Naive efforts to control the risks associated with a biohazard contamination in buildings can actually increase the risk of loss to the stakeholders in that building. A simple process of (1) do no harm, (2) utilize building cleaning and disinfecting sanitation procedures that are legally defensible in court, and (3) make sure the stakeholders are insurable and insured is an effective way to manage the coronavirus and other biohazards in buildings.
The coronavirus pandemic has caught the risk management community off guard. Even before the COVID-19 pandemic, managing the biohazard risks arising from fungi/mold and bacteria had eluded the stakeholders in commercial property. Potential losses arising from the latest biohazard of the coronavirus have recaptured the attention of the risk management community as everybody tries to figure out, What is our next step to reduce our loss exposure?
In formulating those risk management strategies, it helps to know that trying to do the right thing, the wrong way, can actually increase the potential liability for the stakeholders in a building. As it turns out, in practice, some very common loss avoidance strategies in cleaning and sanitizing buildings actually increases the potential loss exposure of the stakeholders.
Few stakeholders today are effectively utilizing the insurance underwriting process to gauge the risk and credibility of a biohazard decontamination services provider. If a vendor of decontamination services is insured with a contractors pollution liability (CPL) policy that has an affirmative coverage grant for the coronavirus risk, the evidence of that insurance being in place is a testament to the reliability and credibility of the services being provided. In contrast, when biohazard decontamination vendors are uninsured, or worse, uninsurable, that should serve as a red flag for the parties planning on hiring the firm.
Qualified and credible biohazard decon services providers have access to affordable liability insurance for the work they do. Today, the liability insurance on the cleaning and disinfecting services vendors on a commercial building may be the only insurance available to address a wrongful death case involving COVID-19. After the initial panic reaction in the insurance underwriting community to the pandemic loss exposure, creative and informed environmental insurance underwriters have introduced fully functional liability insurance for the vendors of biohazard decontamination companies. The same underwriters are creating policies that cover the biohazard risks for building owners and managers. However, the firms engaged in unusually high-risk biohazard decontamination services are uninsurable.
Today, there is a lot of useless and misleading information on how to reduce the coronavirus hazard in buildings. The situation is made worse by the marketing hype and hoopla of cleaning and disinfecting services vendors promoting magic chemical potions "guaranteed" to render a building virus-free for 30–100 days. The various magic potions rarely, if ever, exactly perform as advertised. Some of the common application methods of the antimicrobial potions in common use today on the coronavirus violate federal and state laws. None of the antimicrobials have been certified by the US Environmental Protection Agency (EPA) for long-term efficacy. Relying on antimicrobial chemicals alone as a risk management strategy to make the occupants of a building safe from COVID-19 is fraught with undue risk.
The good news is the EPA-approved antimicrobials, when applied per the label instructions, seem to do no harm, and most do some good in reducing the biohazard risk in buildings, even when the application methods are not approved by regulatory agencies.
What Is Wrong with this Picture?
The COVID-19 loss prevention and risk financing situation described in "The Perils of Making a Business 'COVID-19-Free'" scenario is very common with commercial buildings today. There are many things wrong with the risk management strategies of all the stakeholders in this hotel. See if you can find them.
The Perils of Making a Business "COVID-19-Free"
Professional Building Management Company (PBMC) has been asked by the owner of a hotel to make the building COVID-19 safe for guests. In preparation for renewed occupancy with the lifting of COVID-19-related travel restrictions, PBMC hires the Spray and Pray (S&P) company to sterilize the premises. S&P promises a very cost-effective, no-touch solution to sanitizing a building with a one-of-a-kind Magic Potion guaranteed to eliminate all of the virus present in the building. S&P will also provide a warranty that the building will remain virus-free for up to 30 days posttreatment. S&P also supplies signage to be posted throughout the hotel stating the occupants are safe because all of the viruses in the building have been "vaporized."
The Magic Potion applied by S&P has been registered as an antimicrobial with the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) division of the EPA. The EPA has approved the use of Magic Potion as a viricide on solid surfaces, when applied as a spay 6–8 inches from the surface, with a wet dwell time of at least 3 minutes. The label on Magic Potion warns consumers that the use of the chemical outside of the approved label instructions is a "violation of federal law."
To reduce time and material costs, S&P uses an electrostatic sprayer per the manufacturer's instructions at a distance of 2–4 feet to apply Magic Potion. The Magic Potion EPA-approved product label does not mention the electrostatic spraying application … only the marketing material for the electrostatic sprayer does. The electrostatic sprayer is sold by the same company that makes Magic Potion.
The hotel is located in a state that requires contractors that apply chemicals intended to kill things to hold a pesticide applicators licensePesticide applicators license are regulated by the Department of Agriculture, a current listing of state requirements for pesticide applicators licenses can be obtained at the Costa Group at https://www.costagroupeducation.com/. But S&P advises PBMC that a virus is not a pest, and therefore, S&P does not need a pesticide applicators license.
The building has a courtyard that is perfect for weddings. As the only building in town guaranteed to be virus-free, the wedding venue business takes off for the hotel, hosting weddings often with hundreds of attendees, who are thrilled to be in a vaporized virus setting.
Being an astute user of contractual risk transfer techniques, PBMC requires to be held harmless and indemnified by S&P for all possible claims arising from the decontamination services provided by S&P, including those associated with COVID-19. To back up the hold harmless and indemnity agreement, PBMC also requires to be named as an additional insured on the general liability (GL) and CPL insurance carried by S&P. S&P gladly provides a certificate of insurance showing that blanket contractual liability coverage is provided by the GL policy. However, S&P points out that the firm does not work with pollution and represents that it cannot obtain an insurance policy designed for the contractors building hazardous waste sites.
There are at least 10 things seriously wrong in this scenario. The answer key is at the end of this article.
In essence, what has been described in the above scenario is the potentially illegal application of a regulated antimicrobial chemical by an uninsured and uninsurable vendor, who is applying the chemical in an unauthorized method by the manufacturer in violation of state licensing laws for the applicator. Based on a long-term virus-free performance warranty that has no legally defensible science to back it up, the virus-free building is marketed with hype and hoopla to attract guests to the hotel for what could be easily traceable super-spreader events at weddings where there is a discoverable guest list. That fact scenario is a trial lawyer's dream for a wrongful death class action suit naming the hotel owner, the property manager, and S&P as defendants if a super-spreader event develops from one of the weddings.
The following facts will make the stakeholders in the hotel more difficult to defend if there is a wrongful death class action suit arising from a super-spreader event at the hotel. The application method for the antimicrobial used by S&P has not been evaluated or approved by the EPA. Ignoring the advice in the best practices industry consensus document that embraces cleaning surfaces before the application of a viricide is another strike against the defensibility of all the stakeholders.1 The signage representing a virus-free building for extended periods of time also runs counter to the best cleaning and disinfecting industry practices.
Featuring the warrantied virus-free building to attract guests amounts to more than harmless marketing hoopla by the hotel. The air in buildings becomes contaminated with the first new occupant that has COVID-19. Treating a surface with any chemical cannot overcome the fact that a surface-treated building is not free from airborne viruses. All of those facts will be easy for plaintiffs' lawyers to prove to show the stakeholders in the building were negligent, maybe even grossly negligent, in the chosen methods to make a building safe and in the marketing messaging to attract guests into an unsafe place.
Why Insurance Underwriting Makes a Great Risk Management Tool
Informed environmental insurance underwriters will spend much more time evaluating the potential risk profile of the applicant for insurance than the services procurement process for cleaning services conducted by the building manager can ever hope to accomplish. It can take many months for a biohazard disinfecting service to qualify for CPL insurance.
Simply by including an ironclad requirement for meaningful CPL insurance with a specific coverage grant for virus as a cause of loss, building owners and managers will know that the insured cleaning and disinfecting services vendor has undergone an independent third-party risk evaluation process. Knowing that a services vendor has undergone the insurance underwriting gauntlet to obtain meaningful CPL insurance is actually more valuable, in my opinion, than the potential value of insurance recoveries in the event of a claim.
Today is the Wild West in the building sanitation services business, there is no rule book for virus decontamination services, and there are no laws or regulations for anyone to abide by. Knowing that a services firm is insurable and insured is valuable information in a building cleaning and disinfecting services procurement process.
And how would S&P fare in the insurance application process for CPL coverage? My company brokers the insurance placements as a wholesale broker on hundreds of biohazard decontamination firms. If I took S&P into the insurance market today, I expect the firm would be uninsurable at any price for the firm's guaranteed effective virus decontamination services. The insurance underwriting process would reveal the illegal application of antimicrobial materials and false claims of long-term efficacy from the application of Magic Potion, and providing warranties that heighten expectations of a virus-free building is also a bad idea that increases the risk that S&P will attract wrongful death lawsuits from COVID-19. The warranty of a building as virus-free itself is harmful from a managed risk perspective because it sets false expectations that can lead to risky behaviors from the occupants.
The virus vaporizing claims would raise some eyebrows in the informed insurance underwriting community, but I am confident I could navigate around that one as simply marketing hype that does no harm. But there are too many strikes against S&P in their business model to be an attractive risk to a professional risk evaluator at an insurance company. The response I would expect to receive from CPL underwriters is thanks but no thanks. An insurance broker may be able to find an opportunistic GL market for S&P by arguing that the GL policy is excluding everything this firm does in biohazard decontamination services. I am not aware of a single insurance company that would take that bet, however. Usually it's "Strike two, you are out!" in my world of informed underwriters.
What about the insurance coverage on the building owner and property management firm? They are totally uninsured under their property and liability insurance policies for COVID-19-related losses with the same set of exclusions that apply to the cleaning and disinfecting services providers. Both parties will soon have access to meaningful environmental insurance coverage, including business interruption expense and disinfecting costs coverage from the same insurance companies that are insuring the insurable cleaning and disinfecting services. However, if the building owners and managers choose to engage uninsurable cleaning and disinfecting services providers, that choice in vendors alone can make their buildings uninsurable as well.
Managing Biohazard Risk through Insurance Specifications
Adding a meaningful insurance specification for CPL insurance to a services procurement contract is a simple and effective way to gauge the efficacy of a biohazard decontamination services provider. There are no regulator-approved design standards for CPL insurance, and there is massive confusion in the insurance distribution channel (insurance agents and brokers) as to what CPL insurance is. Decades of marketing hype and hoopla by insurance company marketers have left many agents and brokers with the belief that exceptions to the pollution/contamination exclusions found in GL policies sold to contractors is somehow CPL insurance. That is never accurate.
A sample of a meaningful CPL insurance specification follows.
CPL Insurance Specification Sample
Contractors Pollution Liability insurance with limits of $1,000,000 per loss and $2,000,000 in aggregate.
Coverage in the Insuring Agreement of the policy shall apply to claims for Bodily Injury, Property Damage, Clean-up costs, and Defense Costs arising from the release or escape of pollutants, irritants and contaminants. The policy must include an affirmative coverage specifically for virus, mold, bacteria or microbial substances as insured contaminants. This policy may not include a Communicable Disease, or virus exclusion.
Exceptions to the pollution/fungus/bacteria/virus/communicable disease exclusions in General Liability insurance regardless of their title, do not fulfill this requirement for Contractors Pollution Liability insurance.
Through marketing hype and hoopla promoting a virus-free building, well-intentioned biohazard decontamination services providers can actually increase the hazards of virus contamination and, in doing so, significantly increase the risk of building owners and property managers. At a time when the owners and managers of buildings are uninsured for virus and other biohazard-related claims, finding cleaning and disinfecting services providers that are insured under specially modified CPL insurance is an essential and easy to implement risk management play. Hiring uninsurable contractors for biohazard decontamination work is a good way to make individual buildings and the services provided by property management companies uninsurable for biohazard risks as well.
Here is what is wrong with the risk management strategies of the likely well-intentioned stakeholders in the scenario.
There is no such thing as a virus-free building over time. Some proven decontamination process can completely decontaminate a building using a gas-based nonhazardous sterilization process, but surface treatments alone are never adequate to address airborne contaminants. The efficacy of any virus decontamination service is only reliable up to the time the first COVID-19-carrying visitor enters the premises.
There are actually some chemicals that will oxidize a virus. Vaporizing a virus is marketing hype that is not exactly wrong, nor is it exactly right. But there is no harm done unless invitees entering the building are depending on a guaranteed virus-free setting.
There is no EPA-approved use of antimicrobials for the long-term efficacy of the product to kill viruses. It is not the mission of the EPA to evaluate the long-term performance of antimicrobials.
Magic Potion was only approved for use as a viricide by the EPA if sprayed on wet and allowed to sit there wet on a solid (nonporous) surface for at least 3 minutes. A hydrostatic sprayer lays down a fine mist that, in most circumstances, is not wet enough long enough to meet the EPA-approved use of the material as a viricide. Therefore, as applied by S&P, Magic Potion would not meet the EPA criteria for use as an effective viricide.
The use of the electrostatic sprayer for the application of Magic Potion could be a violation of FIFRA. (The federal law referenced on the product warning label.)
S&P got it wrong in the representation that the company did not need a pesticide applicator's license. The criteria for the need for the pesticide applicator's license is determined by the EPA registration of the antimicrobial being applied, not what is a pest or not.
S&P is uninsured and uninsurable. Liability insurance policies do not cover claims that are based on warranties. The warranty provided by an uninsured vendor is likely worthless in the face of a class-action wrongful death suit. Providing a warranty of long-term performance of Magic Potion would lead informed underwriters to decline to insure S&P. The posted signage reassuring that the premises is virus-free is another reason that informed insurance underwriters would decline to insure S&P.
The insurance companies' first reaction to COVID-19 risk was to exclude the loss exposure. If the property and liability insurance policies of the stakeholders did not already have a communicable disease exclusion, the renewals from April 2020 and further on most likely did. COVID-19 is a communicable disease; nobody in the above scenario is insured for a COVID-19-based class-action suit—that includes the manufacturer of Magic Potion, who will also likely have a communicable disease or total pollution exclusion on the firm's product liability insurance policy.
Inviting people into a building based on it being guaranteed virus-free is folly. The first COVID-19-positive person that breathes in the building will have contaminated at least the air for a short period of time and likely some surfaces for a few days.
S&P got it wrong on the need for CPL insurance. The general liability insurance policy will contain a series of exclusions for contamination as a cause of loss, a separate exclusion for fungi and bacteria, and a communicable disease exclusion that specifically mentions virus-related losses are not covered causes of loss. Without a corresponding CPL policy to fill the coverage gap in the GL policy for biohazards, including virus as a cause of loss, S&P is uninsured for what they do for a living. A specially modified CPL policy with an affirmative coverage grant for the virus decontamination services provided by S&P is the liability coverage that all of the stakeholders need access to.
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.
1 A consensus document for a legally defensible cleaning and disinfecting protocol has been developed through the cooperation of the Restoration Industry Association, the Institute of Inspection, Cleaning, and Restoration Certification, and the American Industrial Hygiene Association. The COVID-19 Pandemic: A Report for Professional Cleaning and Restoration Contractors was originally published in March 2020, and the report is now in its fifth edition.