Nobody likes surprises in a business built
on neutralizing surprises.
Fungi;and;bacteria;exclusions;exclude
more losses than most claims adjusters
realize. Space does not allow a full discussion of the topic, but just a few parameters taken from the most common fungi
and bacteria exclusion used in commercial general liability policies illustrate the
expansive nature of the exclusion.
1.;In Whole or In Part. In Section A of
the exclusion it says: “‘Bodily injury’
or;‘property;damage’;which;would;not
have occurred, in whole or in part, but
for….”;In;part;must;be;intended;to;ap-ply the exclusion to the entire loss if
only a tiny bit of the loss was related
to fungi/bacteria. As written, without a
threshold amount qualifier, a speck of
fungi or bacteria involved with a loss
should trigger this exclusion.
2. Threatened Exposure. Under the
wording in the exclusion, losses in-volving;the;“threatened;inhalation;of,
ingestion of, contact with, exposure
to,;existence;of,;or;presence;of”;a;tiny
amount of fungi or bacteria on or
within a building or structure are excluded. Everybody knows fungi and
bacteria are in the building already. Is
there really a need to exclude bodily
injury and property damage from the
threatened existence of materials that
are already in the building or structure? The answer is yes if you want to
exclude phobia-type losses. Because of
this provision, bodily injury or property damages are excluded if a drop
of;Category;3;water;is;even;alleged;to
have;caused;damage—with;no;physical
evidence that it did.
For;example,;if;a;plumber;works;on;a
drainpipe;leak;(Category;3;water);and
damages a building, bystanders can al-
lege they could have been exposed to
the bacteria-contaminated water and
are worried about their quality of life
being impaired. As a result of their
worrying, all of the bodily injury dam-
age claims associated with the claim
are technically excluded by the refer-
ence to threatened exposure to fungi
or bacteria. The damage to the building
is excluded too. Plumbers as a class of
business really do not have much in the
form of completed operations coverage
on;the;CGL;policy;as;a;result;of;these
exclusions.;However,;the;CGL;policy;in
this scenario would still need to defend
this loss; only bodily injury and prop-
erty damages are excluded in Section
A of the endorsement, so the duty to
defend still stands.
3. Anti-Concurrent Causation. The anti-concurrent causation provision in Section A reads almost verbatim to the
anti-concurrent causation section of
the flood exclusion in a property insur-ance;policy:;“regardless;of;whether;any
other cause, event, material, or product
contributed concurrently or in any se-quence;to;such;injury;or;damage.”;The
drafters of this exclusion were brilliant
in adding this provision to the fungi/
bacteria exclusion on the general liability insurance policy. They knew that
flood exclusions hold up perfectly in
property insurance policies because of
this anti-concurrent causation provision, and they also realized that pollution exclusions are the most litigated
provisions in the history of insurance.
To eliminate litigation over what the
fungi and bacteria “pollution” exclusion might exclude or not and all arguments about the efficient proximate
cause of loss and ensuing damages, the
drafters of the fungi/bacteria exclusion
simply added an anti-concurrent causation clause to the wording.
4. “In Any Sequence.” The reference to
other causes of loss in any sequence de-
serves;special;attention.;Category;1;and
Category;2;water;can;morph;into;an;ex-
cluded fungi/bacteria loss through the
operation;of;time;and;temperature.;For
example, mold could start growing in the
standing water of a basement as a result
of;a;water;supply;line;(Category;1;water)
leak. Because mold in this case appeared
in any sequence to the otherwise covered
Category;1;water;loss,;the;entire;loss;be-
fore, during, and after the appearance of
mold should be denied under the terms
of the fungi/mold exclusion.
Consistency;and;transparency;on;claims
related to fungi/bacteria are needed in the
claims;adjustment;process.;Gap;filling;cov-
erage exists in both the personal lines and
commercial insurance markets. Ignoring
the full effect of the exclusions creates cov-
erage gap surprises and undermines future
viability of pollution and flood exclusions
every time an excluded or sub-limited fun-
gi/bacteria/Category;3;water;claim;is;paid
as;a;simple;Category;1;water;loss.
David Dybdahl, CPCU, ARM, MBA, is president of
American Risk Management Resources Network,
LLC in Middleton, Wis. He is an insurance broker
and expert witness specializing in environmental
insurance. He can be reached at dybdahl@armr.net.
Parts of this article have appeared previously in IRMI
Online and are used with their permission.
trust
verify BUT
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USF.indd 1 18/08/14 10:03PM
For a look at the common
practices, outcomes and
consequences of not following
the fungi/bacteria exclusions,
see the chart online at…
PropertyCasualty360.com/fungi
