Expert Commentary

Insurance Coverage for Losses Arising from the Ebola Virus

With focus on the Ebola virus recently, I had the same question asked of me three times in one day, "Do environmental insurance policies insure losses arising from the Ebola virus?" As long as insurance coverage for a loss caused by a virus is being discussed, let me expand the topic to: "Do environmental insurance policies cover losses arising from biological contaminants?"


Environmental
December 2014

Answer: A few environmental policies today do an exceptionally good job of insuring biological contaminants. However, most environmental insurance policies sold in 2014 did not adequately cover biological contamination risks.

Common Coverage Defects for Biological Contaminants in Environmental Insurance

Coverage defects for biological contaminants in environmental insurance policies arise in seven distinct areas:

  1. The definition of a "pollutant" in the environmental insurance policy needs to specifically include the biological contaminants that need to be covered. The most commonly used Insurance Services Office, Inc. (ISO), definition of what a "pollutant" is does not encompass biological contaminants very well. This is why insurance companies had to introduce separate far-reaching exclusions for fungi and bacteria to get out of paying "toxic mold" losses on property and liability insurance policies at the turn of the century. The relationship between viruses and pollution exclusions mirrors the precedent set with fungi/mold/bacteria as biological contaminants 15 years ago. There was a reason separate exclusions for fungi and bacteria were introduced; pollution exclusions were not sufficient to eliminate the coverage in the policy for losses arising from fungi and bacteria. Environmental insurance policies use the same core ISO definition of what a pollutant is. Therefore, for the same reason fungi and bacteria needed to be addressed separately as an exclusion in standard insurance policies, they need to be specifically covered as "pollutants" in the environmental insurance policies.
  2. The environmental insurance policy may contain specific exclusions for losses arising from or related to fungi/mold/bacteria. By default, Category 3 water losses become excluded because of the bacteria in Category 3 water; there are millions of Category 3 water losses annually in the United States. There needs to be coverage in the environmental insurance policy for the bacteria in Category 3 water.
  3. The environmental insurance policy may cover only a specific species of fungi or bacteria when the standard property and liability insurance policies exclude any type or amount of these materials.
  4. There may be a specific exclusion for losses caused by a communicable disease.
  5. A commonly used definition of "cleanup costs" limits the coverage to cleanup actions required under environmental laws. It helps to know there are no environmental laws pertaining to the cleanup of biological substances to understand why this provision is a problem.
  6. The cleanup coverage may only apply to outdoor pollution events affecting soil and water, whereas biological contamination is almost always an indoor loss exposure.
  7. Contractors environmental insurance policies commonly have exclusions for damage to the building the contractors are working on or in, which effectively eliminates 90 percent of the biological contamination loss content in the policy.

Most of these potential coverage defects in environmental insurance for losses associated with biological contamination can be attributed to a single factor—environmental insurance policies were never designed or intended for indoor use. The core environmental insurance policy designs from the 1980s predated the emergence of specific exclusions for fungi/mold/bacteria with their anti-concurrent causation provisions in both property and liability policies. As a result, most of the environmental liability insurance policies sold today are not suitable to insure biological contaminants as a covered pollutant or to insure indoor environmental risks.

Fixing the Environmental Insurance Coverage Defects for Biological Contamination

It is interesting to note that, over the past 10 years, environmental insurance policies that correct for these seven common coverage defects have been readily available at the same premiums as or even lower premiums than the environmental insurance policies that contain all seven defects. In my opinion, in order for fungi, bacteria, or viruses to be insured in the environmental insurance policy, all three need to be referenced as defined pollutants in the definitions section of the policy. Including microbial matter as a defined pollutant in an environmental insurance policy would encompass all types of fungi/molds/bacteria/viruses with fewer words and work just as well.

But, be on the lookout for this coverage glitch: one extremely popular environmental insurance policy defines microbial matter in the policy form to only be fungi, much to the surprise of most insurance brokers, including me. The definition as written in the insurance policy would override more traditional uses of the term microbial matter, thus limiting the environmental insurance policy only to losses arising from the release or escape of fungi (which does include mold) but not the other forms of microbial matter (bacteria and viruses). That particular insurance company will normally add in coverage for bacteria, but the broker needs to be alert enough to ask for the coverage enhancement.

Some environmental policies specifically insure all forms of fungi/mold within the definition of a pollutant but then list only one form of bacteria as a covered pollutant. The most common form of limited bacteria coverage is to restrict the coverage in the environmental insurance policy to only cover Legionella bacteria as a defined pollutant. Legionnaire's disease has led to wrongful death lawsuits that are totally uninsured due to the universal fungi/bacteria exclusions in property and liability insurance policies today. It is good to have environmental insurance for Legionella bacteria, but it is not sufficient coverage when all species or amounts of bacteria are either severely sublimited or completely excluded causes of loss in the standard property and liability insurance policies.

Limiting the coverage in an environmental insurance policy to only one species of bacteria is a roulette game for the insurance buyer and broker. The problem is that there are estimated to be well over a million species of bacteria; insuring one species of bacteria leaves more than a million other kinds of bacteria uninsured. In Wisconsin, it was sandwiches contaminated with Listeria bacteria that established the caselaw in 2002 that made all forms of bacterial contamination excluded "pollutants" in virtually every liability and property insurance policy sold in the state. The litigated product recall coverage case regarding the sandwiches predated the introduction of broad spectrum separate exclusions for all types and quantities of fungi and bacteria.

In states that have established through insurance coverage caselaw that bacteria is an excluded pollutant within the traditional ISO definition of a "pollutant" (California, Indiana, Wisconsin), insurance buyers and brokers are playing roulette with two bullets in the six-shooter gun when faced with a claim arising from bacteria. In those states, if the broad spectrum fungi/bacteria exclusions that were slammed into property and liability insurance policies by ISO in 2005 don't exclude the loss, the standard pollution exclusions in property and liability insurance policies likely will.

There are only two ways to fix the insurance coverage gaps for losses associated with biological contaminants: convince the underwriters of the standard property and liability insurance policies to remove the coverage restrictions for bacteria–related losses or purchase an environmental insurance policy that actually works for biological contamination.

With Ebola in the News, Where Is the Insurance for a Loss Caused by a Virus?

The obvious place to start in the analysis is the ISO definition of a "pollutant," which has been consistently used in property and liability insurance policies since 1973. If the ISO definition of a "pollutant" was not sufficient to eliminate coverage for mold losses without a specific exclusion for mold, it stands to reason that a virus would not fall under the ISO definition of a pollutant either.

But, hold on … insurance coverage for losses associated with a virus is still glitchy even if the pollution exclusion does not apply. In standard property and liability insurance policies, there are a number of hurdles to get over before there would be coverage for losses arising from viruses.

  • In property insurance policies, it can be difficult to show that there has been a direct physical loss arising from an insured peril in order for coverage to apply to a loss event associated with a virus.
  • General liability policies also have coverage glitches for losses caused by a virus. In the insuring agreement in the general liability policy, there needs to be an accident that leads to the loss. Where is the accident with a virus outbreak?
  • An endorsement that eliminates coverage for communicable diseases would apply to a virus outbreak.

A Specially Designed Environmental Insurance Policy Can Provide Coverage

An environmental insurance policy can insure losses arising from fungi/mold/bacteria/viruses or microbial matter as defined pollutants in the policy. In addition to coverage for liability, environmental insurance policies can fill the coverage gaps for decontamination costs, cleanup costs, extra expense, loss of rents, and business interruption normally arising from pollutants. Thus, making a specially modified environmental insurance policy is the only effective and reliable option to cover losses arising from biological contaminants.

However, the environmental insurance policy would need these coverage provisions to be effective for biological contaminants:

  • The definition of a pollutant should reference fungi, mold, bacteria, viruses, and/or microbial matter.
  • Ideally, coverage should be triggered by the presence of fungi, mold, bacteria, viruses, and/or microbial matter and not be limited to the required release or escape of these materials.
  • The definition of cleanup in the environmental insurance policy needs to incorporate an objective predictable standard and not be restricted to "as required under environmental laws" because there are none for biological contamination.

Environmental insurance that has been designed to specifically insure microbial matter for commercial properties and the contractors that work on them has been available since 2007. Environmental insurance for fungi/mold as defined pollutants was introduced in 2003. Price breakthroughs in 2014 were enabled by engaging water intrusion emergency response loss control services on commercial properties. The loss control feature has reduced minimum premiums for a good quality environmental insurance policy from top-rated insurance companies to as little as $3,000 for a $1 million policy limit. As a reference point, that $3,000 insurance premium would insure a building the size of a typical Fairfield Inn-sized hotel. For property owners with more than one commercial building, it is common to see premiums as low as $800 per location. In another example of affordability, apartments can be insured for as little as $25 per door.

An interesting side note on the topic of Ebola risks illustrates perfectly that people tend to focus on the wrong subjects in environmental risk management. There were 25 times more people killed by lightning in 2013 than died from the Ebola virus in the United States in 2014. The bigger issue with uninsured claims arising from biological contamination is in the bacteria arena; in that arena, Category 3 water is by far the most common cause of loss associated with bacteria.

Claims adjusters are routinely paying Category 3 water losses every day as simple water losses. In doing so, the claims adjuster must totally ignore the bacteria component in the water that makes Category 3 water Category 3 water. There are at least 3 million Category 3 water damage remediation jobs paid for through insurance coverage annually.

Based on the custom and practice as established in the payment of millions of Category 3 water losses, in theory, there should be full coverage for losses associated with Ebola on standard property and liability insurance as well. However, relying on theories for insurance coverage where an exclusion should not apply to a loss is an unreliable risk management strategy.

If an insurance buyer is well protected for microbial matter in an environmental insurance policy, they are well on their way to having coverage for losses arising from the Ebola virus as well.

Summary

Insurance for losses arising from fungi, mold, bacteria, and viruses is not reliable coverage in standard property and liability insurance policies. Although fungi and bacteria are now specifically excluded in most liability insurance policies, and sublimited in property insurance policies, it is unusual to see viruses as specifically defined "pollutants" in those policies. Therefore, there may be remnants of coverage for losses associated with a virus in general liability and property insurance policies that would not be there for fungi and bacteria contamination. Specially modified environmental insurance policies with minimum premiums as low as $3,000 to address the loss exposures associated with fungi/mold/bacteria/Category 3 water/viruses and a wide range of other contaminants in commercial buildings or arising from the contractors working in those buildings are readily available from top-rated insurance companies. These specialized environmental insurance policies have been readily available in all 50 states for more than 7 years.


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.

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