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
license.1 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.2 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.
Conclusion
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.
Answer Key
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.