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A Service Story

May 16, 2024

Will Maintenance Agreements Become Your Next Insurance Policy?

March 1, 2003
The meeting rooms of Chicagos McCormack Place sometimes exude all the excitement of an engineers drawing table during the AHR Expo and ASHRAE winter meetings.

The meeting rooms of Chicago’s McCormack Place sometimes exude all the excitement of an engineer’s drawing table during the AHR Expo and ASHRAE winter meetings. Not so on Tuesday, January 28 at 9 a.m. in room S101B. About 30 people joined in a discussion that started searching for trends in commercial buildings, and eventually found opportunities amid mechanical system challenges.

We pick up the conversation as it turned to indoor air quality liability issues, especially with regard to mold.

Dan Thayer, Design/Build contractor from Auburn, ME says, “We’ve seen an acceleration of the liability shift we’ve been predicting for ten years. We know whenever there’s litigation in regard to commercial buildings, any of us who have insurance will be named in the suit, whether we’re culpable or not. They’re simply going to name all the parties and let the courts decide how to apportion those responsibilities.

“The standard of care that the courts will hold us to is that we’re the professionals, we should have known. One of the biggest factors of microbial amplification is the regular wetting of a building. That usually translates into a problem with the building envelope for which we are only marginally responsible. However, we must be in constant dialogue with our customers. If we’re not part of the solution we’ll end up being part of the problem.”

Many insurance companies are excluding mold coverage in building policies. Moderator, Mike Murphy queried if this was changing the way contractors are approaching the market.

Robert Wasniewski, mechanical contractor from Tinley Park, IL says, Our latest policy doesn’t cover us for mold in commercial buildings. We’re working with our regular customers to explore any issues they think they may have. We haven’t yet had a heavy mold problem with any building, but we must be careful with how we write proposals.”

Thayer continues, “I’m expecting to see some narrowing on the coverage of mold in Maine. This forces us to get in writing from our customers that they fully understand the need for regular preventive maintenance. They’ll have to sign off that they’ve understood the implications if they decide not to purchase our preventive care program.

“Some manufacturers I’ve spoken with recently are beginning to require maintenance on the equipment in order to validate the warranty. They’re about a step ahead of us in pushing general liability down the chain. Contractors will have the additional burden that if we don’t follow the prescribed methods of care, we won’t even have a manufacturer’s warranty to fall back on.”

Protect Your Company with Maintenance Agreements

As the discussion moved to liability issues and the difficulties associated with securing insurance to cover mold in commercial buildings, members of the audience from the warranty and insurance industries chimed in. The following is a summary of their statements.

Current Insurance Assessment: The Illinois Department of Insurance has seen most carriers file for limitations on their coverage of mold. The department is asking re-insurance carriers to show proof of excessive costs in order to validate the primary carriers request for excluding the coverage. Many states have similar proceedings going on at this time.

Availability of Mold Insurance: No insurance company has come forward with any new mold insurance plan to provide coverage.

Insurance Awards: If the cause of the mold is due to faulty maintenance, there is a greater reluctance to give any award in those cases. If it’s sudden and accidental such as a pipe breaking, it’s more easily covered.

How to Avoid Losses: There are a number of products developed that can be used to thwart the growth of mold spores. If contractors don’t make an overt attempt to offer these loss avoidance or loss mitigation solutions, then they are basically sinning by omission and can be held as the experts liable for failing to offer their client a means to control mold growth.

In the opinion of William McGinn of Warranty Design & Adminstration Corp., Geneva, IL, contractors have to offer the latest technologies and get their clients to confirm that they’ve received documentation of that offer. In addition, the client must understand their obligations for the maintenance of the mechanical system.

McGinn says, “Without documentation in place, it appears that contractors could be enjoined in any suit. If the insurance industry has its way, and at this point it’s succeeding, contractors will have no mold liability coverage. That means you’re defending yourself.

“Offering a maintenance agreement would accomplish two things: it increases your profitability and decreases your exposure to mold litigation. We recommend the industry be very diligent about documenting what it’s offering clients and get into the long-term maintenance agreement business. “

Contractors in Mold Remediation Business? Pros & Cons

During the panel discussion it was suggested that in order to maintain loss avoidance, contractors should offer technologies or services to prevent or remediate mold in buildings. The International Association of Mold Remediation Specialists and International Air Quality Association, both certifying organizations, caution contractors who are ill-prepared in indoor environmental hygiene from venturing into this area.

According to Wasniewski, “Similar to asbestos removal, we would recommend that the client bring in a specialist if we discover mold in a building. If we decided to get into that specialty, it would be separate from our existing HVAC business.

“If it’s obvious that our company made a mistake, such as routing a condensate pipe into the wrong area of a building and that caused the mold problem in a building, we’d be responsible for that. If the mold were simply identified in some location of the building such as a wall, we wouldn’t assume immediately responsibility.

“I like the idea of having someone of authority at the customer’s location sign off that they have received our service agreement offer. This would create a paper trail for our protection.”

How To Add Value

When asked what value the HVAC contractor brings to commercial building owners, Thayer replied, “As a Design/Build contractor, the key advantages we bring include expertise, knowledge, and familiarity with the systems that bring the greatest customer value. I’ve always been amazed that the plan and spec process provides no accountability for performance, time, nor a guarantee that the project will complete within budget.

“These are the tenets we use to provide a Design/Build solution to our customers. Thayer Corp. is unequivocally responsible for the performance of the system. We guarantee there will never be a change order on the project unless the owner legitimately asks for a change in its scope, and we’ll always be available to provide service for the life of the equipment. That’s a value proposition that can’t be equaled in the plan/spec delivery method.”

Wasniewski’s company, Roberts Environmental Control Corp., operates in and around the Chicago market area. He stated his view of project delivery methods in his own backyard: Design/Build is popular and growing. Our approach is simple: find out what the customer really wants and needs, then build a system that works within their budget and makes their expectations come true. We like going directly to the building engineer in a retrofit and finding out what kind of problems they’ve had in the past, and what they think can be done to improve the building environment. In the plan and spec environment we often miss out on that communication. We’re not allowed to tailor a solution to fit the owners’ true needs.”

Changes in Attitudes

The panelists turned their attention to building owners’ expectations. Thayer says, “Owners are becoming more sophisticated about what they expect from building systems. Mechanical contractors are faced with some very major challenges, for instance, compliance with the ASHRAE 90.1 efficiency standard. Those of us familiar with the standard know it’s very holistic and encompasses the building envelope, electrical, and mechanical system issues.

“Contractors are faced with a dilemma. Without the ability to interface directly with the owner, we can’t do our job effectively and we then become vulnerable to increased liability,” Thayer concluded.

General contractors, architects, or engineers who insist on maintaining the direct relationship with the customer could present an impediment to an HVAC contractor wanting to deliver value. How do contractors handle those situations?

Wasniewski responds, “We ask a lot of questions. Often, they get frustrated and eventually have us talk to the customer anyway. Sometimes we have to go through the chain to get to the top. But, it’s a big plus when we’re able to reach the customer and develop a sense of trust at that level.”

According to Thayer, “Generally stated, in a plan and spec process the design engineer or architect likes to maintain the prime relationship with the customer. As buildings become more sophisticated the architect can’t keep up with every nuance of change in HVAC technology.

“What happens is similar to the parlor game where a secret is passed around the room. The customer tells the architect, who tells the engineer, who tells the subcontractor, who then is supposed to figure out what the customer originally wanted in the building. The potential for delivering true value down the food chain is far less because the true requirements are never communicated.”

Changes in Latitudes

The discussion concluded with thoughts on security measures in buildings since 9/11. Things once as simple as parking on the street have been affected, picture I.D.s are sometimes required, doors are locked that didn’t used to be, and some HVAC access areas have been totally secured.

Technicians have to be trained to look out for problems or things they should be suspicious about. “It’s adding time to our workload, and that obviously carries additional costs,” according to Wasniewski.

Panelists agreed the commercial business environment is still one to be riddled with change. However, one thing’s certain: protecting your business is going to require a close working relationship with building owners.

If insurance companies are removing themselves from liability in commercial buildings, written maintenance agreements with building owners may be your next best protection.