Restoration logo
search
cart
facebook twitter linkedin youtube
  • Sign In
  • Create Account
  • Sign Out
  • My Account
Restoration logo
  • NEWS
  • PRODUCTS
    • New Products & Technologies
    • Submit Your Product
    • Interactive Product Spotlights
  • EDUCATION
    • KnowHow.
    • Podcasts
    • Trade Shows & Expos
    • Training & Certification
    • Webinars
    • Whitepapers
  • TOPICS
    • Water Damage
    • Fire & Smoke Damage
    • Mold
    • Contamination
    • Odor
    • Contents
    • Architecture
    • Catastrophe
    • Cleaning
  • BUSINESS
    • Managing Your Business
    • Insurance/Legal Matters
  • BUYER'S GUIDE
  • VIDEOS
    • Ask Annissa
    • Ask the Expert
    • Ironclad Marketing Minute
    • TradeTalks
    • Video Channel
  • INFOCENTER
    • Mold and Mycotoxins
  • THE EXPERIENCE
    • Conference & Exhibition
    • Convention & Trade Show
    • R&R Special Issue
  • EMAG
    • eMagazine
    • Archive Issues
    • Contact
    • Advertise
  • SIGN UP
Insurance/Legal Matters in RestorationManaging Your Restoration Business

Risk Management and Insurance Mega Trends In 2012

By David J. Dybdahl
January 4, 2012
These risk management and insurance mega trends in 2012 are certain to affect the restoration business. In this article, I will cover the top risks facing...




These risk management and insurance mega trends in 2012 that are certain to affect the restoration business. In this article I will cover the top risks facing restoration firms and offer advice on how to counter the emerging mega trend.

Courts Confirm Fungus/Mold/Category 3 water/Bacteria Related Losses Are Not Covered In GL Policies
Since 2006 I have been warning restoration firms in multiple presentations and publications that the fungus/mold bacteria exclusions in the General Liability (GL) insurance policies have eliminated the core liability insurance coverage for restoration firms performing operations where a speck of mold or Category 3 water is involved.

From the knowledge I gained on water and mold losses as a member of the consensus drafting committees of both the IICRC S500 and S520 professional standards and guidelines for water and mold remediation combined with a masters degree in insurance and thirty years of experience insuring contractors, the huge coverage gap in the General Liability policy for any claim involving a speck of mold or Category 3 water was totally obvious to me. However, in spite of what I thought was a obvious insurance coverage design flaw for years, to this day 80% of restoration firms still purchase traditional GL insurance policies. Some restoration firms do not even purchase Contractors Pollution Liability (CPL) which has always seemed crazy to me in light of what they do for a living.

A recent insurance coverage court case in New Jersey involving a General Liability policy and a Contractors Pollution Liability confirms that what I have been warning about for years is accurate. I feel vindicated!

A  New Jersey Court of appeals case settled in October 2011 confirms my message that:
  1. The GL policy is not adequate liability insurance on jobs involving mold or category 3 water;
  2. Specially modified Contractors Pollution Liability insurance is needed for any firm that may run into water, asbestos, or lead on a job or who may use a chemical treatment of any kind on a project, and
  3. The purchase of separate GL and CPL policies should be avoided if at all possible. It is far better from a cost and claims standpoint to have the GL and CPL insurance on the same policy form. I found this case in Lexis, a data base used by legal researchers. This is the first case I have seen in New Jersey where a court is determining how the Fungus and Bacteria exclusion in General Liability policy applies on a mold remediation job which also used a fungicide. I would be quoting from the case here but at the top of the page of the document it says:

    NOTICE: NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION.

    I am not sure what that means but I am not going to get crosswise with a New Jersey court in finding out.

    The takeaways from this case are: This was a $500,000 problem for the restorer; the case was actually brought by the CPL insurer of the franchisee to try to recover from the GL insurance policy which was issued by another insurance company not related to the company that issued the CPL policy. Because the loss involved mold and a fungicide the GL carrier successfully denied the original claim in court and through the appeals process. If the contractor was on their own fighting their General Liability insurance company for coverage in court, the firm would have needed enough cash to pay the $500,000 plus attorney fees for five years.

    This case took five years to work through the courts, and the carrier denying the loss on the GL won. I am an expert witness on insurance coverage cases in federal and state courts. I have sat in depositions with teams of lawyers where the clock was ticking at $45 per minute in the room and we were not at the appeals court level. I know of very few restoration firms that make a profit at the rate of $45 per minute in order to pay for lawyers and experts.

    The only good news for the restorer in the loss was the CPL policy paid the original claim that the GL carrier had denied. Some of the CPL policies sold to restoration firms today may not have paid the claim at all due to a series of common exclusions that would apply to facts on the loss. Because the GL and CPL were provided by separate insurance companies the original outcome could have been worse for the restorer with both the GL and CPL insurance company’s claims adjusters standing around saying “that’s not my job man” as each adjuster tried to push the claim onto the other adjusters policy. Potentially in this case the contractor could have ended up suing both the GL and CPL carriers for coverage paying out big dollars on per minute basis to sue two insurance companies.

    There are common themes in GL coverage cases as they come out of the court system in various states:
    1. The insurance companies denying losses in the GL policy win, meaning the restoration firm is uninsured.
    2. The GL policies exclude more in the Fungus/Mold/Bacteria exclusions than any separately purchased CPL policy can insure.
    3. The work was performed many years ago and is just coming out of the court system now, which means the restorer was involved with legal costs for years. If the costs were higher the restorer could be bankrupt.
    4. The restoration firm purchased insurance that takes judges and legal teams to figure out of there is coverage in the policy. It floors me to read these cases; why would anybody purchase a liability insurance policy that takes appellate level judges to figure out? This is crazy!

      The Mega Trend

      As claims adjusters get schooled up from court cases on the far reaching effects of fungus/mold/bacteria exclusions expect more “water losses” to be declined on both property and liability insurance policies. Claims adjusters will find it more and more difficult to ignore the mold growing on the wall in the Category 3 water loss in the face of such restrictive case law. As a result I expect adjusters to increasingly deny claims under General Liability and Property policies if the loss is related to mold or Category 3 water.

      The Counter Play

      Make sure you have high-quality insurance coverage on your business with the GL and CPL in a single policy form where possible. Also make sure that you know if a property claims adjuster that is paying for your services on a job is going to limit the recoverable insurance on a water job due to a mold/Category 3 water/bacteria restriction in the policy. Avoid being over extended on work that is not covered in the property insurance policy, you may get left holding the bag.

      The Hard Insurance Market

      The cost and availability of insurance varies over time based on the available capacity (money) in the insurance companies and their loss experience. Poor investment returns and the storms of 2011 have drained a lot of money out of the insurance companies. They need to charge more for their products and can be more picky about who they insure in the future. Increased costs and restricted availability of insurance is termed a hard insurance market by insurance practitioners.

      Restorers are particularly vulnerable to a hard insurance market place because of the over 2,400 insurance companies in the United States, only seven companies issue the combined General Liability and Contractors Pollution policies needed to avoid the insurance coverage problems I mentioned above. Of particular interest, two of the companies that pioneered the use of combined GL/CPL policies on restoration firms are refusing to renew their policies on this class of business at any amount of premium in 2012. That is an ominous sign of things to come.

      Restorers in New York are going to have severe insurance availability problems in 2012. We are cobbling together solutions for these firms in our insurance brokerage operations but it is amazing to me to see how fast the insurance market is drying up for New York- based contractors. Some of these firms will face more restrictive coverage at significantly increased costs.

      The Mega Trend

      We are witnessing the exit of top-rated insurance companies who pioneered insuring restoration contractors on high quality combined GL/CPL/Professional policies. Those exits combined with tighter underwriting requirements by the surviving underwriters have reduced the number of potential sellers of liability insurance to restoration firms by 25% in the past 18 months. So far the reduction in supply has not lead to increased premiums (yet). Still, plan for 8% rate increases on average in 2012, in stark contrast to the 20% rate decreases we have seen for the past 3 years.

      The Counter Play

      Be sure that you are insured by an insurance company that has restoration firms as a target class of business and who has been writing them for more than three years. These insurance companies are a lot less likely to decide to not write insurance on restoration firms in the near future.

      The Growth in Networks

      When insurance companies get squeezed on profits, like they have been for three years now, out sourcing non revenue generating functions can look pretty good. Claims departments are a cost center in an insurance company; reducing head count and costs are a constant pressure point with the carriers.

      Restoration networks offer an excellent value proposition for the insurance companies; trained, experienced, certified and insured contractors who have been scrutinized by a formal evaluation process, ready to respond to a loss in a consistent manner, anywhere in the US in less than two hours. As a result of this exceptional value proposition for the cash-strapped insurance companies, some networks express their growth in double digit numbers on an annual basis.

      Mega Trend

      The growth in networks through master service agreements will continue. As a result, less and less claims work will be sourced locally through insurance agents. Working for networks increases the risk of restoration contractors because the insurance companies want to offload job performance risk along with the restoration work.

      Counter Play

      Participating in networks is an efficient way to source jobs without taking on undue risk; there is no need to counter that aspect of networks. What participating firms need to keep in mind is the indemnity obligations under the network contracts and is how important it is to fully comply with the insurance specifications of the networks.

      The insurance specifications of the network are usually crafted to assure the insurances purchased by the contractor match up to the indemnity obligations the restorer assumes when working in the network. Therefore paying close attention to actually having the specified insurance in place should avoid the situation where a contractor has to indemnify the network for a loss on a job, but does not have the proper insurance coverage in place to back up the indemnity obligation.

      In addition to gaining a steady source of restoration jobs, a potential advantage to a network is they may have an insurance package available through a insurance vendor that has been specifically tailored to match the network’s insurance specifications.

      More Pressure from Insurance Agents for Contractors to Buy Higher-Quality Insurance

      Insurance agents can be sued by their customers for Professional Errors and Omissions if the agent sells inherently defective insurance policies that do not meet the insurance needs of the customer. To avoid professional liability for potentially uninsured losses agents can point out the coverage defects in the policies being proposed at the time of sale.

       The smart agents are seeing the writing on the wall on mold/fungus/bacteria exclusions and are becoming increasingly nervous about potential coverage gaps in the policies they are selling. It makes them even more nervous when a firm does not purchase the insurance that the agent knows the firm needs. Lucky for the insurance agent in the first mega trend I discussed, the franchisor required in their insurance specifications that the GL and CPL policies had to be written on separate insurance policies.

      Even if the insurance agent for the restorer had suspected a coverage design flaw in separately purchased GL and CPL policies, the agent still would have been forced to place in insurance program that met the specifications of the franchisor.

      Mega Trend

      More insurance agents will be asking for a letter holding them harmless if the restorer does not purchase the recommended coverage or demands the agent place an insurance design that is fundamentally flawed. The expert witness work of ARMR increased 400% in 2011, directly as a result of insurance agents leaving their customers bare for pollution/mold/fungus/Category 3 water/bacteria losses. Over time the insurance agents will gain understanding on their professional liability loss exposure in this area and will move to manage their risk.

      Counter Play

      It is not a good idea to counter this trend in insurance agent professionalism. Contrary to popular belief most insurance agents are not there to sell you something. Most insurance agents genuinely care about you having the insurance you need. If your insurance agent has discovered a insurance design flaw in your insurance program that is so significant they want to be held harmless if you ignore their advice; what is unreasonable about that?

      Summary

      We are moving into a hard insurance market place expected to see:
      1. More claims denials for losses associated with mold and Category 3 water.
      2. More non-renewals of insurance programs and increasing insurance costs.
      3. The networks market share of claims work will expand, be very careful to fully meet their insurance specifications, they are designed to prevent you from being uninsured on a claim that you have to indemnify the network on.
      4. Insurance agents will increasingly ask to be held harmless if you do follow their recommendations for needed coverage.
KEYWORDS: restoration and remediation litigation training event

Share This Story

Looking for a reprint of this article?
From high-res PDFs to custom plaques, order your copy today!

David dybdahl

David Dybdahl is the president and founder of American Risk Management Resources Network LLC (ARMR). He is an insurance broker, professional insurance educator and expert witness on insurance matters involving billions in litigated damages in multiple federal courts. For 18 years he has served on various IICRC Consensus Drafting Committees. In March of 2020 he played a key role in producing the Restoration Industry Association's and IICRC COVID-19 Report to create a legally defensible disinfecting protocol for coronavirus virus in buildings. ARMR is the #1 seller of insurance to cleaning and restoration firms in the U.S. The customized insurance policies ARMR designs are sold through local insurance agents and brokers in all 50 states. David can be reached at dybdahl@armr.net and his cell is (608) 513-6101. He welcomes questions and inquiries.

Recommended Content

JOIN TODAY
To unlock your recommendations.

Already have an account? Sign In

  • mold remediation

    Fighting Mold and Bacteria Damage

    Successful mold remediation can be multidisciplinary,...
    Mold Remediation
    By: Josh Woolen
  • certifications and licenses for restoration professionals

    Certifications and Licenses Every Restoration Company Needs

    Restoration companies need to make sure they have the...
    Restoration Training/Education
    By: Sharon Elzarat
  • a wall covered in moss and fungus

    Zero Tolerance for Toxic Molds: Essential Steps for Successful Remediation

    Understanding the importance of zero tolerance for toxic...
    Mold Remediation
    By: Michael A. Pinto CSP, SMS, CMP, RTPE, FLS, ERS and Kendra Seymour
You must login or register in order to post a comment.

Report Abusive Comment

Subscribe For Free!
  • eNewsletter
  • Online Registration
  • Subscription Customer Service
  • Manage My Preferences

More Videos

Popular Stories

Ask the Expert: Unlocking Efficiency in Water Damage Restoration

Unlocking Efficiency in Water Damage Restoration

Jon-Don and Aramsco

Aramsco Acquires Jon-Don Assets to Ensure Seamless Service and Support for Customers

Ask the Expert: Catastrophe Panel - Back to the Basics Part 1

Catastrophe Panel – Back to the Basics Part 1

Submit Your New Product/Technology to R&R!

Would you like to promote a new restoration, remediation or cleaning product/technology with Restoration & Remediation? Fill out the question below to start your submission:

Events

September 3, 2025

The Experience Convention and Trade Show

The Experience Convention & Trade Show logoJoin us in Las Vegas for The Experience Convention & Trade Show, the leading event for cleaning, restoration, and remediation pros, packed with hands-on demos, expert speakers, and high-impact networking. Happening September 3–5, 2025 at Caesars Forum—this is where the industry comes to learn, connect, and grow!

View All Submit An Event

Poll

Restoration Services

What restoration/remediation service do you prioritize most?
View Results Poll Archive

Products

The Cleaning, Restoration, Inspection, and Safety Glossary

The Cleaning, Restoration, Inspection, and Safety Glossary

The Cleaning, Restoration, Inspection, and Safety Glossary.

See More Products

Related Articles

  • cityscape, a river with ice

    The 2021 Polar Vortex: Insurance and Risk Management Considerations for CAT Work

    See More
  • house beams iicrc

    The IICRC Standards: An Important Risk Management Tool

    See More
  • Dybdahl_FT

    The Best Risk Management Tool for Mold Remediation

    See More

Related Products

See More Products
  • secrets-of-insurance-game.jpg

    Secrets of the Insurance Game

  • insurance.png

    2025 National Renovation & Insurance Repair Estimator

  • COVER pdf.jpg

    How to Get More Restoration Jobs in 14 Days... (ebook)

See More Products
×

Stay ahead of the curve with our eNewsletters.

Get the latest industry updates tailored your way.

JOIN TODAY!
  • RESOURCES
    • Advertise
    • Contact Us
    • Directories
    • Store
    • Want More
    • Submit a Press Release
  • SIGN UP TODAY
    • Create Account
    • eNewsletters
    • Customer Service
    • Manage Preferences
  • SERVICES
    • Reprints
    • Marketing Services
    • Market Research
    • List Rental
    • Survey/Respondent Access
  • STAY CONNECTED
    • LinkedIn
    • Facebook
    • YouTube
    • X (Twitter)
  • PRIVACY
    • PRIVACY POLICY
    • TERMS & CONDITIONS
    • DO NOT SELL MY PERSONAL INFORMATION
    • PRIVACY REQUEST
    • ACCESSIBILITY

Copyright ©2025. All Rights Reserved BNP Media.

Design, CMS, Hosting & Web Development :: ePublishing