Focus On Environmental And Pollution Coverage

By Lori Widmer

Where the claims are

Because pollution and environmental concerns run the gamut in terms of both industry and sector, it's difficult to identify any one primary claim driver. Peeples says that mold continues to create a lot of buzz in the claims arena, which is where he's seen some intense activity. "Generally, the environmental marketplace has been very successful selling pollution coverage to real estate investment trusts (REITs) and real estate owners (REOs)," he notes. These operations tend to focus on multitenant habitational properties, such as hospitality, office, commercial and retail operations, he adds.

Within those properties, Peeples says that water intrusion losses are increasing in frequency, "especially with all the rain in the west. So the number of mold claims has risen dramatically over the past several years."

Geisler sees the same trend. "Unquestionably, mold is the most frequent claim at this time. Claims arising from mold seem to span all products and many different types of risks." Among those, hotels, apartments and condos make up the majority of claims, with claims often occurring while capital improvements are being made. "Brokers with clients that engage in these types of services or that own these types of properties should fully vet these exposures and prepare their clients to answer questions from the carrier about their mold procedures and protocols."

Another area of concern, Geisler says, is the increasing number of claims stemming from contractor activity. "Wood-framed construction projects and those that use gypsum concrete have seen the most severe claims. If the contractor does not take steps to prevent water infiltration prior to the building envelope being completed, or if it does not allow the gypsum concrete to properly dry and cure, mold will likely grow."

Miller sees another claim driver, and it is one that can be easily mitigated. "While not new, insureds that do not use contracts in the course of their business continue to be problematic with respect to claims," she says. "Lack of contract use consistently increases the cost of a claim. Agents and brokers should encourage their clients to incorporate contract use as standard operating procedure. If an insured does not have in-house expertise, many resources are available on the web."

If that's not enough, Geisler says, one particular claim source could become more of an concern. "While vapor intrusion has been an issue for many years, recently there's been increased scrutiny and a push to reduce the standards applicable to many pollutants, especially volatile organic compounds (VOCs). As a result, formerly closed sites are being reopened from a regulatory standpoint and consultants are paying more attention to this issue when evaluating the environmental risks associated with a location. We expect claims in this area to increase accordingly. Additionally, following the high-profile issues in Flint, Michigan, drinking water has become a hot topic," Geisler says.

Advice for agents and brokers

Agents and brokers, Geisler says, should anticipate increased interest on the part of carriers with regard to such exposures. Geisler says it's important for agents to point out coverage gaps, and the best way is to "provide clients specific examples of claims that likely are not covered by their GL, auto or property policies. For example, mold is not generally covered under a builders risk, property or GL policy, but almost all property owners and contractors have a mold exposure."

An awareness program also helps, says Peeples, who suggests that agents and brokers help clients develop water intrusion plans and awareness of mold, its causes, its impact and a solid response. "Your client can hire an environmental consulting firm to help develop the proper protocols or review its property manager's response plans or processes," he says.

Miller also suggests using claim examples to help clients understand the need for environmental coverage. "Agents and brokers should do their best to stay informed so they can share local or industry-related environmental events as examples of how environmental coverage comes into play," she says.