Placing You First Insurance Podcast by CRC Group

Hospitality Industry Struggles to Find Mold Coverage

March 24, 2021 CRC Group, Jim Hamilton, Dan Wentz, Sean McLaughlin
Placing You First Insurance Podcast by CRC Group
Hospitality Industry Struggles to Find Mold Coverage
Show Notes Transcript Chapter Markers

Mold has been a part of our environment for millions of years, and there are more than 100,000 mold species naturally occurring on Earth.  While mold spores are tiny in size, they can mean big trouble for hotels and resorts. Mold has consistently been a loss leader for the hospitality industry insurers, but its impact has expanded over the last few years, with primary claim drivers including undetected HVAC or plumbing system issues, construction defects, and catastrophic hurricane and flooding activity that create an ideal environment for mold growth.

Featuring:

  • Jim Hamilton is the leader of CRC’s Environmental Practice Group and a Senior Broker in the Denver, Colorado office. He specializes in Environmental Insurance, managing a large portfolio of hospitality clients.
  • Sean McLaughlin is an Associate Broker in the CRC Environmental Practice Group and is located in CRC’s Denver office.

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Dan Wentz  0:00  
the hospitality industry is struggling to find mold coverage right now, prior to the 1990s. Mold claims were pretty rare. But over the last three decades, they have skyrocket and mold causes significant damage on a $7 million renovation, it can cost anywhere from three to $5 million. That's a lot of money. And it's true, as with most types of insurance and a hard market premiums are increasing but in mold, it's significant anywhere from 25 to 75%. It's a good thing. We've got some CRC group specialists joining us today who have years of placing mold coverage, Jim Hamilton's from our CRC Denver office, and he's a leader of our environmental practice group. He's been placing mold coverage for a very long time. And we're also joined by Shawn McLaughlin, who is an Associate Broker from that CRC Denver office and works on Jim's team. They have a lot of great information to share. So let's get started. Next, right here on the CRC group podcast

is the placing you first podcast I'm Dan Wentz. And this podcast features news and insights from CRC his vast knowledge base of 2000 plus associates who right in excess of $10 billion of premium annually, and we're giving you insider access to what's happening in our company and the types of insurance we place. This is the placing you first podcast.

So Jim, can you tell me who in the hospitality industry is at risk for needing mold coverage? Sure, Dan, actually, all segments of the hospitality industry have been hit hard by mobile.

Jim Hamilton  1:33  
Specially hotels, resorts in parts, any hospitality risks that has lodging or hotels are highest at risk. Specifically from all we're also seeing a lot of Legionella claims as well. What we're also seeing is a lot of these questions that are being posed to the hospitality risk. We're starting to see them come up more and more in habitation on other commercial portfolios. Why is the hospitality industry struggling to find coverage right now? Why is it so hard? Why is this placement so hard? Yeah, we've seen an uptick in mold classes over the last three to five years. To the extent that we've had a lot of carriers pull out the marketplace, roughly 30 or so carriers, Shawn pulled out the marketplace over the last couple of years. And it's all stemmed all stems from mold related losses, and specifically cleanup of mold related losses. So we've had large losses from mobile, we've seen Legionella losses as well. And it's prompted the carriers to reevaluate the position and marketplace for hospitality. I think all markets are you know, the reinsurers are scrutinizing all markets. Those questions on you know, property exposures, we're also seeing that come in with the hospitality market. So any any portfolio that has a presence in the south east or coastal operations, we're going to see some of those questions and and more scrutiny towards the underwriting. So Jim, what are some of the most likely claim scenarios? Sure, we see a lot of claims for mold and Legionella. But the large ticket losses are stemming from mold, specifically cleanup costs associated with mold, or more specifically, even the restoration cost or the build back costs associated with mold remediation. It doesn't cost much to abate mold or remediate mold, that the large loss comes from when we go to build back the drywall, the carpet, the sheet rock, etc. What's the mold, this remediated and those loss losses are large. So we're seeing a lot of different causes for mold related losses. Anytime the water penetrates the building envelope, being leaking roof, bad plumbing and so forth, that can lead to an infestation of mold. But oftentimes we see mold coming from HBC systems, so the heating and cooling system or even a small individual units in a room like a p tack unit inside a room, that if that P tax not draining properly, you can have mold growth between the walls. But typically with an HB AC unit, there's a ends up being an overburden of moisture in the hotel that leads to mold. And as mentioned previously, we've seen a lot of carriers dozens of carriers exit the marketplace because of the large losses on mobile. And some other causes are stemmed from just the building materials themselves. Vinyl wallpaper, pretty much every hotel that you go into, you'll see vinyl wallpaper and bathrooms. That vinyl wallpaper will trap moisture back behind it and promote mold growth behind the ball around the sheetrock. We touched on hpac systems.

Again that overburden with moisture in the hotel can lead to mold growth. And we often see hotels go through a lot of renovations moreso than apartment complexes or other types of multifamily residential

apartments will often rebrand and change their flag maybe from Marriott to a Hyatt. And as they go through upgrading their interior, they'll do an interior remodel to upgrade to a higher standard. During that renovation, mold is often discovered. So that's a that's a large risk for a carrier, the frequency of renovations. Also we see

with hotels, the decline tells more transient nature with an apartment complex. Tenants might be there for three months, six months, a year or multiple years. But the hotel, the clientele is only there for a short period of time. And they might, you know, I check into a hotel, if I see mold and make a mental note to tell the front desk but I check out that, Hey there, there's mold growing in the bathroom. But oftentimes, we forget other residents in a hotel, same thing, they may have the best of intentions to tell the front desk about the mold, but they forget. Whereas with an apartment, resident, if there's mold growing in their apartment, they're going to tell the landlord right away and get that landlord on it and remediate it. So just the protected nature of the discovery and addressing the mole problem without it leads to more serious mold infestation. And, you know, we've talked about mold, there's the another type of loss that we've seen an uptick on within the hospitality industry is with Legionella. So with Legionella, its Legionella grows in stagnant water. So anytime water sits stagnant for a while Legionella as a bacteria will grow in that stagnant water. And when it becomes aerosolized either through a shower or through a water fountain of water feature in the lobby or, or through the hbic system. It becomes aerosolized, we inhale that that's when somebody that inhale so you can contract Legionnaires disease and be directly because of the pandemic. We're seeing an uptick of Legionella exposures, and heightened underwriting concern about Legionella. So as the hotels maybe come out of dormancy, many of the hotels have been closed for a period of months or even up to a year as they start to reopen. underwriters want to know,

what have you done to mitigate the exposure for Legionella? So we're starting to see that as a heightened concern for Hospitality along with mold, so is mold and Legionella. Would this fall under a property policy or a GL policy? Do those policies types of policies offer any kind of protection against this? They sometimes can.

We see some general liability policies will either fully exclude mold and Legionella or some policies might have a small sub limit and give affirmation of coverage. Some property policies might also dress cleanup costs associated with mold. But oftentimes that's on a sub limited basis and very narrow coverage. So it might be at named peril spaces for for cleanup of mold, or fire, wind, hail, lightning, rain, etc. that I know Shawn and I we we see a number of property policies that will address mold coverage or clean up the mold coverage but very narrow in scope. Whereas the site pollution policy or environmental impairment liability policy that we've put in place for hospitality, specifically addresses that it affirms coverage gives our clients coverage for bodily injury, property damage, and cleanup costs on a very broad basis. To touch on that point, we are seeing higher retention for mold in the environmental market. When we do get a copy of that property policy that affords a supplement for mold. We have seen success going in excess and and di C of that mold, especially if you kind of more beneficial with a a cold coastal exposure when there's some mold afforded under the property policy. Yeah. And to add to Shawn's point, if the if there is coverage within the property policy for cleanup costs associated with mold. Oftentimes, we can dovetail it, as Sean mentioned, but we can also structured in a way that any money that's paid out under that property policy erodes our deductible. So in some cases, our our coverage could be first dollar once the property policies expired. So how is mold coverage currently being written?

It's currently being written by site pollution liability policies, and it's underwritten.

Historically, it was underwritten in very traditional fashion where we look at property loss trends, we get an application we get a statement of values with the Coppa information and underwriters been rated today it's underwritten in a much more stringent fashion. So underwriters might see a lot of additional information. We talked earlier about the heightened concerns as

associated with renovation so some underwriters want to see renovation plans for the next two years or three years so that they can underwrite that portion of the risk so it is much more scrutinized than it was before and even more so due to the current COVID pandemic we're seeing more questions associated with the insurance operations and maintenance protocols you know how often are they inspecting or each room we're running the water a lot of hotels we're seeing that are closed or partially closed that's where the legionella

Sean McLaughlin  10:32  
concern comes into play so we're seeing a lot more protocols or requirements are protocols associated with running other water frequent inspections of the room what portion of the hotel is closed or is the property fully closed yeah and that leads me to my next question i mean underwriters are being more stringent with this stuff are they requiring an inspection yeah not necessarily unexpected an inspection but they are requiring as certainly a phase one or phase two if it's available but some carriers are looking for a mold inspection report to the extent that's available we can get broader coverage negotiate better returns for the client but we are seeing a stronger request for some type of mold oh an implant so mold operations and management plan that just it sets out a guideline for the insured as to how they responsible what what should they do to address and mitigate mold growth what kind of restrictions are you seeing being offered from underwriters now that maybe you're new or you know that our agents should consider yeah we're seeing coverage deviate from the standard dan traditionally we would be able to have a 25 or $50,000 deductible for mold for cleanup costs associated with mold we're starting to see underwriters escalate that deductible so someone renders but might want to see a 100,200 50,000 maybe a half a million dollar deductible for cleanup costs associated with mold there are some non traditional approaches to where underwriters might apply a coinsurance provision to restoration costs because that restoration cost is kind of in the big ticket loss item for the carrier's so they want to see the insured have a little bit of skin in the game in terms of the restoration costs themselves so they might impose account sharks we're also seeing carriers some carriers are imposing a renovation exclusion or some type of renovation

Jim Hamilton  12:40  
restriction where if mold is discovered during the renovation coverage might be affected in one way or another we're also seeing a non traditional deductible that some carriers are trying to apply which is a per dollar deductible and that per dollar deductible and maybe you know 5000 10,000 $15,000 per room and it comes down to how was the insurance company defining room or open space or common areas so that can be a very onerous deductible and post on the insert

Sean McLaughlin  13:13  
and last time we we counted gemini i think we came up with 64 environmental markets out there for hotels you know of the of the i'd say common structure there's probably less than 10 now that are right in hospitality on a deductible for cleanup calls and a lot of times those restrictions those limitations are really built into the the carrier's endorsements so you really have to be cognizant of going through each endorsement and taking a look for these limitations the bill back restoration costs exclusion per door deductibles and other limitations

Dan Wentz  13:47  
yeah so agents now pursuing this and they've they're putting a submission together what do they need to include what are underwriters looking for in the submissions

Jim Hamilton  13:57  
yet so the underwriters are looking for more information than what they typically did whereas in the past they might look for just a property in general liability loss funds as well as the statement of values today they're looking not only for that but a phase one environmental site assessment or a mold o and m plan or mold inspection and if the property has gone through a refinance or or an inspection recently a property condition assessment report can be valuable but they are looking for much more detailed information on any portfolio or any specific risk especially if the if the portfolio tends to be in the southeast or coastal it might be scrutinized even more

Unknown Speaker  14:41  
and we definitely want to find out if the location has been closed partially or fully closed due to the COVID pandemic there's there's a lot of other questions that will come up regarding the inspection maintenance and protocols around legionella and running water testing

Dan Wentz  14:57  
yeah a lot of issues still still getting propped up from from COVID a lot of stuff that people couldn't anticipate, especially the way this thing played out. Do you have any any other tips for agents who are working these mold risks that want to create a winning submission?

Jim Hamilton  15:15  
Yeah, I'm saying the biggest thing is Be patient. It's a much more protracted process and what it used to be, there will be back and forth questions with the underwriters. And a good detailed submissions going to include any information available about the mold inspections, their mold, omm, protocols, loss runs, operations, our carriers tend to love it when a client has a an active property manager, somebody that does visual inspections on a weekly basis at least, and take a look at the rooms, inspect the rooms, more frequently trained housekeeping staff that knows what to look for this all play into the underwriting evaluation.

Dan Wentz  16:02  
All right, well, thanks a lot, Jim. And and shall we really appreciate it here today. This has been a great conversation, lots of great information here. And of course, if you want to find Jim and Shawn, all you have to do is head to our website, CRC group com, click through the people search and click on environmental and they'll both pop up there, as well as all of our other brokers across the country that can help you with a whole host of different risks, not just mold. That is for sure. Okay. Thanks a lot, Sean. Thanks a lot, Jim. Have a great day. And we'll hopefully talk to you guys again soon.


Who needs mold insurance in the hospitality industry?
Why is the hospitality industry struggling to find coverage right now? Why is it so hard? Why is this placement so hard?
Would this fall under a property policy or a GL policy? Do those policies types of policies offer any kind of protection against this? They sometimes can.
So how is mold coverage currently being written?
Are underwriters requiring an inspection?
Do you have any any other tips for agents who are working these mold risks that want to create a winning submission?