E&O Loss Control
Mold - A Potential E&O Nightmare?
By Curtis M. Pearsall, CPIA, CPCU, AIAF
For some time now, mold has been a hot topic in the insurance industry. In fact, the last statistic that I could locate indicated that in 2002, there were over 300,000 mold related property claims - quite a staggering number. Many now feel that the potential for agents to face E&O claims involving mold is growing. What has changed to prompt this? Let' s take a look.
In the late 90' s and into the new century, a significant increase in fungus and mold related claims resulted in most insurance companies developing exclusions, on both a personal and commercial lines basis, in an attempt to minimize / avoid their exposure. In many cases, they accomplished their objective. Understanding that E&O claims typically occur as a result of an uninsured loss, if one of your clients is faced with a mold loss (property or liability) that is excluded, they will be forced to bear the brunt of that loss on their own. Will they take action against you, their agent?
While you can' t stop them from taking action, in many cases, you will determine the final outcome.
Education is a great first step. While many agents spend a tremendous amount of time educating their clients on what their insurance policies cover, more time should be spent on what is not covered. Studies show that most clients want to know what is not covered as much as what is covered. Thus, it is good business sense to proactively educate your clients about mold and the potential presence of mold exclusions in their personal and commercial lines policies. This will do a number of things. It will bring to their attention the exposures that are not covered but it will also give you the opportunity to sell coverage for this exposure. Mold exclusions have created a demand for environmental insurance products and expertise. By offering appropriate coverage to their clients, the professional agent will be able to capitalize on this demand. The premiums are not as high as you may think.
While mold can impact a vast number of risks, there are a handful of risks that are going to be especially hard hit. Contractors are going to be a common target. Home builders, roofers, plumbers, dry wall installers, and insulation firms all have a significant exposure in this area as do businesses involved in design and inspection of property risks. Other common targets include residential and commercial habitational risks. Chances are that coverage for apartments buildings, condo, etc. are going to contain a mold exclusion. If your agency writes coverage for these risks, it is important to check to determine if mold / fungus claims are excluded.
Also, the presence of mold exclusions on many professional liability classes covering architects, real estate and lawyers has already started.
Documentation is key so it is important that you document the discussion explaining the exclusion. This document will be critical if the client alleges that they were never advised. Also, you should advise your clients about insurance that is available and the risk they run if they don' t purchase such coverage. This should be documented as well. If it is determined that many of these firms could have purchased environmental insurance covering mold related damages and it was not even offered, this creates an exposure for you as the agent. The professional standard of care required for insurance agents and brokers varies from state to state and this will determine the degree to which the agents or broker will be responsible for the uninsured loss.
No doubt you have heard the slogan "Mold is Gold." Many a law firm in this country are preparing themselves to help those that suffered uninsured losses. Rumor has it that there have been over 100 education seminars covering this issue for lawyers to attend.
This issue facing agents is at the level that has prompted some E&O carriers to exclude any mold / fungus related claims on the agents E&O policy. This positions the agent to be the insurer of last resort for their clients' costly uninsured environmental and toxic mold claims. Utica' s policy does not contain such an exclusion.
Don' t let mold be your next nightmare. Take a proactive position in analyzing the exposure of your clients, bring to their attention any exclusions, advise them that there may be insurance available, recommend that they buy it and document all of the discussions. You will be able to sleep better at night.