Organizational Acquired Infections - Insurance Concerns?
An Insurance Perspective
Richard D. Bennett, MSPH, CIH &Gregory A. Jones, AAI, AFSB, CIC, CPCU
Updated March, 2006 by Mark Schweder, MSPH, CIH
Risk Tech, LLC & Palmer & Cay
Introduction
A higher standard of care has emerged since the year 2000 regarding operations and maintenance, renovation, and construction activities in healthcare facilities. An alphabet soup of consensus groups including the Centers for Disease Control and Prevention (CDC), the Joint Commission on the Accreditation of Healthcare Organizations (JCAHO), the American Institute of Architects (AIA), and the Association for Professionals of Infection Control and Epidemiology (APIC) have promulgated criteria for environmental infection control during maintenance and construction activities. 
These relatively new criteria are designed to lower the nearly two (2) million hospital acquired infections that result in 88,000 deaths annually (CDC data).
The JCAHO criteria are central to this higher standard of care in seeking to prevent "organizational acquired illness (EC 1.7 and EC 3.2.1)." JCAHO turned up the heat further on January 22, 2003 by issuing a Sentinel Event Alert that requires healthcare organizations to report patient deaths occuring as a result of hospital acquired infections. Sentinel Events require root cause analysis. These criteria, along with significant leaps in improvement of sampling and analytical technology for identifying environmental microbial reservoirs, equates to increased liability for healthcare facilities, architects, contractors, vendors and consultants.
The insurance industry's response to mold claims for commercial and residential buildings serves as a precursor to how hospital acquired infections will be dealt with. Mold litigation had literally inundated the residential marketplace by the year 2002, although the numbers of claims has reduced significantly by 2006. Lawyers blamed insurance companies for failure to pay for or adequately repair mold damage, and are winning significant verdicts against insurers. This led to insurance carriers adding endorsements, exclusions, and even re-writing policies to limit their exposure under homeowners property insurance policies. Due to these exclusions, plaintiff attorneys are now turning their attention to contractors and design professionals alleging that faulty design and construction were contributing factors to the growth of mold that injured their client.
As a result of this anticipated litigation against design professional, contractors, and even certain product suppliers, the Insurance Services Office (known as ISO) and the American Association of Insurance Services have authored a number of exclusionary endorsements for insurance companies to use with their various insurance policy forms.
Even under policies that do not contain specific mold exclusions, insurance companies may contend that other exclusions preclude coverage for mold-related claims, such as pollution exclusions, contamination exclusions, seepage exclusions, owned property exclusions, business risk exclusions, faulty workmanship exclusions, and deterioration/wear and tear exclusions. Across the nation, the law is in a state of flux regarding whether such exclusions bar coverage for mold-related claims. For instance, in Lexington Insurance Co. v. Unity/Waterford-Fair Oak, Ltd., 2002 U.S. Dist. LEXIS 3594 (N.D.Tex. 2002), the court found that a pollution exclusion precluded coverage for mold-related bodily injury claims while in California Capital Insurance. Co Sacramento Partridge Pointe (California Superior Court, Sacramento County, March 4, 2002), the court came to the opposite conclusion when analyzing a similarly phrased pollution exclusion. (Wielski, IRMI).
The bottom line with respect to mold and bacteria (i.e. legionella, pseudomonas, or staphlococcus) is that owners and operators of healthcare facilities cannot assume that (1) their insurance program will provide coverage for allegations of bodily injury or property damage attributable to mold and bacteria, or (2) that their design professionals, contractors, or even environmental consultants will have insurance that covers allegations that may arise out of either new construction or renovation to existing facilities. Consequently, a risk management approach to protecting the entities assets and earning power is absolutely essential.
Insurance Coverage Review
Design Professionals
Mold is becoming a major concern for Professional Liability insurers of Architects & Engineers. From an owner's perspective, the owner should assume that most A/E professional policies contain some type of exclusion relative to mold. The landscape in this arena is changing daily as underwriters keep a close watch on claims and claim trends.
CNA, the endorsed carrier of the AIA and NSPE, added a mold exclusion endorsement, effective May 1, 2002, to its CGL and commercial umbrella policies. The CNA mold exclusion states insurance does not apply to bodily injury or property damage arising out of or relating to actual, alleged or threatened contact with, exposure to, existence of or growth of any "fungi" or "microbes." The exclusion also excludes any loss, cost or expense arising out of or relating to the testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, remediating, or in any way responding to or assessing the effects of fungi or microbes. Also, the various societies such as AIA and NSPE support the use of exclusion language if mold litigation becomes rampant. They do not want their members to be the deep pockets for such litigation.
These endorsements have been filed with state regulators, and have been implemented in various states since about April of 2002. As part of the filing, ISO has included endorsements to be used with its standard umbrella liability form, as well as with owners and contractors protective liability and products/completed operations liability coverage forms. These other endorsements are substantially similar to those discussed above. Of course, there are many manuscript endorsements in use. They use varying terminology, and exclude coverage for "pathogenic organisms," or "moisture-related deterioration".
Environmental Consultants
The same comments applicable to the A/E community apply to the environmental consultants as well. In addition, consultants who also perform the environmental work are seeing insurers limiting or underwriting mold coverage. The insurers are addressing coverage for mold under pollution legal liability (PLL) and other pollution policies, such as contractors pollution liability (CPL) policies, expressly extending the definition of "pollutant" to include fungi or bacterial matter which produces the release of spores or the splitting of cells, including mold, mildew and viruses. However, underwriting considerations may dictate that such coverage be provided only through a relatively small sub limit. Alternatively, in order to obtain a higher sub limit, an additional premium may be charged on a case-by-case basis. Still other insurers may not offer such coverage or enhancements at all. Again, the owner cannot assume there is coverage under these policies.
Contractors
Perhaps the best commentary on construction liability insurance can be found in the American Association of Insurance Services's (AAIS) introduction to its new endorsements developed for its member companies:
Construction defect claims have literally upended some traditional understandings concerning the application of insurance to construction work:
- Construction defect claims are creating unanticipated levels of losses under an exception from the damage to your work exclusion for subcontracted work. Insurers believe the exception is being exploited to make property/casualty insurers assume business risks, and are moving to eliminate the exception.
- A particular component of construction, a synthetic stucco called exterior insulation and finishing systems (EIFS), has been found to trap moisture and cause mold to build up. Insurers are moving to exclude losses arising from the installation of EIFS.
In response, AAIS has developed endorsements to address construction defect exposures, and filed them concurrently with the mold endorsements.
- One of the endorsements eliminates the exception for work done by subcontractors generally.
- A second endorsement eliminates the exception for work done by subcontractors at locations and for projects designated in the endorsement.
- A third endorsement excludes coverage for claims arising from EIFS.
Solutions - So what is an owner to do?
The basic principles of risk management should be applied to this potential exposure.For review purposes, risk management can be defined as a common sense approach to managing all types of pure risk (i.e. not speculative risks) faced by an individual, a corporation, or a governmental entity. It is a management process involving four steps.
- Identify & analyze potential exposures to loss
- Direct Property
- Indirect Property (i.e. loss of use)
- Liability
- Personnel Related
- Determine how to treat the exposures to loss
- Avoid
- Retain (i.e. self-insure)
- Control
- Transfer (i.e. insure/contractual transfer)
- Implement the risk management plan
- Detail the protection of contractors and building occupants
- Scope of Work
- Monitor the results
- Quality Control surveys
An entire textbook could be written regarding the various methods owners can utilize to help avoid, retain, control and transfer the mold and bacteria risk. However, here is a brief summary of alternatives to consider.
- Completely know and understand the exposure (statutory and legal liabilities)
- Engage consultants and contractors that are knowledgeable and have active prevention and control programs already in place.
- Make certain your construction contracts address the assignment of responsibility and risk associated with mold, bacteria, dust, and airborne particulate.
- Require contractual indemnity. While this may place an uninsurable financial risk on the contractor or subcontractor, it provides enormous incentive to properly schedule and sequence the work in order to avoid potential problems.
- Clarify project management and take a proactive involvement in all phases. This is particularly important for any fast track jobs or jobs with aggressive time lines.
- Consider the use of a project specific professional liability policy for larger projects. By utilizing a project specific policy, the owner can help reduce the uncertainty and cost of any future claims that may arise out of the construction project. These policies provide specific limits for a specific period of time following construction, and the owner can be indemnified under the policy for third party suits alleging bodily injury. The underwriting process for these policies also provide an excellent check and balance for the owner and design and construction team since the mold exposure will be underwritten as well.
- All construction, renovation, and operations and maintenance activities that have the potential of generating bioaerosols must be subject to a thorough, written infection control risk assessment (ICRA).
- Ensure that all policies and procedures are up to date with respect to relevant consensus standard criteria and are reviewed periodically.
- Pre-construction baseline and post construction pre-occupancy environmental sampling can serve to verify acceptable conditions and assist the Owner in documenting the environmental conditions both during construction and after occupancy.
- If you organization already has a site specific environmental impairment insurance policy (known variously as Pollution Legal Liability (PLL), Environmental Site Liability (ESL), etc. make sure it covers allegations of mold in the pollution wording. This policy should serve as a safety net for your organization in the event of an acquired infection as a result of construction or renovation. If you do not have this coverage, seriously consider the purchase of such a policy.