublimited in virtually all insurance contracts
today, any loss involving Category 3 water should trigger the
fungus/bacteria limitations of coverage.
Insurance Limitations
on Category 3 Water-Related Losses
The words "Category 3
water" do not appear in insurance contracts. To find where
losses related to Category 3 water became excluded, all one has
to do is look for the word "bacteria" or "contamination" in
insurance contracts. The word "bacteria" does appear in most
exclusions naively referred to by insurance practitioners as
"mold exclusions." The word "bacteria" appears after the word
"fungus" in these widely used exclusions. Mold is a form of
fungus. By default, "mold exclusions" apply to Category 3 water
as well, and there is a lot more Category 3 water in the built
environment than there is mold.
Why did the secret Special
Forces operatives exclude bacteria when they were really trying
to get rid of mold losses in response to the "toxic mold" scare
at the turn of the century? Down in their secret bunker, they
knew from their aboveground spies that, in every place where the
indoor environmental conditions were favorable to grow mold,
they would find bacteria colonies actively growing in the same
place with the bacteria using mold as their food source. The
Special Forces knew that, where you find mold, you are likely to
find bacteria, and both of these microorganisms need a wet
environment to thrive. To avoid paying mold losses as bacteria
losses, the solution was simple—exclude all losses related to
either one no matter what other causes of losses may be going on
at the same time. Since the efficient proximate cause of the
growth of fungi and bacteria in most buildings is water
intrusion, the insurance coverage needed to be eliminated for
the water intrusion events that lead to the introduction or
growth of the microorganisms to avoid paying mold/bacteria
losses as water losses. Those drivers were behind the
introduction of universal fungus/bacteria coverage limitations
around 2005.
In operation, fungus/bacteria exclusions are a
variation of a pollution exclusion and apply specifically to
losses that are associated with these two contaminants. By
incorporating anti-concurrent causation language from the flood
exclusion section of a property insurance policy, the exclusions
for fungus and bacteria are by far the most onerous pollution
exclusions ever conceived in the insurance industry.
Most-Excluded "Pollutant"
Water intrusion into buildings
is a very common cause of loss in the insurance business. With
the introduction of newly crafted fungus/bacteria exclusions
between 2004 and 2006, Category 3 water became the most
successfully excluded pollutant in the history of insurance.
Category 3 water was excluded faster and on a wider scale than
even terrorism losses, and none of the stakeholders in insurance
coverage did anything to protest. Utilizing "mold exclusions" as
a cloaking device to camouflage the exclusion of Category 3
water losses, insurance companies have successfully offloaded at
their total discretion roughly the loss content equivalent of
half of the losses caused by fires, and they never had to reduce
their rates in their regulated lines of coverage. The Special
Forces operatives all deserve service medals of honor for the
successful completion of their mission; but they could never
accept the medals because their secret identities would be
blown.
How Were Losses Related to Category 3 Water Excluded?
In the interest of space, let me limit this discussion
to Category 3 water and the commercial general liability (CGL)
policy. The same analytics apply to property insurance and to
mold as an excluded cause of loss.
"Fungus/Bacteria"
Exclusions. As a point of reference, because
Category 3 water, by definition, is Category 3 because of the
bacteria it contains along with other contaminants, for
insurance purposes, everywhere the word "bacteria" appears in an
insurance policy, "Category 3 water" can be inserted in its
stead. In the vast majority of cases, the right coverage
determination will be reached. In practice, it is hard to find
defined Category 3 water without a speck of bacteria in it, and
a speck of bacteria is all it takes to trigger the common
fungus/bacteria exclusion endorsement in the CGL policy.
Following the single-speck rule, some Category 2 water could
also trigger fungus/bacteria exclusions because most even
slightly contaminated water contains some bacteria.
Although
the actual exclusions for losses associated with fungi and
bacteria in CGL insurance policies do vary, the exclusions for
these contaminants usually have common elements. The common
elements in fungus/bacteria exclusions on the CGL policy
include:
- It applies to fungi, mold, and bacteria because they
are often found living together.
- It will have an anti-concurrent
causation section that eliminates coverage for some other
covered cause of loss, like Category 1 water, if it was the
proximate cause of the loss—that is, the fungi/bacteria was in
fact ensuing damage arising from an otherwise covered loss.
Therefore, the fungus, mold, and bacteria exclusion should be
ignored. The covered proximate cause of loss and ensuing damages
argument is totally neutralized by the anti-concurrent causation
language that is common in fungus/bacteria exclusions.
- There
will usually be two parts of the exclusion endorsement. The
first part, a., addresses damages associated with actual or
perceived exposure to fungi, mold, and bacteria. The second part
of the exclusion, b., eliminates all of the
insurance coverage in the policy, including the duty to defend
any loss arising from an operation that has any involvement
whatsoever in remediating or accessing fungi, mold, or bacteria.
By definition, this would include Category 3 water.
- The
exclusions never limit their scope to any particular species or
measurable amount of fungi, mold, or bacteria. Therefore, a
microscopic speck of any species of these materials technically
triggers the full effect of the exclusion on the entire claim.
Although fungus/bacteria exclusions do vary, a common exclusion
for use in CGL insurance policies will read:
This insurance does
not apply to:
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 within a building or structure,
including 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,
detoxifying, 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.
This exclusion eliminates a lot more insurance coverage than
most risk management and insurance practitioners realize.
Insurance buyers in particular appear to be in the dark on the
dark secretive effects of this exclusion. That situation is
likely trouble for risk advisers from a professional malpractice
standpoint if their clients find themselves with uncovered
Category 3 water losses that could have been insured and the
insurance buyer was never advised of the impact of the new
exclusions or offered gap-filling coverage.
Analysis of the CGL Fungi/Bacteria Exclusion Endorsement
A few of the provisions in the
fungi/bacteria exclusion deserve special attention.
In Whole or in Part. In
section a., I wonder what "in part" might mean in this sentence:
"'Bodily injury' or 'property damage' which would not have
occurred, in whole or in part, but for…." In part must be
intended to apply the exclusion to the entire loss if only part
of the loss was related to fungi/bacteria. As written, without a
threshold amount qualifier, a speck of fungi or bacteria
involved with a loss should trigger this exclusion.
Threatened Exposure. Fungi
and bacteria are omnipresent in every building on earth. I
wonder why the Special Forces excluded from coverage losses
involving the threatened inhalation of, ingestion of, contact
with, exposure to, existence of, or presence of any "fungi" or
bacteria on or within a building or structure. Everybody knows
fungi and bacteria are in the building already. Is there really
a need to exclude bodily injury and property damage from the
threatened existence of materials that are already in the
building or structure? The answer is yes, there is a need to
exclude threatened exposure if you want to exclude phobia-type
losses. Because of this provision, bodily injury or property
damages are excluded if a drop of Category 3 water is even
alleged to have caused damage—with no physical evidence that it
did.
For example, if a plumber works on a drainpipe leak (Category
3 water, by definition) and damages a building, and bystanders
allege they could have been exposed to the water and are worried
about their quality of life being impaired as a result of their
worrying, then all of the bodily injury damage claims associated
with the claim are technically excluded by the reference to
threatened exposure to fungi or bacteria. The damage to the
building is excluded, too. Plumbers as a class of business
really do not have much in the form of completed operations
coverage on the CGL policy as a result of these exclusions.
However, the CGL policy in the above scenario would still need
to defend this loss; only bodily injury and property damages are
excluded in section a. of the endorsement, so the duty to defend
still stands.
Anti-Concurrent Causation.
The anti-concurrent causation provision in section a. reads
almost verbatim to the anti-concurrent causation section of the
flood exclusion in a property insurance policy: "regardless of
whether any other cause, event, material, or product contributed
concurrently or in any sequence to such injury or damage." The
Special Forces operatives were brilliant in adding this
provision to the fungus/bacteria exclusion on the general
liability insurance policy. They knew that flood exclusions hold
up perfectly in property insurance policies because of this
anti-concurrent causation provision, and they also realize that
pollution exclusions are the most litigated provisions in the
history of insurance. To eliminate litigation over what the
fungus and bacteria "pollution" exclusion might exclude or not
and all arguments about the efficient proximate cause of loss
and ensuing damages, the drafters of the fungus/bacteria
exclusion simply added an anti-concurrent causation clause to
the wording.
"In Any
Sequence." The reference to other causes of loss
in any sequence deserves
special attention. As mentioned in the IICRC definition above,
Category 1 and Category 2 water can morph into an excluded
fungus/bacteria loss through the operation of time and
temperature. For example, mold could start growing in the
standing water of a basement as a result of a water supply line
(Category 1 water) leak. Because mold in this case appeared
in any sequence to the
otherwise covered Category 1 water loss, the entire loss before,
during, and after the appearance of mold should be denied under
the terms of the fungus/mold exclusion. If the Special Forces
had not intended this to be the case, they would have written
"injury or damage subsequent to the presence of fungi or
bacteria" instead of "in any
sequence." If the exclusion did not read this way, the door
would be open to argue in the above scenario that the proximate
cause of the loss was Category 1 water, which is covered, and
therefore, the exclusion for fungi/bacteria should not apply.
The words "in any sequence" as used in the exclusion must mean
before, during, and after the presence of fungi or bacteria.
"In Any Way." In
section b. of a typical fungus/bacteria exclusion, the drafters
took their lead from the pollution exclusion (f) in the CGL
policy. First exclude claims caused by the pollutants, and then
make sure the CGL policy does not apply to losses from any
customers who venture into the remediation business. By
referring to "loss" in section b. of the fungus/bacteria
exclusion, the drafters eliminated the duty to defend any
customer who has the audacity to engage in the
fungi/bacteria/Category 3 water remediation business. Under this
section, all losses arising out 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 are
excluded. An easy way to think of this part of the exclusion is
that it is essentially an "all losses from job site exclusion"
that applies to any job that involves remediating a speck of
fungi or bacteria, which will automatically apply to all
Category 3 water jobs.
"Loss." An example of
section b. in effect is a remodeling contractor called in to
remove drywall damaged by a tidal surge who accidently causes a
fire at the property who would not be insured for the fire
damages. This is because the drywall was damaged by
bacteria-laden water from the tidal surge and the contractor was
at the job site to fix the drywall. In this case, with all
losses from the job site excluded, the contractor would not even
have defense coverage in his CGL insurance policy for causing
the fire. The term "loss" in the CGL policy includes defense
costs.
"You Cannot Be at This Job Site."
Section b. of the fungus/bacteria exclusion is particularly
onerous for the 40,000 fire/water restoration contracting firms
and carpet cleaners with water extraction equipment that may
work on remediating Category 3 water losses. There are a lot of
leaky drains and backed up toilets in the United States; carpet
cleaners are often the first responders to the Category 3 water
loss that subjects them to the "you cannot be at this job site
exclusion" in section b. of the fungus/bacteria exclusion.
Plumbers and "rooters" responding to backed-up sewers are
affected by the same exclusion. This is an area where insurance
agents and brokers are particularly misinformed and misguided.
As a result, an awful lot of contractors are needlessly
uninsured for working on water damage job sites.
The only way
to correct for the "you cannot be at this job site" coverage gap
is to eliminate section b. of the fungus/bacteria exclusion for
contractors that cannot avoid these job sites. Purchasing
environmental insurance coverage cannot fill the gap in coverage
on the CGL policy created by a "you cannot be at this job site
exclusion." In essence, environmental insurance only pays for
damages caused by a release of pollutants. Burning down a house
at a Category 3 water job has nothing to do with pollution;
neither the CGL nor the environmental coverage will respond to
the fire loss in the example—that is, unless of course the CGL
claims adjuster never figures out that the project was related
to a tidal surge, in which case it would be a simple property
damage loss, which is covered in the off-the-shelf CGL policy.
Specially modified business liability insurance policies are
available for specialty water remediation firms that are not
dependent on a claims adjuster failing to discover that a
project involved Category 3 water for a loss that would
technically be covered under the CGL policy. As of this writing,
more than 90 percent of water restoration firms needlessly go to
work every day with a fungus/bacteria/Category 3 water job site
exclusion on their CGL policy. The contractors and their
insurance intermediaries are operating on a prayer that the
claims adjuster never sees the words
fungus/mold/bacteria/Category 3 water if the contractor ever
gets a liability claim from one of its water remediation jobs.
"Mold and drywall." There is one more important thing
for insurance practitioners to know in order to plan for the
effects of fungus/bacteria exclusions. Category 1 water or even
excessive moisture at room temperature will lead to mold growth
within 72 hours on drywall. Once a speck of any type of mold
becomes related to a loss, the fungus/bacteria
exclusions in both property and liability insurance policies
apply in the same manner they do with Category 3 water losses.
Limited Application … Now
The good news for insurance
buyers and the insurance distribution system is that the Special
Forces coverage drafting operatives forgot to tell the claims
adjusters what their new exclusions for fungi and bacteria
actually did to the coverage in property and liability insurance
policies. They never told the insurance agents and brokers,
either. As a result, most Category 3 water losses are simply
paid by claims adjusters as Category 1 water losses … today.
Apparently, none of the knowledge about the three categories of
water held by the 64,000 IICRC-certified water remediation contractors has
filtered over to the claim adjusters they work for over the past
10 years. That turns out to be a very convenient state of
affairs for almost all of the stakeholders in water damage
losses.
Ignoring the categories of water makes the claim
adjustment process much easier, which makes the policyholders
and insurance agents/brokers happy. A happy product distribution
force and customer base is good for business if you are an
insurance company. This explains why a technically excluded
claim does not always lead to a denied claim when it comes to
fungus/bacteria/Category 3 water-related losses.
The only
stakeholders in the insurance claims arena that might be unhappy
with insurance companies paying technically excluded losses as a
common business practice would be the shareholders of publicly
traded insurance companies. But the shareholders must be happy,
too, as measured by the dearth in shareholder derivative action
suits against the board of directors of insurance companies for
squandering shareholder value by simply ignoring the effects of
universal fungus/bacteria exclusions and the link to Category 3
water as a business practice.
But, the status quo with all of
the stakeholders in insurance claims being happy could change
overnight. Insurance practitioners should plan today for this
eventuality. All it will take to trigger sudden knowledge by
claims adjusters on the different categories of water is a
shareholder derivative action suit alleging management
malpractice at the insurance company for paying excluded
Category 3 water losses as if they were Category 1 water losses.
For example, today, almost all leaky drainpipe damage claims
resulting from the work of plumbers are paid as if they were
Category 1 water losses. That is good for the 78,000 plumbing
firms in the United States and the insurance agents and brokers
who sell them business insurance policies. Every drop of water in
a drainpipe after the trap will be Category 3 water by
definition. With billions of dollars of Category 3 water losses
being paid as Category 1 water losses every year, the potential
damages target is large for the lawyers representing
shareholders, and the stakes are high for the insurance company
managers.
For these reasons, it is safe to assume the
insurance company managers will work to close the distance
between the actual coverage provided in insurance policies and
the claims paid for losses associated with water damages. There
are two ways for the managers to close the distance. They could
expand coverage for fungus/mold/bacteria/Category 3
water-related losses in the insurance policies the insurance
company sells simply by eliminating the exclusions the Special
Forces spent years to insert. This will take years to
accomplish, as regulatory approval is needed on changes to
insurance rates and forms in many different lines of admitted
insurance coverage. This strategy would do nothing to address
the fact that plumbers have purchased over 600,000
occurrence-based general liability insurance policies with
fungi/bacteria exclusions in them. Alternatively, the insurance company
managers could pull the trigger on Category 3 water damage
exclusions that are already in place. Pulling the trigger on the
Category 3 water exclusions offers a quick fix; the regulatory
approvals on coverage and rates are already in place. Plus, the
newly denied Category 3 water losses immediately improve profits
at the insurance company. For these reasons, I expect more and
more Category 3 water-related losses to be denied in the future
on both property and liability insurance policies.
Mitigating Insurance Coverage Gaps for Category 3 Water
The easiest way to conceptualize the exclusions for Category 3
water is to think of them as pollution exclusions on steroids.
The anti-concurrent causation language applying the exclusion
for fungi/mold/bacteria to the entire loss if any of these
materials is even partially involved
in any sequence to the loss is the steroids part of the analogy. As in
other forms of excluded pollutants as a cause of loss, the most
reliable insurance coverage solutions for Category 3 water
losses will fall within the insurance products offered by the
environmental insurance marketplace.
For all of the
stakeholders mentioned in Table 1 below, if general liability insurance can be obtained
without specific exclusions for fungus or bacteria
and the definition of a "pollutant" can be amended to
specify that fungi/bacteria are specifically not pollutants
and losses related to water damages are not
separately excluded by endorsement, then there may not be a need
for supplemental environmental insurance to address Category 3
water loss exposures. I do not know of any insurance policies
fitting all of the coverage elements detailed above in any class
of business at the time of this writing.
Specially adapted
environmental insurance products to address the effects of
fungus/bacteria exclusions were originally introduced in
September 2003, 2 years before the fungus/bacteria exclusions
became commonplace on Main Street, USA. With 10 years of
insurance product maturation, there are actually good coverage
solutions for most Category 3 water-related exposures today.
Insurance practitioners will be working with two basic types
of environmental insurance to fill the insurance coverage gaps
for Category 3 water in property and liability insurance
policies.
Environmental Impairment Liability (EIL)
This insurance
policy fills the coverage gaps created by
pollution/fungus/mold/bacteria/Category 3 water/asbestos/lead
exclusions that are common in the property and liability
insurance policies purchased by property owners. EIL insurance
provides coverage for bodily injury, property damage, defense
costs, cleanup and restoration expenses, loss of rents, business
interruption, and extra expense coverage at designated
properties. For property owners or lessees that have water
intrusion loss prevention plans in place, coverage for Category
3 water losses is readily available with limits exceeding $100
million.
Contractors Environmental Liability (CEL)
This policy fills the coverage gaps created by
pollution/fungus/mold/bacteria/Category 3
water/asbestos/lead/contaminated drywall exclusions that are
common in the liability insurance policies purchased by
contractors. CEL insurance provides coverage for bodily injury,
property damage, defense costs, and cleanup and restoration
expenses arising from the insured operations of the contractor.
Insurance market capacity for high-quality coverage exceeds $100
million. Minimum premium for a good-quality CEL policy covering
Category 3 water loss exposures is about $3,500 as of the date
of this writing.
Table 1: Stakeholder Coverage Gaps and Insurance Solutions for Category 3 Water
The "Insurance Coverage Gaps and Insurance Solutions"
table assumes the referenced environmental insurance policies
have been specifically modified to address fungus/bacteria loss
exposures. As a word of warning, off-the-shelf environmental
insurance products are usually not well suited for insuring
fungus/mold/bacteria/Category 3 water risks because the
insurance policies were not originally created for indoor
environmental loss exposures. Therefore, special attention needs
to be paid to adapting environmental insurance policies for
indoor environmental loss exposures.
EIL and CEL policies are marketed under many different brand
names. There are more than 80 different environmental insurance
policy forms that can address Category 3 water loss exposures.
Some policy forms are significantly better than others are. The
insurance premium, limits of liability, and deductible are very
poor gauges of the quality of the coverage offered.
Conclusion
There are
no dark secrets related to Category 3 water. The facts and
resource documents to study the subject are available to the
general public and
always have been. There never were Special Forces operatives in
the insurance business engaged to eliminate Category 3 water
damages from property and liability insurance contracts. There
was, however, a concerted effort to eliminate "toxic mold"
losses at the turn of the century. Category 3 water losses
are more than 50 times greater than mold losses, and they were
excluded in the process of eliminating claims from "toxic mold."
Category 3 water is defined as Category 3 because of the
pollutants/contaminants it contains, including bacteria.
Intentional or not, the insurance coverage drafters eliminated
or severely sublimited all losses related to Category 3 water by
default when the word bacteria was inserted into "mold
exclusions."
Most Category 3 water losses are being paid as
Category 1 water losses today because claims adjusters make no
distinction between the categories of water involved in a loss.
The only thing potentially wrong with that scenario is that
paying claims as a matter of routine business practice that are
technically not covered by the insurance contracts that the
insurance company sells potentially exposes the insurance
company directors to shareholder derivative action lawsuits.
With billions of historical insurance claims dollars associated
with Category 3 water losses potentially in dispute with
shareholder representatives, it is likely that the differences
between the insurance coverage sold and the claims payments made
related to Category 3 water damages will narrow over time.
In
anticipation of more coverage denials on losses related to
Category 3 water, insurance practitioners are well advised to
fill the gaps in insurance coverage created by fungus/bacteria
exclusions on a proactive basis. Insurance coverage solutions
for virtually all sources of Category 3 water losses are readily
available in the environmental insurance marketplace and have
been for more than 7 years.