Restoration Rewind

Delta Development Group Monthly Newsletter

January 2015

Convention Reveal

No snow and warmer temperatures isn’t the only reason that we want March to come quickly. And even better reason; our speaker lineup for the Annual Convention in March is coming together very nicely. We are already very excited to see everything come together in the entirety of the event. So excited we have to brag a little. We can’t keep all of the exciting information to ourselves. Here is a little tidbit about just one of the fantastic speakers that we have lined up.

Robert Toth Mr. Robert Toth is a globally recognized fire investigator. Currently he is the owner and operator of IRIS Fire Investigations in Denver, Colorado which he started in 2002. Mr. Toth’s career with fire begin in 1982 with the Aurora Fire Department as a firefighter. In 1992, he became a fire investigator and was head of the fire investigations department for the Aurora Fire Department until he started his company in 2002.

IRIS Fire Investigations is a full service fire and explosion, origin and cause investigation firm. Along with the fire services, the company also provides training classes, warehouse storage and specialty aerial photography. IRIS has developed their own UAV (unmanned aerial vehicle) which can be piloted over a large fire scene to take aerial photographs in order to assist in accident reconstruction.

Along with conducting investigations, Mr. Toth has taught and lectured across the United States, Canada, Hong Kong, Malaysia, South Africa and Botswana.

Mr. Toth is going to take all of us through a case study of a triple fatal fire. If you really think about it, our two businesses have the same clients. Keeping this in mind his talk will focus on not only how, what and why they do what they do but more importantly how their world interacts with our world of restoration.

You can learn more about Mr. Robert Toth and his company at www.irisfire.com or by finding him on LinkedIn at https://www.linkedin.com/in/roberttoth1

To show our gratitude to Mr. Toth for being a part of our event we will be making a donation to a charity that is very near and dear to his heart. The first franchisee who emails me what charity this is will be the first winner of a convention giveaway item.

Stay tuned to the newsletters and your mail for more information on the convention. As March gets closer and closer we will have more and more details. Please do not forget to RSVP to Ragan on or before February 1, 2015. As a reminder the convention is MANDATORY FOR ALL OWNERS. All other employees are more than welcome to attend. We can’t wait to see you all there.

Equipment News

Are you in the market for a new Air Scrubber? We recently learned that the Dri-Eaz DefendAir HEPA 500 Air Scrubber is now available in red. Add one or more to your equipment fleet soon before they are all sitting in the Denver warehouse

What Every Adjuster Should Know About Fungi/bacteria Exclusions

By David Dybdahl

In response to an explosion of “toxic mold” claims at the turn of the century, universal policy exclusions for mold, fungi and bacteria related losses were introduced faster and on a wider scale than any exclusion in the history of the insurance business. The exclusions for fungi and bacteria are by far the most onerous total pollution exclusions ever conceived.

These expansive exclusions for a very common cause of loss were slammed into virtually all property and liability insurance policies without instruction manuals on what was being excluded. That left insurance producers and claims adjusters in the dark on the material changes in coverage created by the exclusions. In practice, most producers and claims adjusters missed that anything changed in the insurance policies they worked with on a daily basis. That led to big surprises for insurance buyers when the exclusions were used to deny coverage for losses associated with fungi and bacteria.

To move towards transparency and consistency in the application of fungi/bacteria exclusions, there are some import

facts that every claims adjuster should keep in mind.

• Many commercial “mold exclusions” were drafted to apply to both fungi and bacteria because in virtually every place mold grows, bacteria is found using mold as a food source. To avoid covering mold claims as bacteria contamination losses, ISO excluded claims related to both contaminants.

• There is precedence case law in some states where bacteria as a contaminant already falls within the standard ISO definition of a pollutant in pollution exclusions. Therefore, a loss involving bacteria may trigger at least two exclusions in property and liability insurance policies, the fungi/bacteria exclusion and the pollution exclusion.

• Fungi and bacteria exclusions apply to any species or amount of these contaminants. Because the exclusions are silent on type or amount, a speck of either technically triggers the full effect of the exclusion.

• Mold and bacteria are present in every building. • On commercial general liability policies, most fungi/bacteria exclusions have two

parts: o Part (A) applies to losses starting with the threatened existence of fungi or

bacteria in a building. It also excludes bodily injury and property damage from the actual exposure to fungi or bacteria. This part of the exclusion

has an anti-concurrent causation clause taken straight out of the ISO flood/war exclusion section in a commercial property insurance policy.

o Part (B) applies to any insured in the business of cleaning up or assessing fungi or bacteria. This part of the exclusion is a job site exclusion for anyone performing this work. It applies to plumbers, carpet cleaners and janitors, not just to mold remediators.

• Anti-concurrent causation clauses apply the exclusion to the entire loss if the excluded cause of loss happens before, during or after an otherwise covered cause of loss.

• In its simplest form the sole purpose of an anti-concurrent causation clause in an exclusion is to eliminate coverage arguments based upon the proximate cause of the loss and ensuing damages not falling under the exclusion.

• Water or high humidity on drywall will create mold growth in 72 hours at room temperature, and sometimes in as little as 36 hours depending on the conditions.

• The IICRC S500 Standard and Guidelines for Professional Water Damage Restoration identify three categories of water most often encountered as part of a water loss:

o Category 1 — supply line water (clean water) o Category 2 — contaminated but is not grossly contaminated with bacteria

(gray water) o Category 3 — contaminated with bacteria; triggers fungi/bacteria

exclusions (black water) o Category 1 and 2 water can morph into Category 3 water over time

• Mold is an allergen. Bacteria can actively attack its host and cause death, e.g., Legionnaires disease is caused by bacteria. Insurance companies routinely exclude Legionnaires disease losses, but routinely ignore Category 3 water even though both are associated with bacteria.

• There are many more Category 3 water insurance claims than claims associated with mold remediation.

• There are a number of documents that comprise the industry standard of care for mold remediation from IICRC, AIHA, the New York City Dept. of Health and Mental Hygiene, the Environmental Protection Agency, OSHA and other organizations.

• Claims adjusters who deviate from the industry standard of care documents are unilaterally deciding not to follow the guidance of thousands of reasonable and prudent practitioners who developed the professional standards and guidelines. Avoidable risk is being assumed by the claims adjusters choosing not to follow generally accepted industry standards for water and mold remediation.

Fungi/bacteria exclusions are simply a combination of a total pollution exclusion taken out of a general liability endorsement and the anti-concurrent causation language in the preamble to the flood exclusion that is found in the commercial property insurance

policy. The failure to connect the dots on these two long-standing exclusions results in thousands of severely sublimited claims or excluded claims involving fungi/mold/bacteria/Category 3 water being paid as Category 1 water losses on property insurance policies or covered water damage loses on general liability insurance.

The restoration contractors I speak with are extremely concerned about claims adjusters unwilling to pay for the extra work performed in a Category 3 water loss versus a Category 1 loss. What should be happening in the claim adjustment process is the Category 3 water loss should be paid under the fungi/bacteria sublimit on the property policy or under an environmental insurance policy that is designed to insure fungi and bacteria losses. Environmental insurance policies are readily available to fill the coverage gaps created by fungi/mold/bacteria/Category 3 water losses the same way flood insurance fills the coverage gaps created by flood exclusions. These specially crafted environmental insurance policies have been available to commercial insurance buyers since 2009.

Having technically uncovered fungi/bacteria related claims paid under property and liability insurance policies is a good situation for insurance consumers, fire water damage restoration contractors and their insurance agents. But there are several risks for the insurance companies paying these claims. Because the provisions in fungi/bacteria exclusions mirror long-standing exclusions for pollution and flood, claims adjusters

actively undermine the efficacy of pollution and flood exclusions every time they pay an uncovered loss related to mold and bacteria. Another downside for insurance companies is paying uncovered losses as a routine business practice in theory also exposes stock-based insurance companies to shareholder derivative actions for depressed earnings as a result of the practice. This would be especially true when an insurance company has established case law precedence in holding up fungi/bacteria exclusions and then does not apply the precedence case law consistently across all related claims.

All of the stakeholders would benefit from transparency and consistency in the operation of fungi/bacteria exclusions in property and liability insurance policies. Nobody likes surprises in a business built on neutralizing surprises. Fungi and bacteria exclusions exclude more losses than most claims adjusters realize. Space does not allow a full discussion of the topic, but just a few parameters taken from the most common fungi and bacteria exclusion used in commercial general liability policies illustrate the expansive nature of the exclusion.

1. In Whole or In Part. In Section A of the exclusion it says: “‘Bodily injury’ or ‘property damage’ which would not have occurred, in whole or in part, but for….” In part must be intended to apply the exclusion to the entire loss if only a tiny bit of the loss was related to fungi/bacteria. As written, without a threshold amount qualifier, a speck of fungi or bacteria involved with a loss should trigger this exclusion.

2. Threatened Exposure. Under the wording in the exclusion, losses involving the “threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of” a tiny amount of fungi or bacteria on or within a building or structure are excluded. Everybody knows fungi and bacteria are in the building already. Is there really a need to exclude bodily injury and property damage from the threatened existence of materials that are already in the building or structure? The answer is yes if you want to exclude phobia-type losses. Because of this provision, bodily injury or property damages are excluded if a drop of Category 3 water is even alleged to have caused damage—with no physical evidence that it did.

For example, if a plumber works on a drainpipe leak (Category 3 water) and damages a building, bystanders can allege they could have been exposed to the bacteria-contaminated water and are worried about their quality of life being impaired. As a result of their worrying, all of the bodily injury damage claims associated with the claim are technically excluded by the reference to threatened exposure to fungi or bacteria. The damage to the building is excluded too. Plumbers as a class of business really do not have much in the form of completed operations coverage on the CGL policy as a result of these exclusions. However, the CGL policy in this scenario would still need to defend this loss; only bodily injury and property damages are excluded in Section A of the endorsement, so the duty to defend still stands.

3. Anti-Concurrent Causation. The anti-concurrent causation provision in Section A reads almost verbatim to the anti-concurrent causation section of the flood exclusion in a property insurance policy: “regardless of whether any other cause, event, material, or product contributed concurrently or in any sequence to such injury or damage.” The drafters of this exclusion were brilliant in adding this provision to the fungi/bacteria exclusion on the general liability insurance policy. They knew that flood exclusions hold up perfectly in property insurance policies because of this anti-concurrent causation provision, and they also realized that pollution exclusions are the most litigated provisions in the history of insurance. To eliminate litigation over what the fungi and bacteria “pollution” exclusion might exclude or not and all arguments about the efficient proximate cause of loss and ensuing damages, the drafters of the fungi/bacteria exclusion simply added an anti-concurrent causation clause to the wording.

4. “In Any Sequence.” The reference to other causes of loss in any sequence deserves special attention. Category 1 and Category 2 water can morph into an excluded fungi/bacteria loss through the operation of time and temperature. For example, mold could start growing in the standing water of a basement as a result of a water supply line (Category 1 water) leak. Because mold in this case appeared in any sequence to the otherwise covered Category 1 water loss, the entire loss before, during, and after the appearance of mold should be denied under the terms of the fungi/mold exclusion.

Consistency and transparency on claims related to fungi/bacteria are needed in the claims adjustment process. Gap filling coverage exists in both the personal lines and commercial insurance markets. Ignoring the full effect of the exclusions creates coverage gap surprises and undermines future viability of pollution and flood exclusions every time an excluded or sub-limited fungi/bacteria/Category 3 water claim is paid as a simple Category 1 water loss. To achieve consistency and transparency, adjusters need to pay closer attention to Fungi/Bacteria exclusions in both property and liability insurance policies. Failure to do so develops these outcomes and consequences in the claims adjusting process.

International Franchise Association This year Ragan Neblett, Franchise Coordinator, will be representing Delta Development Group at the IFA convention in Las Vegas. It’s an opportunity for Delta Development Group team members to stay on top of what is best for franchisees. Ragan will attend classes and

seminars and will also have the opportunity to meet with top franchisors from around the world to discuss best practices. The takeaways from these meetings are priceless. If Ragan makes it back from 3 days in Las Vegas look for a follow-up in March’s newsletter.

It Could Always Be Worse How many times have you had a little grumble about the tedious activities surrounding Continuing Education courses? We have to create classes, get them approved, create offerings for our classes, upload credits; the list goes on and on. Let’s shed a little light on how easy most of us have it in the CE world.

One of the first tasks given to Ragan Neblett, Franchise Coordinator, when she started with Delta in April of 2013 was to take on all of the items surrounding CE classes. Make sure all of the classes we up to date and approved in all of the states we service. Verify all owners and business development reps were approved as instructors in their respective states. And to maintain and monitor all of these different aspects. All seemed pretty easy until we started dealing with the state of Florida; where we quickly found out they are a whole other world down there. The issues finally came to a head in trying to get Delta

Disaster Services of Palm Beach Owner Marc Elakman, approved as an instructor. The requirements for the state are that the applicant meet 2 out of the 6 criteria listed below.

1. A minimum of 5 years of substantially full-time working experience in the last ten years in the subject matter being taught.

2. Completion of a course on training techniques or methods of instructing adults as certified by a nationally-recognized course provider whose purpose is to review, evaluate and rate such courses. Such a course shall be a minimum of 40 hours of instruction.

3. A minimum of 40 hours of teaching experience in the last two years. 4. A professional designation from a recognized industry association in the line of business of the

subject being taught. (A designation is not the same as a certification so his IICRC training would not count) 5. A degree from an accredited school in the subject matter being taught. 6. Membership in the Florida Bar Association with minimum of 2 years of law practice or counsel in the

subject area being taught.

Keep in mind other states also have requirements however, they aren’t as forcefully defined as they are in Florida. In Colorado for example, we do not even hear back from the state on instructor applications unless the application is denied. Otherwise we are told, in about 30 days after submission, the applicant is free to teach.

So after adjusting resumes, and multiple phone conferences with the supervisor at the department of insurance it was concluded that Marc just didn’t “meet the criteria.” The only way that we could possibly get him approved was for him to take a course, on his own time, on traning techniques of instructing adults. This led to more research; and finally we were able to find a course that the state would approve. Marc enrolled in the

class and begin it early in 2014 all while running his Palm Beach operation ALONE. This course, which by definition only has to be 40 hours, ended up being 149 hours and two, two hour presentations for Marc.

Fast forward to December 30, 2014. This day we received confirmation that Marc had been approved by the state as an instructor for Continuing Education classes in the state of Florida. Congratulations Marc, it was well earned and very well deserved. You will be an awesome instructor. Good luck in your teaching!

End of Year Financials It is time to make sure your books are in order! While QuickBooks is an easy (sometimes) bookkeeping system to use, it is also easy to make mistakes that can carry over for years. If the data entry is not correct, it becomes difficult to know your true margins on jobs and to forecast future costs. Now is the time to schedule a meeting with your office manager and/or CPA to make sure all data entry is correct. Incorrect data can and will affect many areas of your business. Just to name a few:

Correct profit margins are essential to managing your business. If the margins are not accurate, you are unable to know what to change or where to improve.

You cannot properly budget and plan your spending for the next year.

Your ability to borrow money including your ability to finance equipment

Your ability to properly value your business.

Your ability to sell your business.

Some items for consideration and worth checking for accuracy:

Check your P&L for data entry errors. Some common mistakes:

Items charged to the incorrect job.

Overhead items that should have been charged to a job.

Items charged to the incorrect cost code. (for example; a purchase charged to supplies that should have been charged to permanent material)

Something charged to an expense that should have been set up as an asset.

Check your balance sheet. Does everything look correct or do you need some help moving a few items around?

Are all of your assets and liabilities set up correctly?

If you, as the owner, have taken distributions from the company in addition to or rather than payroll, make sure these are classified correctly. Talk to your CPA and make sure you know all the tax implications.

If you have items you are unsure of, make a list and have your CPA help you with them. Now is the time to get everything corrected. Once your taxes are filed, your CPA will not want you to make any additional adjustments.

Other considerations:

Your subcontractors and the data needed for each. Check for accuracy, completeness. Remember 1099’s are due January 31.

Your payroll projections for workman’s comp. Do not over estimate, but be careful underestimating also. You need to be as accurate as possible without over estimating.

End of year can be difficult and time consuming. Try to spread it all out over a few weeks and this will, hopefully, help make it a little less daunting!

Chicken Soup for the Entrepreneur's Soul

Here’s a good suggested reading to start the year 2015. We all need motivation from outside sources. Often other entrepreneurial successes can motivate us to meet our goals.

This is the overview of the book:

Fulfill your dreams...

Chicken Soup for the Entrepreneur's Soul is a compilation of short stories from entrepreneurs, both large and small, who share their experiences of success, failure and courage, with a little helpful advice mixed in.

Many of these stories, told for the first time here, will enlighten you to new methods of entrepreneurship or simply help you believe in

the possibilities of getting started. People such as Doris Christopher, a stay-at-home mother, who introduced her love of cooking to others through founding The Pampered Chef; Thom Chappell, who stuck to his instincts when developing Tom's of Maine and kept value at the core of his business; and Carol Gardner who intimately shares a desperate time of debt and divorce, until along came a bulldog named Zelda, followed by a greeting card line - Zelda Wisdom - which became one of Hallmark's number one sellers. These entrepreneurs and many more will inspire you with their amazing life experiences and fascinating beginnings.

CASH IN THE DOOR!

Based on November Royalties…

The leader is once again Delta Disaster Services of Southern Colorado! Congratulations to Emmis Chellman and his crew on a great month of production that exceeded $80,000

of cash in the door!

Training New Employees Part of building a new business is hiring new employees. We have noticed recently that a number of our franchises have hired new employees in key positions. These employees have not had the benefit of going through the two-week training for new franchisees in Denver. We want to remind you that as franchise owners you had the opportunity to go through all aspects of franchise training and that you need to take

upon yourself to set up training programs for your new staff. Please make sure that they are following all of the Delta Disaster Services processes and procedures with the same integrity that we impart at franchise training. One tool that is extremely beneficial in this training process are your franchise operations manuals. Your franchise operations manuals are outlined by subject matter for every area of running a Delta Disaster Services operation. Have your new employees read key sections of

the manual that relate to their position(s). Then spend time reviewing what they have read to give them a better understanding. If at this point you feel is necessary to get DDG involved, please let us know and we will set up an additional review class based on the subject matter that you want to go over. (All of our operation manuals are online within our FranConnect Intranet)

If you are bringing on people at the Mitigation Technician level, make sure you are putting them through our 90 day in-house by IICRC tests. By the employee’s 90th day the 12 tests should have been successfully taken. These in-house tests in no way take the place of actual IICRC classes. It is essential to get your technicians into the first available water class, an uncertified technician can bring huge problems to your business. Please contact DDG if you need assistance in finding available IICRC classes in your area.

And We Will Leave You With This…

“Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.” – Jack Welch