Do You Have the Right Insurance, Now and For the Future?
By John Culotta

Last summer, I wrote about the impact that the "soft" insurance market was having on insurance for pest management professionals (PMPs). As we headed into a financial crisis last year, I warned PMPs to be careful of choosing lower cost insurance coverage that could leave your business exposed.

More than a year later, the soft market continues. Rates are still low, there is plenty of coverage available and many new -- and often inexperienced -- insurers are willing to write your coverage. As the economy slowly improves, this is a good opportunity to review your insurance and make sure you are well positioned for the future.

Here are four ways to do this:

1. Evaluate whether your partners are with you for the long haul. Your insurance agent may write your insurance directly through a carrier or through an intermediary called a program manager or managing general agent. These often are specialists who can help agents with complex coverages such as yours, although some use "wholesale brokers" to place coverage.

The carrier is the company that ultimately writes your policy, and they may be "admitted" or "non-admitted." Admitted carriers are specifically licensed to write certain coverages in your state, while non-admitted (referred to as "surplus lines") carriers are not licensed. While surplus lines carriers are able to write many coverages in many states, ask your insurance agent whether the insurance carrier is admitted in your state, and whether your state requires them to be admitted.

Many PMPs have contracts with clients that require insurance by a licensed and admitted company, so by securing coverage with a surplus lines carrier, they are in violation of -- and at risk of losing -- their contract.

In addition, find out how long the carrier has been writing PMPs. In a soft insurance market, some carriers who are not experienced enter the industry, seeing the potential to offer low rates and write new business. However, once the market hardens and rates go up, they often exit the market and you are left looking for a new partner.

2. Make sure you have all the coverages you need. Your most important coverage is your General Liability, protecting you and your business from the financial impact of actions taken by customers or others. It should include a "Care, Custody and Control" endorsement (provisions added to insurance policies) to protect you in case there is any damage to a home or business where you are working. Make sure this endorsement has full policy limits and coverage for Personal Property as well as Real Property.

Liability insurance should also include Pest Inspection Damage Liability, which covers customer claims related to home inspection, and a Pesticide Herbicide endorsement to provide pollution coverage for spills or leaks at the jobsite or at your business office, as well as in your truck or other vehicle. Remember, some accidents go beyond the Pesticide Herbicide endorsement and require separate endorsements, including an Auto Transit Pollution endorsement for leaks and spills regardless of a collision or overturn.

In addition, consider:

• Lost Key Coverage if you work on large commercial properties.
• Blanket Additional Insured Coverage, an endorsement that covers your customer in case they are sued for damage related to your work.
• Commercial Property and Inland Marine policy.
• Business Interruption Coverage for extra expenses and loss of income while you get your business back on its feet.
• First & Third Party Dishonesty, protecting you if employees steal from you or your customers.
• Commercial Automobile Coverage for your vehicles.
• Workers' Compensation for your employees.
• Umbrella Coverage to provide an extra layer of coverage beyond the limits of your underlying policy.

3. Review the limits on all your coverages. When considering the amount of insurance you need, called "limits," consider that each coverage in your liability policy has its own specific dollar limit, or "sublimit." This sublimit is the maximum amount that the policy will pay for a particular type of loss. In other words, the "occurrence" limit you see on the declaration page of your policy does not mean you are covered for that total amount for a specific coverage.

For example, while your policy may show an occurrence limit of $1 million, your Pest Inspection Damage Liability coverage may carry a sublimit of just $50,000. Know what your limit is for each part of your policy.

4. Know how your claims will be handled. When a claim is filed, delays, disputes and slow service can slow your ability to get back to work. Ask whether your insurer has an in-house claims service or uses an outside third party administrator (TPA). Ask about their claims-paying history and philosophy on doing business. The best claims professionals know when to settle and when to fight a claim. They work quickly on your behalf and get you the settlements you need to keep your business strong.

By working with insurance partners who are experienced in our industry, you can make sure you get the coverage and limits you need and that your claims will be handled quickly and with your best interests in mind.

John Culotta is Program Manager of PCOpro, the pest control operator program at Brownyard Group (www.brownyard.com), a leading provider of insurance programs for the professional pest management industry.

The Insurance Issue
This October 2006 feature imagines a conversation between an experienced pest management professional and a new one, answering several common questions about industry liability.

6 Ways to Prevent Home Inspection Headaches
By John Culotta

It typically takes a pest management professional (PMP) about 30 to 45 minutes to perform a home inspection for termites and other wood-destroying insects (WDIs), depending on the size and condition of the home. As a professional, you know what it takes to do a thorough inspection, but did you know that by taking a few extra precautions — and maybe a few extra minutes — you can protect yourself from costly customer claims?

Claims related to home inspection usually take two forms: Either there were signs of WDIs that you missed in your inspection, or there was existing damage that you missed during your inspection. These claims can be small or reach six figures for higher-priced homes.

Of course, you need insurance coverage to protect yourself if there is a claim, but you can also prevent the associated headaches by minimizing the chance that these home inspection claims are filed in the first place. Here are six steps you can take to limit your exposure.

1. Before you even begin the inspection, make sure the customer signs a contract clearly stating that you are not responsible for damage in inaccessible areas — only for damage that is visible. While I know that many PMPs already include this language in their contracts, it is an important precautionary step that everyone should take.

2. If possible, take the potential homebuyer along with you when you do the inspection, room by room. This is not a step that many PMPs take, but it is one that goes a long way in preventing claims. When homeowners experience the actual inspection, see how careful you are and understand what is visible and invisible damage, they are less likely to file a claim later.

3. Document the time you spend in each room. This can take a few extra minutes, but the better your documentation, the better defense you can mount against any possible claim.

4. Take photos during the inspection. This way, you have visual proof that there was no visible damage at the time of the inspection — and may help prove that later damage was caused by something else other than pests. In addition, by using your camera’s time and date feature, you’ll find an easy way to document the time spent in each room.

5. Report all existing damage on joists, door frames and other areas, even if you do not believe it is from pests. If there's any possibility it is from pests, then the homeowner has the opportunity to have the issue addressed — and cannot claim later that you missed an area potentially damaged by WDIs.

6. Always check the outside perimeter of the home. Even if there is no visible damage inside the house, an outside inspection may reveal mud tunnels along the outside wall that tells you there may be subterranean termite activity.

How long will these six precautionary steps take? Whether it’s just several minutes or more will depend on the size of the home and the potential homebuyer. But whatever it takes, when you weigh these minutes against the time and headache of customer claims, you should see it is time well spent.

John Culotta is Account Manager of PCOpro, the pest control insurance program at Brownyard Group (www.brownyard.com), a leading provider of insurance programs for the professional pest management industry.

I Assure You: Insurance is Important
This December 2008 installment of Pete Schopen's "Start-Up Diaries" examines what new business owners should know about their coverage.

Is Insurance All the Same? Not When You Have a Claim
By Steve Buckley

As my colleague John Culotta at Brownyard Group wrote last year in Direct to You, the insurance market moves in cycles and we’re in what is called a “soft” market. In this market, coverage is easy to find, prices are low and more insurance carriers jump into industries with which they are unfamiliar. These newcomers often lack both the experience to meet the insurance needs of an industry and the patience to stay with the industry when the market “hardens” — prices go up and insurance terms begin to tighten.

Over the last several years in the professional pest management industry, more carriers have been writing coverage at extremely low premiums. These days, coverage options seem to be about the same no matter where you look. So when you have so many choices, how do you know the difference and decide which carrier is the best for you?

Unfortunately, you may not be able to — that is, until you have a claim.

When you choose your insurer, it is important to find out who is handling the claims. Is it an experienced in-house claims department, a third party administrator (TPA) experienced in pest management claims, or someone with no experience in the industry? What is their history and philosophy in handling claims? Answering these questions can make a big difference to your bottom line.

Pest management claims are inherently more complex and difficult to discern than some other claims. For example, with an auto claim, you can usually pinpoint exactly when and where an accident happened. But for property damage that is claimed to be caused by termites or other pests, it often is more difficult to discover when the damage occurred — or even whether the damage is related to termites.

An experienced claims professional knows how to determine whether the damage is related to pests, or whether it is related to construction defects or poor maintenance on the part of the property owner. But some carriers who do not have the experience could overpay the claim.

Responsiveness is critical to handling claims properly. As soon as the claims department or TPA gets a call, immediate contact should be made with the claimant to see whether the claim is legitimate and whether damages are related to services performed by the pest management firm. If damage is found to be unrelated to pests, a proper defense can be mounted.

In many cases, there may be gray areas that make it hard to discern whether the damage is covered. Unfortunately, some companies have a mission to find out what is not covered and figure out what they should not pay. Others may just routinely settle claims without looking at all the facts and then just bill the pest management firm for the deductible. A better approach is to always make a diligent effort to explore the merits of the claim, defend when it makes sense and settle when appropriate to do so.

In some cases, if you are dealing with a big client you’ve been servicing for years, your insurer needs to be sensitive to this business relationship. A hard line approach could anger the customer and result in you losing the contract. In these types of situations that aren’t always black and white, you’ll want your claims professionals to help you make the best business decision, as well.

The key is to have a partnership with your insurer so they understand your business and your business needs. There should be quick response when there are claims, and open communications throughout the process so it is settled in your best interests. Your insurer should have the industry experience to recognize when you are at fault and when you are not responsible for the damage. Most importantly, they know when a pest management claim needs to be fought and when it’s better to settle so as to preserve a valued business relationship.

When your specialized needs are misunderstood and claims are handled clumsily, you are the one who ultimately suffers. By choosing a specialist in pest management coverage, you will have a trusted resource when facing a claim.

Steve Buckley is president of Brownyard Claims Management, a loss-prevention and full-service claims subsidiary of Brownyard Group (www.brownyard.com), a leading provider of insurance programs for the professional pest management industry.

I Assure You: Insurance is Important
This December 2008 article by Pest Management Professional columnist Peter Schopen Jr. recounts his personal experience with using a trusted insurance carrier, in this case family health coverage.

When Bed Bugs Bite: How to Protect Yourself
By John Culotta

Over the last decade, there has been a significant increase in bed bug (Cimex lectularius) infestations in the United States. Experts don’t know exactly why, but I have heard explanations that range from the rise in international travel to military personnel returning from war.

Whatever the reason for this increase in bed bugs, pest management professionals (PMPs) who have had to deal with these pests know they can cause quite a stir. Although bed bugs have never been shown to transmit disease, people who learn they are sleeping in infested homes, staying in infested hotels or apartments, or sailing the high seas on an infested cruise ship often experience psychological stress, anxiety and insomnia.

Because bed bug infestation affects people in such a physical and psychological way, customers whose infestation is not eliminated on the first try are coming back to the PMP with claims we usually don’t see in termite infestations — claims for bodily injury and emotional distress. Nine out of 10 times, these claims are filed by a hotel, an apartment/condo complex or a cruise ship. Hotels may also file secondary claims for loss of revenue.

While bed bug extermination can be a profitable business, you should understand these risks and recognize just how difficult bed bugs can be to control. For example, in a recent study at Purdue University, researchers treated eight infested apartment units. After four applications of professional insecticide products, along with inspections and steam cleaning, two apartments still had bed bugs.

In fact, an informal survey of PMPs conducted by a pest control professor at the University of Massachusetts found that 68 percent of all bed bug infestations require three or more treatments; 26 percent require two treatments and 6 percent require just one.

For these reasons, before taking on bed bugs, you should take precautions. We recommend three steps you can take to prevent claims and protect yourself:

• When you do the initial visual inspection, take the client with you, room by room. Keep precise documentation and ask him or her to sign off on your visual inspection. This alleviates the problems of miscommunication, and the client cannot come back and say that a room is infested if it was not documented.
• Be candid with the client about what to expect. Most times, you will not be able to eradicate bed bugs on the first application. It may require as many as four or five applications, and people must know this up front. In addition, let them know you may also need to discard heavily infested furniture, steam-clean carpets and upholstery and wash bedding materials every time bed bugs are found.
• Develop a detailed contract specific to bed bugs treatment, and include the above expectations. Documentation with clear expectations is important.

By taking these steps, you will open the lines of communication, create realistic expectations and greatly reduce potential claim activity. Bed bugs may bite, but they don’t have to bite you in the bottom line.

John Culotta is program manager of the Pest Control Program at The Brownyard Group (www.brownyard.com), a leading provider of insurance programs for the professional pest management industry.

The Business of Bed Bugs
This January 2008 article by University of Kentucky entomologist Michael Potter outlines the results of a comprehensive bed bug study the university did in conjunction with Pest Management Professional magazine.