The Zika Battle’s Unintended Consequences
More than 3,100 cases of Zika infection have been recorded in the U.S., most of those contracted due to international travel. South Carolina has 31 recorded cases and infection in every case appears to have happened overseas.
But after four local residents were diagnosed with Zika, officials in one South Carolina county sought to contain its spread and arranged for an aerial spraying of the pesticide Naled, which kills the Aedes mosquito known to carry the Zika virus.
In their haste to halt the advance of the virus, Dorchester County officials gave inadequate public notice for an early Sunday morning spraying on August 28.
A local farmer didn’t get the alert and therefore didn’t shield her 43 beehives. Only when she discovered that nearly all her bees — as many as 3 million — were dead, did she figure out what happened.
The county immediately apologized for the lack of proper notice and said it will try to reimburse beekeepers after insurance adjusters determine the value of the loss.
The bee farmer suggested the figure will be vast as there is no easy replacement for lost bee colonies, honey and hives.
“There wouldn’t need to be, nor does a separate product exist to cover the municipality’s liability in this situation,” Joseph C. Peiser, executive vice president, head of casualty broking at Willis Towers Watson.
The county’s coverage should come under either a general liability program, or a pollution or environmental liability program, as the spraying and the unintended consequence of killing the bees is a form of negligence and property damage, he said.
“That is exactly what a general liability policy is designed to cover,” Peiser said.
Ever since Zika enter the U.S. earlier this year, government officials tasked with protecting public health are in uncharted territory. Worry about Zika’s devastating effects on a developing baby in utero and the virus’s unique ability to transmit from human to human is leading to remediation efforts that have not been tried in years, if at all.
The above case was Dorchester County’s first such aerial spraying in 14 years, administrator Jason Ward told CNN a few days later. The hard-hit Florida district of Wynwood also initiated new aerial sprays late this summer. It looks like the approach worked.
“After mosquitoes persisted and infections continued despite ground-based spraying, aerial spraying knocked down mosquitoes rapidly and was associated with interrupting transmission of Zika in Wynwood,” CDC Director Tom Frieden said in a statement.
“When faced with the potentially devastating outcomes of microcephaly or other serious brain defects that Zika can cause during pregnancy, we must use the best available tools to prevent infection.
According to EPA assessments, when used properly, aerial spraying with Naled for mosquito control doesn’t pose a risk to people or the environment,” he added.
The honeybee case highlights the need for insurance brokers to work with clients to weigh all options and anticipate the unintended consequences. Start with the environmental liability program, sometimes called a pollution legal liability program, Peiser said.
“Because they are spraying from the air, and that’s not from a specific site, it would be better if they have an environmental program that it is amended to include this type of operation,” he said.
Communities could add a carve-back on the pollution exclusion called ‘named perils and time element coverage.’ It can be in an umbrella policy, or the primary general liability policy, or both, Peiser said.
The ‘named perils’ portion offers coverage if the pollution is caused by one of the itemized events in the carve back, such as hostile fire, lightning or an overturned vehicle. It’s unlikely to provide coverage for this event, Peiser said.
“Because they are spraying from the air, and that’s not from a specific site, it would be better if they have an environmental program that it is amended to include this type of operation.” — Joseph Peiser, EVP and head of casualty broking, Willis Towers Watson
But the ‘time element’ portion should. This allows the general liability policy to cover an event when it’s known within a set time period (say 20 days) and reported to the insurer within a certain time (say 30 to 40 days), he said.
“I think the most important amendment is to the pollution exclusion to provide ‘time element’ pollution exclusion,” Peiser said. “If they do that, all scenarios should be covered.”
But as an added measure and in order to lessen the chance of argument with the insurer, one can also amend the ‘intentional acts exclusion’ so it does not apply to property damage as the result of reasonable force or activity, Peiser said.
To date, Peiser has yet to field questions or concerns about Zika but expects that he will.
Other Unexpected Zika Claims
Other brokers agree that the Zika virus is just gaining traction as a risk management concern. When the Aedes mosquito population begins to surge again next spring, more claims and questions may pop up. Brazil’s infection rate this winter is a likely litmus test of what the U.S. will experience next summer.
As cases of Zika increase, so too will related insurance claims.
“You’ve got to anticipate the negative and then prepare for it,” said Rick Vohden, SVP and education and public entity practice leader at Marsh Risk Consulting.
Industries that could potentially be impacted by the Zika virus include health care providers and first responders, who could be exposed to blood and bodily fluids, and outdoor workers, who could be exposed to mosquito bites.
International business travelers and university staff and students studying abroad are also presenting new areas of concern, since Zika thrives in regions along the Equator.
Ample communications with employees and students may be the most important approach any business or government organization can take. Let people know what the dangers are in the area where they work and offer solutions to avoid contracting the virus, said David Marcus, managing director, public sector at Arthur J. Gallagher & Co.
“You’ve got to anticipate the negative and then prepare for it.” — Rick Vohden, SVP and education and public entity practice leader, Marsh Risk Consulting
Employees may sue if the employer does not provide adequate controls and they catch the disease, Peiser said.
“Whenever there is a pandemic you start to hear about infectious disease exclusions,” he said.
“Hotels, hospitals or universities want to make sure they don’t have an Infectious disease exclusion that is sometimes in a general liability policy,” he said.
“Sometimes it’s also in the excess workers’ comp policy if a business is self-insured.”
“We continually provide alerts to our clients that they need to be cognizant of the issue early because there is a realm of risk that you are probably going to be impacted by, if not this year, more significantly next year and I think 2018 will be worse than next year,” Vohden said
It is not too early for organizations and brokers to think through each solution and anticipate where it may cause another problem. For example, asking summertime workers to wear pants and long sleeved shirts for protection may expose them to heat exposure and heat exhaustion, Vohden said.
“So we are saying ‘here’s what you can do but if you do this, here’s your next group of consequences that we need to be wary of,” he said.
It is possible that workers’ compensation could come into play at some point. A worker could make third party over claim and sue the municipality, as well as collect workers’ comp, Peiser said.
VIDEO: South Carolina’s aerial spray for mosquito control accidentally killed millions of honeybees. WCBD’s Sofia Arazoza reports.
Since there’s potential for employees to have occupational exposure to Zika and then transmit it to their spouse, that’s another liability to consider.
“That’s stringing the potential liability out pretty far, but the potential exists if you look at similar cases that occurred with asbestos litigation in the past,” Vohden said.
Marcus, at Gallagher, is a broker for public schools districts in Florida’s Miami-Dade and Broward counties, which are the frontlines for U.S. Zika transmissions this summer.
There, students and staff were required to wear long sleeves and pants under uniforms and health officials passed out DEET products to students’ families and gave lessons on the best ways to apply it.
“It’s going to get larger before it gets smaller, just like any other disease,” Marcus said.
“There’s a full-out effort to communicate in south Florida right now to everybody on a daily basis and they are doing a phenomenal job.”
The Zika virus was first identified in monkeys in the Zika forests of Uganda in 1947 and later found in humans in 1952, according to the World Health Organization. The first large outbreak of disease caused by Zika infection was in 2007.
Zika virus is related to the dengue, yellow fever and West Nile viruses, but it is the only virus in this group so far to be capable of human-to-human transmission through sexual contact and to cause significant birth defects to babies in utero.
Visit the CDC’s website for the agency’s latest count on Zika cases in the U.S.
SEIP Executive Summit 2017
Where: Hyatt Regency, Atlanta, GA
What You’ll Learn at the Conference
Executive summit is specifically devoted to environmental risk management and environmental insurance. Attendees are presented with the educational tools to be more effective in the use of environmental insurance. Expert presenters address the environmental risk management and insurance needs of the customer and practical environmental insurance solutions that address those loss exposures. Emphasis is placed on innovative, state of the art solutions that the practitioner can efficiently implement!
Who Should Attend
Insurance Brokers & Agents, Underwriters, Consultants, Engineers, Lawyers, Public Policy Officials, Students, Scientists, Risk Managers, etc.
Think You Don’t Need Environmental Insurance?
“I don’t work with hazardous materials.”
“My industry isn’t regulated by the EPA.”
“We have an environmental health and safety team, and a response plan in place.”
“We’ve never had an environmental loss.”
“I have coverage through my other general liability and property policies.”
These are the justifications clients most often give insurers for not procuring environmental insurance. For companies outside of sectors with obvious exposure — oil and gas, manufacturing, transportation — the risk of environmental damage may appear marginal and coverage unnecessary.
“Environmental insurance is not like every other insurance,” said Mary Ann Susavidge, Chief Underwriting Officer, Environmental, XL Catlin. “The exposure is unique for every operation and claims don’t happen often, so many businesses view coverage as a discretionary purchase. But the truth is that no one is immune to environmental liability risk.”
Every business needs to be aware of their environmental exposures. To do that, they need a partner with the experience to help them identify exposures and guide them through the remediation claims process after an incident. The environmental team at XL Catlin has been underwriting these risks for 30 years.
“Insureds might not experience this type of claim every day, but our environmental team does,” said Matt O’Malley, President, North America Environmental, XL Catlin. “We’ve seen what can happen if you’re not prepared.”
Susavidge and O’Malley debunked some of the common myths behind decisions to forego environmental coverage:
Myth: My business is not subject to environmental regulations.
Reality: Other regulators and business partners will require some degree of environmental protection.
Regulatory agencies like OSHA are more diligent than ever about indoor air quality and water systems testing after several outbreaks of Legionnaires disease.
“The regulators often set the trends in environmental claims,” Susavidge said. “In the real estate area it started with testing for radon, and now there’s more concern over mold and legionella.”
Multiple hotels have been forced to shut down after testing revealed legionella in their plumbing or cooling systems. In addition to remediation costs, business interruption losses can climb quickly.
For some industries, environmental insurance acts as a critical business enabler because investors require it. Many real estate developers, for example, are moving into urban areas where their clients want to live and work, but vacant lots are scarce. Those still available may be covering up an urban landfill or a brownfield.
“We’re able to provide expertise on those sites and the development risks so the contractor can get comfortable working on it. It’s about allowing our clients to stay relevant in their markets,” O’Malley said. “In this case, the developer is not an insured with a typical environmental exposure. But if there is a contaminant on the worksite, they could inadvertently disperse it. In a high-population urban area, the impact could be large.”
Banks also quite often require the coverage specifically because developers are turning to these locations with higher potential environmental risk.
“Though it’s not a legal requirement, insurance is a facilitator to the deal that developers really can’t operate without,” Susavidge said.
Myth: The small environmental exposure I have would be covered under other polices.
Reality: Environmental losses can result from exposure to off-site events and are excluded by many property and casualty policies.
Environmental risks on adjoining properties can lead to major third party losses. Vapor intrusion under the foundation of one property, for example, can unknowingly underlie the neighboring properties as well. The vapor intrusion can then seep into the surrounding properties, endangering employees and guests.
In other words, your neighbor’s environmental exposure may become your environmental exposure.
O’Malley described a claim in which a petroleum pipeline burst, affecting properties and natural resources 10 miles downstream even though the pipeline was shut off two minutes after the rupture. The energy company that owns the pipeline might have coverage, but what about the other impacted organizations? Many other property policies exclude environmental damage.
Sometimes the exposure is even more unexpected. In 2005, for example, a train carrying tons of chlorine gas crashed into a parked train set sitting in the yard of Avondale Mills — a South Carolina textile plant. The gas permanently damaged plant equipment and forced the operation to shut down.
“It’s not always obvious when you have an environmental exposure,” Susavidge said.
“When there is a big loss or a pattern of losses, the casualty market will typically move to exclude it,” said O’Malley. “And that’s where the environmental team looks for a solution. Environmental coverage has been developed to fill the gaps that other coverages won’t touch.”
Myth: We already have a thorough response plan if there is an incident.
Reality: Properly handling an environmental event requires experience and expertise.
In addition to coverage, risk managers need experience and expertise on their side when navigating environmental claims.
“For many of our clients, their first environmental claim is a very different experience because the claimant is not always a typical third party – it’s a government agency or some other organization that they lack experience with,” Susavidge said. “Our claims team is made up of attorneys that have specific domain experience litigating environmental claims issues.”
Beyond its legal staff, XL Catlin’s claims consulting team and risk engineers come with specialized expertise in environmental issues. 85 to 90 percent of the team members are former environmental engineers and scientists, civil engineers, chemists, and geologists.
“Handling environmental claims requires specialized expertise with contaminants and different types of pollution events,” O’Malley said. “That’s why our 30 years of experience makes a difference.”
Thirty years in the business also means 30 years of loss data.
“That informs us as a carrier how to provide the right types of services for the right clients,” Susavidge said. “It gives us insight into what our insureds are likely to experience and help us determine what support they need.”
Insureds also benefit from the relationships that XL Catlin has built in the industry over those 30 years. When the XL Catlin team is engaged following a covered pollution event, the XL Catlin claims team can deploy seasoned, experienced third party contractors that partner with the insured to address the spill and the potential reputational risk. And they receive guidance on communicating with regulatory bodies and following proper reporting procedures.
“The value of the policy goes beyond the words that are written,” O’Malley said. “It’s the service we provide to help clients get back on their feet, so they can focus on their business rather than the event itself.”
For more information on XL Catlin’s environmental coverage and services, visit http://xlcatlin.com/insurance/insurance-coverage/casualty-insurance.
The information contained herein is intended for informational purposes only. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details. XL Catlin, the XL Catlin logo and Make Your World Go are trademarks of XL Group Ltd companies. XL Catlin is the global brand used by XL Group Ltd’s (re)insurance subsidiaries. In the US, the insurance companies of XL Group Ltd are: Catlin Indemnity Company, Catlin Insurance Company, Inc., Catlin Specialty Insurance Company, Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions. Information accurate as of September 2016.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with XL Catlin. The editorial staff of Risk & Insurance had no role in its preparation.