What a great time to be in the restoration business!
Climate change strikes again with another polar vortex in the U.S., creating new sources of big dollar demand for the restoration industry.
The earth is warming. The cause of the warming is debatable; that the average temperature of the earth surface is warming is just a fact. As a result of a warmer planet, the jet steam is slowing down, which allows cold air from the arctic to move further south than it has in the past and sit there longer. Everyone in the restoration business knows the results.
By every indication, there will be more and more extreme and severe weather events every year because of climate change. There will be hotter hots, colder colds, wetter wets, and dryer "drys" than people and buildings are used to. The next 50 years are going to be very good for firms in the restoration business, as everyone adapts to the new realities of more extreme weather. Insurance funds resiliency and restoration contractors are in lock step with those insurance payments.
The early February record-setting cold spell in the U.S. has created the need for massive amounts of restoration work, far outstripping the capabilities and resources of the restoration firms in the affected states.
The restoration industry is great at mobilizing and responding to major weather events. But working outside of one’s home territory presents risk management challenges for the responders. Below is some helpful risk management advice based on the school of hard knocks that we get to see in the form of claims being made against restorers in my insurance brokerage operation.
Risk Management Advice
- Do not work outside of your skillset. A CAT response far from home is no place for on-the-job training.
- Avoid hiring temporary labor if possible. Trained, trusted, and proven employees are the key to getting jobs done right.
- Work under contracts with specific scopes of work and utilize signed change orders that authorize the payments for changes in scope. Stop work if you do not have the signed change order.
- Warn the stakeholders if a delay in your work increases the risks associated with it. For example, being ordered to remove five air movers or leave a job before you know it meets clearance standards.
- Clearly identify who you are working for and their ability to pay you. Insurance recoveries for clearly-covered water losses from frozen pipes can be significantly reduced if mold starts growing or bacteria from Category 3 water is part of the loss. Insurance on a commercial building can shrink from $20 million of full coverage if there is a burst pipe, to only the $10,000 sublimit for the entire loss if the “m” word of “b” word appears in a description of loss. Most building owners, and fortunately claims adjusters, are unaware of this significant coverage gap in the property insurance on a building. But the words in the policy are clear and are lurking to significantly reduce the coverage insurance if the claims adjuster so chooses.
- If you hire subcontractors, obtain an insurance certificate directly from the subcontractor’s insurance agent, not from the sub-contractor directly. Utilize a tight set of insurance specifications in your subcontracts.
- Make sure your insurance is fit for the purpose for which it is intended; many liability insurance policies sold to restoration contractors are not adequate to address the loss exposures commonly associated with restoration contracting.
- Inform your insurance providers that you are performing CAT response work, especially if that work is outside of your normal operating territory. Adjustments to your insurance coverage are likely necessary.
- Seek advice from a qualified insurance professional on the different risk profiles of different states. The risks associated with operating in a different state can be very different than your home operating territory. Louisiana is different than Texas. New York is different than New Jersey.
- Before you start work, make sure you have all the needed licenses to do that work and that the work you are performing is not illegal in some way. Pay particular attention to the application of biocides. At least 16 states require the applicators of biocides to be licensed as pesticide applicators.
- Follow the manufacturer’s label on cleaning products and biocides. It can be a violation of federal law to deviate from the label instructions on biocides and disinfectants. Insurance companies do not pay for illegal work.
- Protect workers for COVID-19 with COVID-safe working conditions.
Special Insurance Needs for CAT work
Workers Compensation Insurance This insurance coverage is state-specific. Employees injured out-of-state can claim benefits in the state where the injury occurred; those benefits may be different than you home state. The workers compensation coverage will need to be adjusted to cover this contingency when working out-of-state. There is no exclusion for COVID-19 claims in this policy.
General Liability Insurance This coverage applies anywhere in the U.S. and Canada. However, be aware of state-specific exclusions that do appear in some policies. Do not work in a state that is excluded from coverage in your general liability insurance policy.
The more common problem on the general liability insurance policies frequently sold to restoration firms is a series of exclusions related to various contaminants and biohazards. Insurance companies responded to COVID-19 in 2020 with universal exclusions for communicable disease as a cause of loss. COVID-19 is a communicable disease. The general liability insurance policy will also usually exclude losses arising from specific contaminants including silica, lead, asbestos, fungi, mold, bacteria, or virus. The resulting insurance coverage gaps can be filled with a high-quality contractors pollution liability (CPL) insurance policy.
In addition to excluding losses from these contaminants, general liability insurance policies, when purchased separately and not part of a specially-designed combined policy form with CPL insurance, will also separately exclude all liability insurance coverage at a job site where you are working to clean up or even assess the presence of a speck of any type of fungi or bacteria, including mold and Cat 3 water. It is unbelievable to me that anyone would sell a restoration firm a policy that excludes claims arising from a job site involving cleaning up or assessing a speck of mold or bacteria because that happens a lot in the restoration world. But 70% of restorers are sold GL policies with job site exclusions hidden in the fungi and bacteria exclusion endorsement. The liability insurance coverage gaps created by a job site exclusion on a general liability insurance policy for projects involving fungi or bacteria cannot be filled through the purchase of contractors pollution liability insurance.
Virtually all general liability insurance policies in 2021 will have a COVID-19, virus, or a communicable disease exclusion in them. If the restoration firm itself is insurable with the certified biohazard training, prior experience in biohazard remediation and has PPE equipment, the resulting insurance coverage gaps can be filled with a specially modified contractors pollution liability insurance policy that provides an affirmative coverage grant for these contaminants. Firms without that prior experience with biohazards will find it difficult to get coverage for COVID-19, but that is situation is improving in the insurance marketplace. By the time readers are reading this, I expect coverage to be available.
Contractors Pollution Liability Insurance
This insurance applies anywhere in the United States and Canada. CPL insurance was originally designed to fill the insurance coverage gaps created by the pollution exclusion in the general liability insurance policies purchased by contractors working to remediate superfund hazardous waste sites, outdoors. Due to the original design of the insurance policy, most CPL policies are not adequately designed to cover indoor work involving biohazards. Some but not all CPL policies are specifically designed for the restoration trade. A subset of these CPL policies provide affirmative coverage for COVID-19 as a cause of loss.
Professional Liability Insurance
General liability and CPL insurance policies routinely exclude losses from “professional services.” The IICRC Standards are “professional” standards. Professional liability insurance is available for no additional premium on the higher quality CPL+professional liability and combined GL+CPL+professional Liability policies designed specifically for restorers.
In addition to the positive work for humanity, CAT response work has the potential to be profitable for restorers. The IICRC and RIA are developing a new white paper to serve as guidance for restorers engaging in this important work in response to the polar vortex. Restorers moving into the CAT response business with their eyes wide open to the possible pitfalls to avoid, can help others and make a reasonable profit in doing so. There will be a lot more CAT work in the future.