Posted on 17 Aug 2010
The pesky critters have been around for centuries and were the bane of American society in the 1700s. Their popularity may have waned since then, but bedbugs are back with a vengeance, prompting insurance for business interruption, third-party liability claims, and reputation risks as hotels and even retail stores face infestations of the bloodsucking pests.
New York has the dubious distinction of being a focal point for bedbug problems, with a recent survey revealing that one of every 15 New Yorkers has dealt with an infestation. Throughout the Big Apple, bedbugs have been found in locations ranging from hotels and theaters to high-end retail stores and the public library.
They are becoming a more widespread concern as the number of infestations increases, said Mac D. Nadel, Norwalk, Conn.-based U.S. practice leader for Marsh Inc.'s retail and wholesale food and beverage practice group. The latest reports have put some focus on retailers, which shows it's not only just a hospitality business problem, but a property, real estate and general problem.
New York Mayor Michael Bloomberg's administration reportedly fielded 11,000 complaints about the pests in 2009 compared with just 537 in 2004. As a result, $500,000 has been committed to deal with the infestation.
However, reports have sprung up in Ohio and Los Angeles as well. Bedbugs-which are not known to spread disease but bite and leave itchy red welts-are more of a nuisance than anything else, but the problem they create is being taken seriously.
More importantly, it's no longer just a hospitality industry problem and the battle against bedbugs is expected to continue.
You really have to take the blinders off on this issue because they're starting to get into places that are not normally exposed to bedbugs, said Tracy Knippenburg Gillis, New York-based crisis management practice leader for Marsh Risk Consulting. It makes it more important for retailers, hotels and other commercial businesses to have a process in place to mitigate the spread and to prevent further occurrences.
Most standard commercial property policies either have specific vermin exclusions for infestation or loss due to insects or have other broad contamination exclusions, insurance brokers and insurers said, adding that the policyholder has to prove actual damage of items that were infested if exclusions aren't present in the policy.
David Kroeger, Chicago-based attorney within Jenner & Block L.L.P.'s insurance and reinsurance group, said policyholders should look closely at what the vermin exclusion says and how it categorizes and defines vermin.
I wouldn't give up on the property policy immediately, Kroeger said. Vermin exclusions may not focus on bedbugs, but may focus on insects like termites.
This is important, Kroeger said, because if a store or hotel is forced to shut down due to bedbug infestation and cannot reopen until after fumigation, business interruption coverage could be triggered.
For hotels, loss-of-attraction coverage could be applied for actual losses sustained due to cancellations or the inability to accept bookings for rooms due to murder and suicide, and also may apply to vermin, said Nancy Green, Chicago-based executive vp at Aon Risk Solutions, a division of Aon Corp.
She also said that type of coverage is an extension of a typical property policy and can provide some relief, typically up to $1 million or higher, depending on the limits purchased.