By Kari Dybdahl

Let’s transport together back to 2003 when a court ordered Farmers Insurance to pay Melinda Ballard $32 million for a small water damage claim gone bad that resulted in toxic mold growth in her home.

Although the payout was eventually reduced to just over $4 million, the point still got across to insurance companies throughout the industry. Ballard is the number one person insurance companies love to hate. A 2003 article by The Austin Chronicle stated insurance companies use the Ballard case as ammunition against the fight of frivolous lawsuits.

What is particularly interesting about the Ballard case from the viewpoint of an insurance professional is that the claim originated from a small water damage loss. Due to the lack of urgency from the claims department, the small water leak turned into extensive mold growth. Instead of getting the water out as soon as possible, the claims adjuster wanted to investigate the loss, which took two months. Within those two months, the loss worsened and resulted in detrimental bodily injury to family members as well as an uninhabitable home.

A claim similar to the Ballard case could happen to any restoration contractor no matter the size of the firm or the job.

Claims scenario

You get a call that there is a water leak at a home, and they need your help. You determine it is a sewer backup and work with the claims adjuster on what they would like for you to do next.  The claims adjuster tells you to hold off on any work until they conduct an investigation of the loss.

You don’t hear from the claims adjuster and get a call from a very unhappy homeowner that mold is growing all over the walls. And, boom, just like that, a simple sewer backup loss turns into a mold remediation job, complete with an angry homeowner. Sounds like a disaster waiting to happen, and you are right in the middle!

What does the Melinda Ballard case mean to you as a cleaning and restoration contractor? The case set the stage for insurance companies to blacklist writing liability insurance on fire and water restoration contractors.

The shift of insurance companies

Insurance companies believe the risk of fire and water restoration contractors potentially causing the issues highlighted in the Melinda Ballard case does not outweigh the reward. The  Austin Chronicle found that, in 1999, there were 12 claims reported from mold damage. In 2001, that number rose to 15,000, which contributed to the addition of fungi and bacteria exclusions on homeowners’ policies and, ultimately, the commercial general liability policies that you purchase for your business.

The fungi and bacteria exclusion on the commercial general liability policy is one of the strongest exclusions we have seen on liability policies. At my brokerage firm, we call it a flood exclusion on steroids. A flood exclusion has a straight-forward application, if there is a flood of any kind, in any way, there is no insurance coverage.

Not only does the fungi and bacteria exclusion exclude bodily injury and property damage, but it also excludes any loss, cost (including defense costs and clean-up costs), or expenses in any way involved with responding to mold or bacteria.

As a fire and water restoration contractor, would you say you frequently respond to mold or bacteria in homes and/or commercial properties? If you are working with Category 3 water, the answer is yes.

Unfortunately, fire and water restoration contractors to this day find themselves on the blacklist within the underwriting guidelines of standard lines insurance companies. After reading the fungi and bacteria exclusion on the bottom of page 37, you can see not having your liability insurance written with these standard carriers could be a positive move for protecting your business since you can find a specialized carrier who will fix this issue.

Have you ever wondered why you are rated as a carpet cleaner on the declarations page of your commercial general liability policy even after you have told your insurance agent most your revenue is from water damage restoration? This is a major red flag that the insurance company could very well not know what you do for a living. It gives them the ability to deny a liability claim filed by you and your company due to misrepresentation to the insurance company — even if you told your insurance agent what you do for a living.

If standard carriers blacklist and/or exclude what fire and water restoration contractors do for a living, a common question is: “How do I obtain adequate liability insurance coverage for my business?”

Luckily there are specialized options available at affordable premium prices; however, it can be hard to find if your insurance agent is not working with a wholesale insurance broker specializing in the cleaning and restoration industry.

fungi or bacteria exclusion example

Nuclear bomb plant insurance

Fun fact: The insurance needs of a cleaning and restoration contractor are more complex than a nuclear bomb plant. The environmental liability policy options needed by cleaning and restoration companies originated from the same policy used for the cleanup contractor of a nuclear bomb plant as well as the contractors working at the Chernobyl nuclear meltdown disaster.

The original policy used for the cleanup of a nuclear bomb plant and Chernobyl had to be altered for contractors inside of structures as well  as include mold as a covered constituent. Mold and bacteria losses are not automatically included in environmental policies. Just because you purchased a contractor’s environmental liability policy (sometimes referred to as CPL) doesn’t mean it includes coverage for mold and bacteria. This is a contributing factor in the statistic found by American Risk Management Resources Network LLC that 90 percent of restoration contractors do not have adequate insurance coverage for their business.

In 2003, mold coverage premiums started at $10,000 annually for a $1 million limit of liability. Fast forward to today, and insurance carriers, through specialized wholesale insurance brokers, offer combined form (general liability, environmental liability, mold liability, bacteria liability, and professional liability) policies for premiums starting at $2,500 for $1 million/$2 million limits of liability.

A lot has changed since the introduction of environmental liability policies for cleaning and restoration contractors in 2003. Both the policy line offerings and the coverage offered have expanded, while the premiums continually become more affordable.

It is no secret that the standard line insurance companies shy away from the restoration business. Purchasing general liability from standard insurance companies is an outdated practice. Not only does it leave you with potentially detrimental gaps in coverage for your company, it may not be saving you premium dollars.

With custom-designed insurance policies, many of the insurance pains that staxrted in 2003 for the restoration firms can easily be resolved through wholesale insurance brokers that work through local insurance agents, specializing in the cleaning and restoration industry.


Kari Dybdahl has a decade of experience in the environmental insurance industry assisting clients from carpet cleaners to municipalities. She has received multiple awards and recognition for her work placing compliant insurance for Crawford Contractor Connection members, ICRA members, and many others. Dybdahl designs custom insurance programs alongside Dave Dybdahl. Please reach out to Kari A. Dybdahl with any questions at 608-824-3341 or kari@armr.net.