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Pest Control Claims

Pest Control Industry Claims Analysis

 

Types of losses experienced:

A review of all claims or potential claims reported by American Safety / Thomco Pest Control customers for the years 2005, 2006 and year to date (June 2007) was completed to provide our customers with information about where improved loss control strategies are a good idea. A second review of large losses over $100,000 total incurred was also completed to provide some “lessons learned” material to help our customers avoid these serious accidents and claims. It is our desire to inform customers of the types of losses we are commonly seeing in the industry so they can practice informed loss prevention. We are not judging policy holders or their pest control clients, but rather providing real life examples so clients can improve their loss experiences which will ultimately improve the entire industry’s reputation. During the calendar year 2005 there were 245 incidents reported. The leading loss cause is liability alleged from missing evidence on wood destroying organism (WDO) reports. There were 93 incidents reported that resulted from missing information on the WDO reports. These incidents have resulted in over $1 million in total incurred claims costs. From a frequency standpoint WDO inspection liability accounts for almost 38% of all claims reported in 2005.

 

For the year 2005 the second leading cause of loss is a category described as “treatment liability” with 66 incidents reported. This is a broad category and sometimes is difficult to distinguish from inspection liability. Treatment liability however can be alleged when a pest control operator is contracted to treat a premises for infestation and the treatment does not live up to the customer’s expectations. This commonly results in the need for re-treatment but can create additional costs for which the operator is liable. These 66 incidents reported in 2005 have a current incurred value of over $635,000. From a frequency standpoint treatment liability claims represent approximately 27% of all claims reported in 2005. Reported claims for 2005 deserving honorable mention for frequency include 12 damaged landscape claims from various treatment activities accounting for approximately $61,400 incurred reserves, 6 “stepped on or through” type incidents including 4 broken sprinkler system lines and 2 stepped through ceiling accidents which demonstrates the need for standardized attic work policies and procedures. Also reported in 2005 were 7 claims for damage to the exterior of premises accounting for approximately $36,000 and 8 incidents, both interior and exterior, that can be simply described as “drilling badly” which resulted in damaged utility lines. A variety of losses account for the remaining 20% of reported claims and approximately 15% of the total incurred loss reserves for 20005. These claim types include well water contamination, vehicle fires causing property damage, employee dishonesty, poor work quality, spider bites; slips, trips and falls; fumigation illnesses, fires, toilet leaks, environmental spills, and chemical reactions.

 

The calendar year 2006 has resulted in a better loss experience thus far with approximately 102 reported claims. Similar loss causes lead the way with 25 WDO Inspection Liability claims (24.5%), 24 Treatment Liability claims (23.5%), 11 claims for interior utility or structure damage during treatment or inspections (11%), 6 exterior building and landscape damage claims (6%), and 5 claims resulting from drilling incidents (4.9%). The remaining 30% of the claims for 2006 and year to date 2007 include such incidents as: well water contamination, stepped on pipe in attics, poor aim with sprayers, fumigation illnesses, friendly pet deaths, fire, environmental spills, and dog bites. The 2006 reported claims appear to have similar per incident incurred losses as the 2005 claims. In most claims analysis studies where there is frequency in the types of claims there will also be severity for the same types of claims. This experience holds true for pest control operator claims. A review of 25 reported claims with over $100,000 total incurred losses was reviewed and revealed 13 incidents where information was missing on the WDO report. There were another 3 cases where the pest control operator was under contract and failed to control against infestations. The 9 remaining large losses included 2 alleged illnesses from fumigation, a home explosion during fumigation, landscape damage, a slip, trip, and fall, poor workmanship, spray residue, an employee injury and a trademark violation claim. The 9 reported losses with values over $100,000 each have total cumulative loss values of just under $4 million.

 

Large Loss – Lessons Learned:

In California a fumigation process to rid a home of termites was planned. The technician followed standard operating procedures by turning off the gas at the meter. There happened to be a small leak within acceptable standards of the gas company that it was later determined the gas company knew about. Procedures in California at the time were for the pest control technician to turn off the meters. Also, at the time the meters were encapsulated along with the rest of the structure. The result of the leak and encapsulating the meter created conditions that allowed for the explosion. Once gas had built up overnight and there was a small spark from an unknown source the explosion occurred. As a result of this accident California has changed their laws to require gas company officials to turn off gas and to turn it back on after fumigation. Check with state regulations to determine what is required in your state to reduce the chance of this type of loss. Other large losses reviewed in the analysis don’t have the same attention-getting feature as an explosion but they cost the industry more money every year. These include the WDO Inspection liability losses, which are more and more frequently including an element of mold or fungus damage in the claim. This is not surprising to those in the pest control industry as moisture is necessary for insect survival and it promotes the growth of mold and mildew. Eliminating moisture sources helps in the elimination of wood destroying organisms.

 

Best Practices to Reduce WDO Liability Losses:

Addressing the claims we see most frequently there are some simple solutions, when implemented as part of a routine that can help reduce the risk of claims. Pest control operators should have an established and formal WDO Inspection procedure in place. Having a procedure in place is just the beginning, assuring that all technicians with your company are properly trained, equipped, willing and able to perform these inspections is the key. Failure to find damage and failure to document damage are the two most commonly seen reasons for WDO Inspection liability claims. (See the NPMA Suggested Guidelines for Completing the Wood Destroying Insect Inspection Report – NPMA – 33.) Key areas to remember with WDO Inspection forms include documentation ofObstructions & Inaccessible Areas as well as Important Consumer Information Regarding the Scope and Limitations of the inspection. These two areas alone, when properly addressed, can reduce the number of WDO Inspection Liability claims significantly.  

Regarding the actual inspection itself regardless of the documentation technicians must be qualified to perform the work they are asked to do. A company-training program that includes new technicians traveling with the most experienced operators is recommended to assist the technician with competency and the ability to effectively communicate important information to customers.

When performing WDO Inspections flashlights and moisture meters should be used when necessary. As areas are determined to be either obstructed or inaccessible a notation should be made on the form so when the final copy is completed observations are accurately documented on the report. As part of your documentation process a digital camera with a functional flash is highly recommended. Take digital images of obstructions, damage, frass, live insects, and other information that will help with the documentation process.

 

Conclusions:

Over the years Thomco has been serving the Pest Control industry there has been a differentiation between clients who have frequent and severe claims and those who have managed to avoid most claims. In simplest terms those clients who manage to avoid most claims are consistently and routinely adhering to Best Practices for the industry.  Consistent training and education as well as accurate and detailed documentation are two of the most important areas where pest control companies can make improvements to have an immediate impact on losses. 

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