Insurers Not Bitten by Bed Bug Claims but Could See Uptick in Coverage Demand

With major U.S. cities reporting an increase in infestations of bed bugs, the nocturnal bloodsucking insects could inspire increased demand for related coverages.

Nancy Green, executive vice president of Aon Risk Solutions, said property policies typically do not cover the cost to remove insects.

However, many hotels have negotiated for "loss of attraction" coverage, which covers the actual loss a hotel might sustain if it had to cancel reservations or was unable to accept bookings due to an infestation.

"Even though the hotel might not have coverage to repair or replace damaged furniture, they would have coverage for lost bookings," Green said.

She said bed bugs aren't a result of poor sanitation.

"Insurers are seeing a few claims, but I wouldn't say it's a large number," Green said.

Bed bugs, once the subject of a simple night time rhyme -- "Sleep tight, and don't let the bed bugs bite" -- had almost faded into obscurity before making a comeback earlier this decade. Increased international travel and a more targeted approach to pest control opened the door to bed bugs re-establishing a foothold in the United States, according to pest control service Orkin LLC.

Orkin's commercial division has seen demand for bed bug treatment growing, from 250 customers in 2007 to about 2,100 in 2008 and 5,800 in 2009. Orkin said it expects that trend to continue in 2010, with the number of commercial bed bug customers doubling again this year. Bed bugs were once confined to the hotel industry, but they have been invading multifamily buildings, retail stores, movie theaters and even offices.

Bed bugs are about the size of an apple seed, and feed only on human blood. They do not carry disease, but their bites can leave itchy, red welts. They also aren't limited to beds, and can hide in furniture and clothes. They multiply quickly, and can spread either by hitching a ride on an unsuspecting human's clothes or suitcase, or by squeezing through tiny cracks in walls.

While New York City has made headlines recently for bed bug infestations, it is not one of the five busiest cities for bed bugs, according to Orkin. Cincinnati and Columbus, Ohio, are the two worst, followed by Chicago, Denver and Detroit, Orkin said.

Robert Friedman, head of the insurance group at the West Palm Beach, Fla.-law firm of Gunster, said bed bugs aren't a covered peril under both commercial property and homeowners policies. If a house were to collapse due to a termite infestation, that would be covered, but not the cost to remove the insects.

However, "Bed bugs just eat people," Friedman noted. "They get carried around from place to place; they come out and bite people, but there's no property damage."

Even if a homeowner had to throw away furniture to get rid of the bugs, it wouldn't be covered as property damage because there was no triggering event, like a fire or hurricane, he said.

"From a property standpoint, I can't see any claims arising from this," Friedman said.

However, he said there was potential for liability claims to arise from bed bugs.

"If someone goes to a hotel and gets bitten up, and then sues for discomfort and emotional distress, that's a run-of-the-mill bodily injury claim, like a slip and fall," Friedman said. "Those claims would be covered under the standard general liability policy."

At least for now.

Friedman said if liability claims ever became a significant loss, insurers would begin to exclude coverage for bed bugs. "But the cost to the insurance industry seems minor compared to standard claims. They probably would not be any worse than the typical slip and fall claims you see every day. It pales in comparison to other types of liability out there, such as Chinese drywall," Friedman said.

The largest cost to the insurance industry may be to defend clients who are sued.

"If someone is making an allegation and the lawsuit goes on for awhile, even if it is ultimately dismissed, you could spend hundreds of thousands of dollars defending the case," Friedman said.

State Farm, the nation's largest homeowners writer, doesn't cover damage caused by insects unless it leads to the collapse of a building, said Dick Luedke, a spokesman for the company. That's not a likely scenario for bed bugs.

To listen to the full interview with Nancy Green, executive vice president of Aon Risk Solutions, visit: http://www.ambest.com/media/media.asp?RC=177381.

(By Meg Green, senior associate editor, BestWeek: [email protected])