A November 2010 article posted on the Crain’s New York Business Web site begins, “The Waldorf Astoria is in bed bug hell.” That’s because the luxury hotel faces yet another accusation of bed bug infestation. And this time, the report is accompanied by a lawsuit.

According to the article, a Michigan couple woke up in their hotel room to find bed bug bites all over them. The wife reportedly had an allergic reaction to the bites. As if that were not enough, the bugs found their way into the couple’s luggage and ended up infecting their two daughters at home. The family was forced to leave its home for six weeks while it was treated for the infestation.

According to Linda Ferguson, CPCU, vice president, technical and educational products at The Rough Notes Company, bed bug infestation has been the focus of increased media attention. “It’s really been in the last three or four years that bed bug infestations have been getting the most publicity,” she explains. The Internet is certainly driving increased awareness. For instance, Ferguson notes, “BedBugRegistry.com is a fascinating Web site people should know about.” The site provides a searchable database of infestation reports at hotels, apartments and other locations.

Actual increases in infestation may be the result of a resurgence of travel and the use of less toxic remedies. “The old pesticides would remain on the surface and kill the bugs as they came out of the eggs,” she explains. “Today, according to reports I’ve read, exterminators can use only a contact pesticide, which has no residual effect.”

Ferguson says states are looking at possible solutions. “In Ohio, for instance, they’re trying to bring back one of the banned pesticides,” she says. “There’s a big downside to that, though. Residual pesticides have been shown to produce neurological damage in children.”

Insurer attention

Given the heightened awareness and, as many believe, an increase in the number of infestations, the insurance industry is responding. Earlier this year, for instance, Philadelphia Insurance shared information about bed bug-related issues with some 56,000 agents.

“This could become an issue for a lot of the classes we write,” says Cole Henry, CPCU, AU, ARe, ARM, senior vice president, Corporate Underwriting, at Philadelphia Insurance Companies. “We keep our fingers on the pulse of the industry, so we worked with our loss control department to compile guidance we could share concerning detection and mitigation.”

Among the classes Henry identified are hotels, condominium associations and apartment buildings. “It’s pretty prevalent in any kind of transient habitational operation,” he explains. Exposures exist in other classes the company serves, including social service operations—for instance, residential facilities for the developmentally disabled to group homes for the mentally challenged—as well as schools with dormitory exposures.

According to Henry, insurance responds only in certain instances of infestation. “From a first-party standpoint, standard property coverage excludes any type of infestation of insects or rodents.” While Henry doesn’t necessarily expect that to change, his company is keeping an eye on the situation. “We are potentially considering developing a cutting-edge, first-party solution. We don’t know if this is something the insurance industry needs to address from a first-party standpoint, or if it’s more of a maintenance issue that may go away on its own,” he notes.

Liability is a different story. “If someone is bitten and has an allergic reaction, there’s an exposure we have to defend and, perhaps, indemnify,” he explains. “Or if someone travels and comes back with a suitcase full of bed bugs, they’d look to the hotel to cover the cost of cleaning. From a liability standpoint, there is definitely a response from the insurance industry.”

According to Henry, state legislatures are looking at the situation. “New York is apparently considering legislation to force personal lines carriers to provide some specific bed bug insurance for home owners, condo owners and renters on a first-party basis,” he explains. “Where that ends up going is yet to be seen.”

Still, he adds, third-party litigation has been significant. “There have been some sizeable awards,” Henry says. Pending cases include a $500,000 claim against a furniture rental firm and a $20 million suit against a resort in upstate New York, where a guest claims to have awakened with 600 bites. Even without lawsuits, expenses are high. “The cost to get rid of bed bugs to a commercial apartment building can run upwards of $70,000,” he adds.

Find and conquer

If anyone is on the front lines of the bed bug battle, it’s pest control operators (PCOs.) And right behind them is John Culotta, program manager of PCOpro, Brownyard Group’s pest control operator program. Culotta’s firm insures PCOs and, more important, helps them manage risks associated with their work.

According to Culotta, PCOs must be certain they have appropriate insurance coverage to protect them as they perform inspections and eliminations. “First,” he says, “they need adequate pest inspection coverage, which covers them in case they fail to detect the obvious presence of bed bugs during inspections.” According to Culotta, allegations of “failure to detect” are quite common.

Another important coverage addresses property in the PCO’s care, custody and control. “Standard liability policies actually exclude this,” he explains. “Of course, because pest control firms always have some type of property in their care, custody or control, they need comprehensive coverage. And they need to make sure it’s designed specifically for their kind of work.”

Culotta also recommends proper pollution liability coverage for PCOs that use chemicals to treat bed bugs. “With increased use of chemicals to treat infestations, there’s a greater likelihood of bodily injury claims,” he explains. “Agents and brokers need to work with insureds to get proper coverage—and have it provided at full policy limits. Actually, it makes sense to discuss even higher limits, perhaps through the use of umbrellas or excess policies.”

Agents and brokers can also help PCO clients by encouraging solid risk management practices. “Agents can work with insureds to reduce the likelihood of claims, especially those resulting from eradication efforts, by helping them establish a formal client communication process,” Culotta says. “The better the PCO sets expectations up front—for instance, spelling out early on the number of treatments that may be required—the less chance there will be of misunderstandings that lead to claims.”

Culotta actually suggests detailing this information in writing, as part of a contract. In addition, he says, PCOs can help reduce their liability by taking pictures. “Encourage insureds to document the pest inspection process with date- and time-stamped photos,” he explains. “Doing this can be used later to prove the presence—or absence—of insects at the time of inspection.”

Added risks

Along with the increased attention to bed bug issues has come a broad range of suggestions on how to deal with the problem. Some are valid. Others may be snake oil. Along with possible remedies come other problems.

For instance, says Ferguson, superheating has been put forward as one way to remove bed bugs. “If you can increase the temperature of a room or an item to, say, 130 or 140 degrees for an extended period of time, that kills bed bugs,” she explains. “Some exterminators are doing that. They bring in items that can boost the heat.

“However, if a home owner tries to do it on his own, does that increase the risk of fire or other hazard?” Ferguson adds. “Are you causing harmful fumes to be released? As we know, when you have the potential for things to go wrong, they do.”

A popular defense is encasement. “With mattresses, for instance, it’s possible to get an encasement that contains the bugs and ends up killing them off,” Ferguson explains. “Hotels are using this more and more, but you can’t necessarily do that with other upholstered furniture.”

According to Henry, another inspection option has started to see broader use. “There is a sub-business growing out of this that involves the use of trained dogs to sniff out bed bugs,” he explains. Culotta has seen great use of bed bug-detecting dogs, as well.

“Assuming they’re properly trained, dogs can quite accurately detect the presence of bed bugs,” he explains. Their use has actually led to another insurance coverage for PCOs. “We recently started offering animal mortality coverage for these dogs,” he says. “They are very expensive to train. More and more, PCOs are finding insurance to be a good way to protect the training investment they make.”

Even as media attention and infestations increase, underwriters are looking at if and how to respond more broadly. “It’s an interesting dilemma,” Henry says. “Because we are involved with a number of classes that may have exposures, we are keeping an eye on the situation. We’re assessing if there is something new we can develop to help our insureds, without creating a claims nightmare.”

The author

Dave Willis is a New Hampshire-based freelance writer and regular Rough Notes magazine contributor.