Canadian Underwriter

Small Visitor, Big Problem?

September 21, 2010   by Terri Goveia

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Earlier this year, as they prepared for the G20 Summit, high-end Toronto hotels had unusual guests try out the rooms slated for heads of state. Trained dogs went through the suites to make sure the presidential visitors wouldn’t have unwanted roommates: bed bugs.

Upscale hotels aren’t the only businesses worried about the tiny critters–property managers and retailers are among those facing more than customer complaints as bed bugs reappear in major Canadian cities decades after they were considered eradicated. More sightings–and bites–could prompt an increase in bug-related claims, according to industry players.

The liability question

Do businesses have to worry about anything besides itchy customers? If a hotel guest suffers physically–a photo posted on one bedbug website shows an unhappy vacationer with bites from head to toe–they will, says Anita Kwan, a partner at HKMB HUB International.  “Their policy would respond to allegations of bodily injury as a result of bedbugs,” she says. “If a third party can prove bodily injury, they would be eligible to file a claim.”

A successful claim would require evidence that the hotel had bugs, and that the guest was bitten there, and once that’s proven, “the insurance company will respond,” she says.

And if customers bring home the critters–which easily “hitchhike” on clothing or suitcases–“it’s still a liability issue,” she says. “If they can prove they brought bugs back to the resident [from the hotel], that’s still an issue. The question is how to prove it.”

But hotels themselves would be on the hook for the cost of removing the unwanted guests, she says. Termination services, or any physical damage to the rooms wouldn’t be covered in typical commercial policies–part of the same exclusions that include vermin like termites.

Proof or not, the reappearance of bed bugs “will increase the frequency of people trying to make claims,” Kwan says.

Insurer response

Thanks to global travel, bed bug infestation “is growing into a much more visible problem,” Nancy Green, assistant vice president at Aon Risk Solutions said during a recent A.M. Best podcast.

Property policies for hotels and other venues–like retail stores–usually have exclusion for damages caused by vermin. But major hotels chains might need loss of attraction coverage–which covers loss sustained by a hotel if they can’t make bookings because of an infestation. “Even though they don’t have coverage to replace the damage or furniture, they do have coverage for the loss of bookings,” she says.

Insurers in the U.S. have already seen “a few claims,” related to the bugs,  Green noted during the September 6 podcast.

Brand reputation is also a risk, she says. But, it’s not as big as one might think. “Once something occurs at a particular site, and the manager addresses it quickly, that’s what people are looking for, they’re looking for action.”

In Canada, things are relatively quiet for insurers on the bedbug front at present, says Pete Karageorgos, Insurance Bureau of Canada (IBC) spokesman. He stresses the exclusions that come with standard building policies.

Creative coverage

And though the industry south of the border may soon see new kinds of coverage emerge to address the problem following  a call by New York state politicians  for insurance legislation that would force insurers to offer bedbug insurance. That coverage–proposed by Brooklyn Assemblyman Dov Hikind and Senate Majority Conference Leader John Sampson–would have insurers provide coverage for tenants and condominum owners for infestation-related costs.

Whether that catches on here remains to be seen. “There might be a market for it,” says Karageorgos,  pointing out that the much larger U.S. market might have more need.

This story was originally published by Canadian Insurance Top Broker.