Coping with pollution ‘hot zones’

The conversation that you never want to have with your insurance professional is the one when he or she informs you that there is no coverage available for the claim you have just filed for damage to your facility. Pollution-based incidents have become one of the most common perils causing major losses and, therefore, huge claims to be filed. Being without the appropriate environmental insurance coverage as part of your facility’s overall policy could prove to be the worst nightmare for your facility and its residents.

A common scenario that many facilities can easily relate to is the discovery of a serious mold condition, forcing a major cleanup and some bodily injury allegations. The coverage questions emerging thereafter will confront the insurance professional in rapid-fire style: Is there a mold exclusion? Does the property policy pay for cleaning up mold? Is there coverage for repairing building damage caused by the mold cleanup? Is mold actually pollution? The answers will vary from policy to policy, adjuster to adjuster and, perhaps, lawyer to lawyer. But one thing remains constant: The eldercare facility wants its insurance professional to make certain that the claim is paid by the carrier.

Dangerous pollution risks

Eldercare facilities face some of the most dangerous pollution risks of any industry. Their environmental risk profile is much higher because of their full-time occupancy by a fragile population-this completely changes all the rules that apply to other commercial facilities. The compromised health conditions of the residents who live in these facilities create a “hot zone” where a pollution condition could result in serious injury or death.

To the majority of the population, pollution conditions such as mold, bacterial outbreaks, and viral contamination are little more than an annoyance, but they are potentially devastating to elderly residents. If these conditions result from facility-based causes such as Legionnaire’s disease outbreaks from HVAC systems, mold conditions, or improper handling of medical waste, the organization in question could potentially face catastrophic exposure to substantial bodily injury claims, including the much feared class action lawsuit.

At a glance…

Pollution-based incidents have become one of the most common perils causing major losses and, therefore, huge claims to be filed. Being without the appropriate environmental insurance coverage as part of your facility’s overall policy could prove to be the worst nightmare for your facility and its residents.

John Butler

In a less dramatic but just as expensive fashion, the fragile resident population could also be physically impacted by conditions not often thought of as “pollution,” such as fumes from freshly applied paint, petroleum-based materials found in carpeting and furnishings, and properly applied pesticides and herbicides. Outside air pollution sources, such as industrial and vehicle emissions from loading docks, dumpsters, unsanitary debris, or building exhausts near air intakes, all present serious everyday risks to these residents.

An insurance oversight

Among the thousands of insurance professionals throughout the country providing insurance programs covering the unique risks of long-term care organizations, almost none have recognized the potential financial impact to their clients of failing to insure against the pollution risks and exposures that threaten the eldercare “hot zones” in these facilities.

There is a variety of reasons for this, but the most common is simply not recognizing pollution as a risk management issue for eldercare “hot zone” facilities. Pollution risk is traditionally thought to be an issue among industrial companies that use or generate hazardous materials that could contaminate soil and water resources and potentially injure surrounding populations. In fact, an eldercare “hot zone” facility in its own way could present an even greater risk and loss exposure to its owners than a manufacturing plant, refinery, or waste disposal site, especially one that is closely monitored through a loss control program.

Conservative approach

Environmental insurers will consider insuring pollution risks involving most industry sectors, but when faced with providing coverage for eldercare “hot zone” facilities, they generally take a very conservative underwriting approach. In view of the magnified risk factors involved, these policy proposals can be severely limited as to the types of pollution conditions covered, often (if not always) with bacterial, mold, and viral contamination excluded.

High deductibles and/or premium cost can also occur, with policy endorsements limiting or eliminating critical coverage such as first-party cleanup of pollution conditions and business interruption. Your facility’s insurance professional should rely on a specialty broker who is not only knowledgeable in environmental risk but able to specifically accommodate the unique challenges of the eldercare industry.

Broaching an important topic

It is often difficult for an insurance professional to introduce environmental risk and insurance to their insured simply because they don’t know that much about it. The easiest way to assess the pollution risk of an eldercare “hot zone” facility is to explore together, with an informed agent, the different types of incidents that could occur at the facility and would be defined as pollution. A simple guideline to follow is that pollution takes place when the release of a man-made and/or organic material into a structure, soil, air, or water causes harm to humans and/or the environment.

When an insurance professional discusses this risk with his/her clients, it’s typical that the facility owner will respond that nothing like that has ever happened, so why worry about it now? When it comes to environmental matters, the future is not only unpredictable, but whatever “rules” have been established in the past can be changed at any moment. The only way to prepare for an unforeseen crisis is by making certain that eldercare clients understand how pollution relates to their facilities and organizations, and that if they choose to not be covered, they are bearing that risk on their own. Communicating this fact should be considered at minimum the responsibility of every insurance professional.

The bottom line

The good news is that environmental insurance is highly affordable and, in fact, should only increase the total cost of the insurance program by a few percentage points. As important as having the coverage to pay claims and expenses is the fact that the insurers provide the highly specialized legal and technical support that is needed when pollution events do occur.

Even without regard to the financial element, an eldercare “hot zone” facility is completely unsuited and ill-prepared to respond to pollution incidents that call for multiple sets of attorneys, scientists, mechanical and environmental consultants, and contractors. The time and personnel required to manage what effectively becomes an environmental insurance claims department can be worse than the cost associated with the appropriate insurance add-on.

Don’t wait to examine the insurance ramifications of your facility’s “hot zones.”

John Butler is Vice President, Program Brokerage Corporation (PBC), Environmental Division, and leads the environmental insurance practice of PBC, a provider of specialist expertise to retail brokers throughout the United States and Canada. In addition to the eldercare industry, he has developed environmental insurance solutions for energy, manufacturing, banking, and real estate.

For further information, phone (212) 338-2941 or e-mail To send your comments to the editor, please e-mail

Long-Term Living 2009 December;58(12):28-29

Topics: Articles , Facility management , Operations