History repeats itself with great predictability in the insurance business. By using history as a guide, janitorial firms offering deep cleaning, sanitation, and disinfecting services are going to follow in the footsteps of fire and water damage restoration firms in their insurance needs.
The COVID-19 pandemic has changed the risk management needs of the stakeholders in the commercial cleaning services business, including the customers of those cleaning services. Any firm that provides sanitation or disinfecting services needs a specially tailored contractors pollution liability 1 (CPL) policy with an affirmative coverage grant for the biohazards of fungi, bacteria, and viruses as a cause of loss.
Because of universal exclusions for biohazards without specially designed CPL coverage in place, the liability insurance sold to firms providing building sanitation and disinfecting services will be excluding an unavoidable loss exposure in the customer's core business. That is not a good position to be in if you are an insurance underwriter and do not want to pay losses through coverage litigation on things that you thought were excluded. Precedent case law on pollution and contamination exclusions heavily favors the reasonable expectations of the purchaser on what their insurance policies cover. This is especially true when an insurance policy appears to be providing illusory coverage.
Finding Insurance Protection for Cleaning Businesses
Following the experience of firms in the fire and water restoration business, the predictable sequence of events in the insurance programs of firms in the janitorial, sanitation, and disinfecting business has already been put into motion at an accelerated pace in response to the COVID-19 pandemic. Insurance companies are adding communicable disease exclusions and/or are nonrenewing the general liability insurance on cleaning firms that provide sanitation and disinfecting services.
One big difference between fire and water restoration firms and janitorial services firms is the insurance companies that sell general liability insurance to janitorial firms do not usually have the luxury of a companion CPL policy to shore up the new exclusions for communicable disease and virus that were imposed in the first stage of the COVID-19 response by the insurance industry.
Today, virtually all janitorial firms are being sold general liability insurance policies that exclude losses associated with the biohazards of fungi (mold), bacteria, communicable diseases, and viruses. An insurance policy excluding virtually all forms of biohazard loss exposure will be useless insurance for an insurance buyer facing a bodily injury or property damage claim arising from one of those causes of loss. This is not an entirely new state of affairs. Cleaning contractors have had a loss exposure to biohazard risks as long as cleaning firms have been offering disinfecting services. COVID-19 just got the underwriters to put the biohazard risk of janitorial services firms under the microscope for the first time.
The insurance coverage glitches for biohazards for the stakeholders in commercial buildings can be patched up relatively simply with specially modified environmental insurance policies. Specialized environmental insurance with an affirmative coverage for virus and other biohazard disinfecting services policies became available to qualified cleaning services vendors within weeks of the March 10, 2020, federally imposed travel ban due to COVID-19.
Phase one and two in the predictable sequence of events to newly excluded environmental loss exposures is already well underway for firms in the sanitation and disinfecting service business. The risk management solution for janitorial firms in this business is simple in design: these companies need to be insured for their loss exposure to biohazards under a specially modified CPL insurance policy. That coverage is available at premiums as low as $3,000 on cleaning firms that meet the underwriting guidelines for training and experience.
As of this writing, building owners have ready access to environmental insurance for biohazard loss exposures arising from fungi, mold, and bacteria. However, the insurance market for building owners for losses associated with a communicable disease or a virus is much more restricted. Qualified contractors can obtain that coverage, but property owners cannot unless they get covered as an additional insured under the CPL policies purchased by the contractor.
With contractors having access to broader insurance coverage than building owners can purchase today, the partial risk management solution for building owners is simple. Building owners can access cost-free liability insurance for biohazard losses arising from faulty sanitation and disinfecting services simply by requiring functional CPL insurance with an affirmative coverage grant for biohazards and to be designated as an additional insured under that CPL policy. The only problem is with this risk transfer strategy is janitorial firms do not routinely purchase CPL insurance, and some janitorial firms will not be able to qualify for CPL insurance with an affirmative coverage grant for biohazards. By adding a requirement for modified CPL insurance into the services contracts of cleaning firms, building owners and managers reap the benefits of insurance they likely cannot purchase for themselves. Plus, requiring CPL insurance helps vet the qualifications of the firms offering disinfecting services. Is an uninsured firm uninsurable?
Conclusion
History on biohazards is in the process of repeating itself in the insurance business. Eventually, the stakeholders in commercial properties will react to biohazard exclusions and adapt insurance programs and insurance requirements in contracts accordingly. Early indications are that COVID-19 has accelerated the pace of change in the insurance needs of firms in the commercial cleaning business and the owners of commercial property.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
Footnotes
