|
|||
|
ARMR.Network,
LLC Newsletter October 2009
Chinese Drywall |
|||
|
A SHORT GUIDE FOR INSURANCE AGENTS AND BROKERS Liability and insurance claims associated with Chinese drywall will affect thousands of “responsible parties”. We anticipate new demand for environmental insurance products as a result. Insurance intermediaries with a working knowledge of the risk management issues associated with Chinese drywall and other indoor pollutants will enjoy a new source of revenue and have a competitive advantage in their market sectors. Specially designed environmental insurance policies can cover the Chinese drywall loss exposure of multiple stakeholders. In contrast, traditional property and liability insurance policies will have significant coverage gaps for claims associated with Chinese drywall. ARMR.Network has developed a complete portfolio of custom crafted environmental insurance products to address the loss exposures associated with Chinese drywall and a wide range of other indoor air “pollutants”. The Problem In short, some but not all sources of Chinese drywall off-gas sulfide gas which combines with water vapor to create sulfuric acid in the built environment. Most if not all contaminated drywall was installed in 2006 and 2007 in at least twenty four and as many as forty one states. The source of the contamination is in the gypsum rock in China that was used to manufacture the drywall. The jury is literally out on the possible adverse health effects to the occupants of the contaminated buildings; these health affects do not appear to be acute. However, it is clear that buildings containing sulfur contaminated drywall, which smells like rotten eggs, will need to be remediated. Remediation involves removing the drywall, assessing and correcting potential structural damage, and the corrosion of electrical systems, HVAC equipment and the building contents. Damages include remediation costs, diminution of property values, increased fire risk and adverse health effects to the occupants and to remediators. Generally loss costs approximate 60% of the building value. Loss exposures can be traced to “responsible parties” including developers, construction managers, general contractors, subcontractors, building products suppliers, distributors and manufacturers. Contractors remediating the drywall also have liability loss exposures and usually have significant gaps in their insurance coverage. Literally tens of thousands of properties and thousands of responsible parties are affected. Some trial lawyers promote Chinese drywall as the largest construction defect issue in history Traditional Insurance Coverage Construction defect claims introduce a series of complex insurance coverage issues in the property and liability insurance policies purchased by the stakeholders. Chinese drywall claims encompass traditional construction defect insurance coverage issues and then superimpose various “pollution” exclusion overtones. In general, acidic gas will fall within the definition of a “pollutant” in both property and liability insurance policies because it is an “irritant” or “contaminant”. Therefore, losses associated with Chinese drywall will be impacted by pollution exclusions in virtually all forms of insurance. Commercial Property and Homeowners insurance policies fundamentally insure losses from discrete fortuitous loss events that result from accidents and natural disasters. It is usually difficult to obtain coverage for a construction defect on a property insurance policy because the prerequisite “insured cause of loss” is missing to trigger coverage under the policy. Property insurance policies also have pollution exclusions. Therefore, property insurance policies will usually deny a Chinese drywall loss because of the absence of an insured peril and the effect of the pollution exclusion. As a result most property owners and their lenders will be left uninsured for the costs to remediate. Commercial General Liability insurance policies have a better chance of insuring a Chinese drywall loss as a construction defect claim for a contractor. Exclusions for damages to “Your Work” and “Impaired Property” in a General Liability policy can stand in the way of coverage for a contractor. However, if the proximate cause of the loss is materials supplied by the contractor, the effect of these “operational” exclusions becomes more clouded and the focus shifts to the various pollution exclusions that can be found in General Liability insurance policies. The off-the-shelf ISO Commercial General Liability policy with the standard pollution exclusion (f.) is not supposed to apply to losses arising from products or completed operations. Virtually all loss associated with Chinese drywall with the exception of the restoration contractors’ operations should arise from products or completed operations. Therefore, all of the responsible parties associated with a Chinese dry wall loss that are fortunate enough to have an off-the-shelf ISO GL policy without a “Total” pollution exclusion endorsement should have liability insurance available to at least defend a claim associated with Chinese drywall. Contractors lucky enough to have an off-the-shelf GL policy without a total pollution exclusion should pay their renewal premiums early or buy multi-year policy terms because it will be difficult or impossible to replace such broad coverage in the insurance market place at any price if the current policy is not renewed. In contrast if the GL policy has a “Total” pollution exclusion endorsement, pollution losses from products and completed operations are excluded and separate environmental insurance coverages will need to be purchased to fill the resulting coverage gaps. In either circumstance on the General Liability insurance policies, restoration contractors will need specially modified liability since packages to perform work on Chinese drywall. ENVIRONMENTAL INSURANCE SOLUTIONS A wide range of commercial environmental insurance policies are available to address the effects of indoor air pollution including mold, asbestos, lead, silica and indoor smog from Chinese drywall. NEEDED INSURANCE COVERAGES FOR PROSPECTIVE* OPERATIONS: Ø Environmental Impairment Liability for third party damages plus first party coverage for remediation, restoration costs and loss of rents. Ø Contractors Pollution Liability, third party damages only Ø Professional Liability Ø General Liability with Completed Operations and/or Products Pollution liability Ø Restoration Contractors will need special modifications to their liability insurance packages
TARGET MARKETS: Ø Contractors Ø Commercial Property Owners Ø Condominium Associations Ø Developers Ø Building materials manufacturers and distributors Ø Financial Institutions MINIMUM PREMIUM: · $3,600 CPL · $9,000 EIL · $25,000 GL with products pollution ARMR.Network offers access to a wide range of high quality environmental specialty insurance markets. Each risk will be evaluated and a market(s) will be recommended based on the parameters of the risk. We also offer a complete array of fixed site environmental insurance products including the powerful Chartis (AIG) Eagle product and four alternatives to it. ARMR.Network brings to the table creative and highly skilled environmental insurance design and placement specialists ready to assist in the development and customization of these products to meet clients’ risk transfer goals. For More Information Please Contact: Judi Martinez, Vice President - martinez@armr.net - 608-836-9586 Robert Rosenfeld, Ph.D, CPCU - rosenfeld@armr.net - 310-344-3468 David Dybdahl, CPCU, ARM - dybdahl@armr.net - 608-836-9567
American Risk Management Resources
Network, LLC. is an environmental specialty wholesale insurance broker, and
insurance consultant. We provide our retail insurance agents and brokers with
an Environmental Risk Technical Resource Group capability for their clients.
For more information on the broad spectrum of customized insurance products and
the services of ARMR.Network visit us at www.armr.net
* Environmental insurance policies will not normally cover previously uninsured prior acts or operations. However, continuous renewal of environmental insurance does insure completed operations which were previously insured.
This was sent to you as a professional in the insurance
industry. |
|||
|
© 2009American Risk Management
Resources, LLC All rights reserved.
7507 Hubbard Ave, Suite 200, Middleton, WI 53562 webmaster@armr.net www.armr.net |