Facility operators that assume their insurance policy will cover costs associated with lawsuits related to Legionnaires’ disease may be in for a big surprise. The insurance company may refuse to pay for the legal defense, the verdict or settlement amount, and the Legionella remediation costs.
Last month’s appellate court decision in North Carolina Farm Bureau Mutual Insurance Company v. Joshua Carpenter, et al highlights key factors in policy exclusions.
The insurance dispute pertained to an outbreak of Legionnaires’ disease among people who attended a state fair in North Carolina. Experts concluded that the outbreak likely resulted from exposure to water droplets emitted from two All Pro Billiards & Spas hot tubs that were on display. 96 people were hospitalized after contracting Legionella infections, and four died. Though the tubs were merely there for display, they were running with water that became aerosolized and likely inhaled by the patrons.
The North Carolina Court of Appeals upheld a previous court decision that the insurance company must defend All Pro in its several negligence lawsuits from those affected.
Farm Bureau Insurance argued that its “Fungi and Bacteria Exclusion” in All Pro’s general liability policy disqualified the hot tub company from coverage. The exclusion stated that coverage is not applicable in cases when “bodily injury… would not have occurred” if not for fungi or bacteria “on or within the building or structure.”
The court noted the ambiguity in interpreting the words “on,” “within,” and “building” in the provision. Moreover, Farm Bureau has an exception to this provision, saying it is not applicable if the bacteria are found in a “good or product intended for bodily consumption.”
The court decided that the water inside the display spa, a commodity used to entice prospective customers, falls under this definition. In the decision the court relied on precedent from cases like Waste Management v. Peerless (1986), which emphasized the insurer’s broad responsibility to defend the insured. It also echoed State Capital Insurance Company v. Nationwide Mutual (1986), wherein the court asserted that insurance coverage statements are applied broadly, whereas exclusions are “not favored” and will be interpreted in favor of the insured if ambiguity exists.
Liability Policies and Legionella
Will your liability insurance policies cover Legionella claims? According to insurance experts and insurance company personnel, most general liability policies do not cover Legionella claims. Legionella can be covered in an environmental liability policy, and yet those policies may not cover Legionella claims in all instances (e.g., if a fatality is involved).
According to Russ Nassof, an attorney and risk management consultant with significant experience in the insurance industry, “even most environmental policies will not cover Legionella unless there is a Legionella-specific rider, addendum or endorsement along with proof that a water management program has been implemented.”
An operator of hotel properties was told by its insurance carrier that the pollution/bacteria exclusion for Legionella would be waived if they implemented a “good” water management program.
Determining whether a water management plan is “good” can be a challenge for insurance underwriters. If you have a water management plan in LAMPS, use the audit tool to provide evidence to your insurance carrier that your water management plan is comprehensive and fully implemented (see LAMPS Training Note 1.022 about auditing). Facility management personnel can use the tool to perform a self audit but an audit by a third party will carry more weight. If you do not want to pay a third party to do the audit, use the LAMPS WMP Performance Score, which via special algorithms produces a score — from 0 to 100 — based on 10 key WMP performance metrics. Each metric is scored individually, with an explanation, so that both the facility and the insurance carrier can see what areas need improvement, and steps to take. You can give your insurance carrier temporary read-only access to review the score report in LAMPS, or simply provide them with a PDF of the WMP score report.
Evaluating Your Insurance Coverage Related to Legionella Claims
To evaluate your insurance coverage related to Legionella claims, consult an attorney and insurance expert. Ask whether a Legionella claim would likely be covered if one or more cases of Legionnaires’ disease were allegedly associated with the plumbing system in your building. What if your cooling tower was implicated? Your decorative fountain? Your whirlpool spa? Would coverage vary based on whether the case resulted in death?
“It is critical to examine the fine print about what is being covered,” advises Nassof. “Most policies will cover remediation but not maintenance. It is also important to find out whether coverage is for any Legionella finding versus only for certain species or serotypes.”
Be sure your water management program is comprehensive and fully implemented. The best way to avoid costs associated with Legionella-related lawsuits is to prevent illness by minimizing Legionella and other pathogens in your building water systems. If no one gets sick, no one sues, so everyone wins (except the attorneys).
Have you been involved in a Legionella related claim? If so, please comment below to share your experience.
Ethan Freije is a Software Support and Analytics Specialist at hcinfo.com.