The Insurance Question

Dec. 10, 2001
The Key to Achieving Better Indoor Air Quality: Do Something! (Part 4 of 5)

According to a study by Allen Chen and Edward L. Vine (1998) of the Lawrence Berkeley National Laboratory (LBNL), the incidence of commercial buildings with poor IAQ, and the frequency of litigation over the effects of poor IAQ is increasing. If so, these increases have ramifications for insurance carriers, which pay for many of the costs of health care and general commercial liability.

The literature search and discussions with insurance and risk management professionals reported in the LBNL paper turned up little specific information about the costs of IAQ-related problems to insurance companies. However, those discussions and certain articles in the insurance industry press indicate that there is a strong awareness and growing concern over the "silent crisis" of IAQ and its potential to cause large industry losses, and that a few companies are taking steps to address this issue. The source of these losses include both direct costs to insurers from paying health insurance and professional liability claims, as well as the cost of litigation. In spite of the lack of data on how IAQ-related health problems affect their business, the insurance industry has taken the anecdotal evidence about their reality seriously enough to alter their policies in ways that have lessened their exposure.

U.S. companies could save as much as $58 billion annually by preventing sick-building illnesses and an additional $200 billion in worker performance improvements by creating offices with better indoor air, say researchers William J. Fisk and Arthur H. Rosenfeld of the Lawrence Berkeley National Laboratory in Berkeley, Calif. The researchers also found that the financial benefits of improving office climates can be eight to 17 times larger than the costs of making those improvements. Their estimates are derived from studies which establish a link between building-related causes and the illnesses in question, but they do not have data on the percentage of these costs paid by the insurance industry, and the estimated benefits covering all building sectors (Chen and Vine, 1998).

One insurance carrier, DPIC Companies, reportedly paid out more than $24 million between 1989 and 1993 for claims related to IAQ illnesses caused by faulty HVAC systems. The claims involved HVAC systems that over- or under-heated buildings, failed to cool buildings adequately, or failed to adequately ventilate whole buildings, or portions of them. The four most common types of projects in these cases were commercial and industrial buildings, schools and university buildings, condominiums and hospitals (Chen and Vine, 1998).

According to a 1999 article in the Silicon Valley / San Jose Business Journal, the increased public concern over SBS and IAQ-related issues has generated three types of legal activity:

1. Claims alleging harm from exposure to indoor air pollutants;
2. Disputes over the extent to which such claims are covered by insurance; and,
3. Legislative and regulatory initiatives to reduce indoor air quality risk (Blase, Hughes and Bick).

Litigation alleging harmful exposure to indoor air began in the early 1980s with an initial wave of lawsuits arising from occupational exposure to single contaminants such as asbestos, solvents or pesticides. By the late 1980s, a new type of indoor air quality claim began to appear: assertions by homeowners and commercial occupants that they or their businesses had been damaged by "non-industrial" contaminants (Blase, Hughes and Bick).

Chen and Vine reported that the size of settlements awarded to plaintiffs in IAQ-related cases could serve as an indicator of the costs caused by acute building-related problems, as well as of the value that juries place on the damages that building owners, managers and other liable parties owe for neglecting IAQ problems. However, the majority of these cases are settled out of court. Thus, there is no way of totaling the costs of litigation from IAQ cases.

Again, absent any hard data, it's obvious that the escalating insurance costs, and the litigation that is doubtless set in motion to produce them, provide further evidence that better IAQ and prevention of SBS are issues in everyone's best interests.

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