Bed Bugs and Insurance
Posted on Tue, Sep 14, 2010
From: Independent Insurance Agents & Brokers of America
Question:
"I have a puzzling topic to run by you: bedbugs. As you know, these pests are a huge and growing problem, not just for homeowners and apartment dwellers, but the commercial aspect is mind-boggling. They're becoming more prevalent in retail and commercial spaces, not to mention hotels/motels and multi-unit buildings. I talked to an expert yesterday who said it could cost hundreds of thousands to get rid of them, a huge expense for a business owner. For agents and brokers, the angle is, how do you advise your commercial customers on this risk?"
Answer:
This is typically not covered by "ISO standard" commercial property forms. Here's the exclusion in the current ISO CP 10 30 Special Causes of Loss form:
"Nesting or infestation, or discharge or release of waste products or secretions, by insects, birds, rodents or other animals."
Pretty much the same language is being added to the new 2011 ISO HO 00 03 policy, although it already excludes loss caused by insects. While this exclusion does not usually appear in named perils forms, there is no reason for it since there is normally no named peril to cover the exposure.
In addition, these property forms only cover direct damage, not consequential loss such as the cost to remove them. An exception, if there is covered property damage, is the typical clause that requires the insured to protect their property from further damage. The insurer should pay reasonable documented costs to do this. But, again, the damage is excluded, so that's not an issue here.
Another uncovered cost is loss of business income. A bedbug infestation might require shutting the business down for weeks. It might also result in a long-term loss of income due to the adverse publicity.
However, from a business liability standpoint there would be coverage for bodily injury claims from customers but, again, no coverage for the cost to remove the bedbugs from the business's own property.
Insurance is just one form of risk management. In this case, unless there is a specialty or manuscripted product to cover this, businesses will have to use another RM technique, most likely loss control through vigilant inspections, pest control services, etc.