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Don’t Let the Bed Bugs Bite — What does that have to do with Insurance?

11 Jul

English: Early Baseball advertisement for a bu...

The phrase: “Sleep Tight—Don’t Let the Bed Bugs Bite”, has an interesting history as to when it was first said and what it means.

The first citation of the phrase is said to be found in a diary in 1866. One theory of the “sleep tight” statement that appears in most explanations,  is that it had to do with beds that were supported by ropes which needed to be pulled tight to provide a spring for the mattress.

http://www.straightdope.com/columns/read/1570/whats-the-origin-of-the-expression-sleep-tight

As to the history of “bed bugs”, it is theorized that they were first introduced in America with the early colonists who brought the bugs over on the sailing ships.  It was such a problem in the early days that passengers were forbidden to bring any bedding on board the ships. The problem of bed bugs in the United States was almost totally eradicated in the 1950’s because of the wide usage of DDT.  DDT could be sprayed or dusted on and around the bed and the bed bugs were controlled for at least a year or more. Bed bugs can also be found in other places where humans spend time such as couches, chairs, airplanes and so on.

Today, bed bugs are making a comeback…big time. In the mid to late 90’s, bed bugs began appearing more frequently in hotels and motels, even premium ones, and in apartments, single-family homes, nursing homes, and hospitals. Lately, bed bugs have become national news, with media exposés on bed bug attacks in five star hotels.  There are several reasons for the resurgence of bedbugs including: increased worldwide travel; underground economy; increase in secondhand merchandise; changes in bed bug habits (they are a crafty bug); and the banning of DDT. 

Bed Bugs in the news can be big news. From an insurance perspective there are several different situations we have to deal with to determine if there is any insurance response to the potential loss.  Using a hospitality risk as an example, (hotel/motel) here are some of the situations that might occur:

  1. Situation: A guest at a hotel is actually bitten by bed bugs at a hotel and makes a claim against the hotel for bodily injury and reimbursement for their costs of staying at the facility.

Insurance Response:  The Commercial General Liability Policy would most probably respond to the claim for Bodily Injury.

  1.  Situation:  A guest sees bedbugs and is not harmed, reports it to the manager.

Insurance Issues and Response:

  1.  Guest wants repayment for their hotel stay
      i.      The requirement to re-pay the guest could be considered a loss of income BUT the reason for the return of the hotel fees is because of a “siting of a bedbug”.  In addition, the room and probably the adjacent rooms cannot be rented because they have to be treated for potential infestation. This time there is no liability claim, no bodily injury.  We could look to the Business Income form but would then have to look at the cause of loss form that is attached to the Business Income Form which, whether Named Perils (the exception) or Special Form, will not pay for loss due to insects. There is also, typically, a 72 hour waiting period for coverage to apply so the loss would have to exceed 72 hours prior to its consideration for payment.  This varies from form to form.                                                ii.      A case in point: an Alaskan hotel Manager, Sheri Makela,  had an incident with bed bugs saying” it took over 3 months to get rid of the bed bugs, during that time the room had to be sealed totally in plastic and only accessed by the exterminator several times every month for additional spraying. A lost income claim was not filed in this case because you can only claim lost income for nights when the hotel is totally full and the incident happened during shoulder season so the hotel was not full every night. The bed bugs were discovered by housekeeping which most hotels are now routinely training how to check and spot bed bugs.”

The hotel has to hire a pest control company
The requirement to now hire a pest control company to investigate whether there were bedbugs and, if there are bed bugs, to fumigate them is a significant cost.  This would not be covered on a Commercial Property Form.

 

  1. The angry guest now reports an incident on the Bed Bug Registry
  2. YES –there is a registry of bed bug “incidents” that can be searched by state.  The site is: www.bedbugsepidemic.com/tag/hotel.   The site is updated daily and is searchable by location or hotel name.  All incident reports are also retrievable on the site.  One of the key concerns here is that these are “incidents” which typically are just postings without any substantiation.  The people reporting on the internet are not claiming necessarily that they were bitten by bed bugs; but, that they saw “a” bedbug. The result of this posting is that the hotel/motel could lose income and their reputation (brand name).  Now where is the coverage for the hotel? There is no coverage on the Business Income Form because that form requires that there must be “direct damage to property at the premises described” and covered under the cause of loss.  There really is now coverage available, to my knowledge, for loss of reputation because individuals are posting this on the bed bug registry anymore then there would be if an individual gave a restaurant a low score on a site that rates restaurants.  But, what we do know is that these postings can affect a business’s income.
    1. The angry guest now posts a blog about their alleged siting of the bedbug.
      1. Whether the allegations are true or false, the “claims” of bedbugs can cause serious business incomes losses and loss of reputation. The internet is a new and viral outlet for the disgruntled client to make their claims public. The “accused” in these cases do not take this lightly.
      2.  There is an interesting case in point reported on June 21, 2011 in an article titled: “Be Careful When Making Bed Bug Claims—You Might Get Sued!”  The article was about the Carelton Hotel located in Oak Park, Illinois.  A couple had complained to the manager that there were bed bugs in their room.  The manager refused to acknowledge that there was any problem.  The couple upon leaving promptly wrote a review on line when they returned home.  The hotel hired a pest control company that was unable to find any proof of bedbugs in any of the rooms at the hotel.  (Cost to hire the pest control company not covered on standard forms) As a result of the negative comments, the Carleton Hotel  sued the couple for the cost of hiring a pest company to inspect the entire facility and  $30,000 for loss of revenue claiming that the “malicious post dissuaded many people from staying in the hotel.  (Again, no coverage for the hotel suing the prior guest). The loss of business and loss of reputation is not covered on the Business Income Form.  http://bedbugs.net/be-careful-when-making-bed-bug-claims/

Coverage for the Angry Couple posting a “libelous” article and being sued.

  1. Well, the answer was in the title—libel.  If the guest had a policy, such as a Homeowners Policy, and they had Personal Injury Liability Insurance, that form could respond to the lawsuit filed against them by the hotel.
  2. Angry Couple claims they brought bed bugs back to their home and hired an exterminator.                                                  i.    This is an expensive proposition.  This cost could be in the range of $5,000 per home.  The Homeowners Policy would not pay for these expenses.

Who would ever have thought that Bed Bugs could bring up so many issues facing the hospitality risk AND other industries such as furniture manufacturers; furniture rental companies, etc.? For the most part these claims fall through the cracks of traditional insurance but that does not mean this is not a significant issue to consider from both a risk control and transfer of risk to an insurance company.  There are now specialty companies that offer coverage specifically for Bed Bugs.  One of the premier companies that offer Bed Bug Insurance is written through PLIS Inc.http://www.plisinc.com/bed_bug_infestation_recovery.htm .  The policy is described on their website and is primarily a first party coverage for Loss of Lodging Revenue; Rehabilitation Expenses; Extortion Payments; Decontamination Expenses; and Crisis Management.  There is a limited Third Party Remediation expense for Customer Decontamination Expenses and Onsite Customer First Aid.  As with any specialty coverage it is important to review the coverage form for definitions (such as the definition of bed bug);  coverages, and limitations.

So next time you tuck your child into bed you might think twice before saying “Sleep Tight, Don’t Let the Bed Bugs Bite”.

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