Dozens of students from Clemson University in South Carolina were evacuated from an off-campus apartment complex on Oct. 25 due to a carbon monoxide leak that left some residents seeking medical attention for headaches and nausea after possible exposure to the gas. The leak, which may have originated in a main floor retail space where construction work had just been completed, reportedly kept tenants of the Dockside Apartments out in the rain for hours while crews investigated the incident.
“It is very scary,” said Nicholas Freeman, Associate Managing Director, Broker, Casualty, Burns & Wilcox Brokerage, North Dallas, Texas. “If you are in an apartment complex, a dorm room, or a hotel, you are at someone else’s mercy as far as having the various detectors and managing that risk. With the daycare, those are young kids and they are counting on the individuals around them to know what to do. There could have been a series of failures there.”
If a property did not have carbon monoxide detectors and the leak causes a fatality or any long-term impairment, it could be a very significant event. Given the number of individuals potentially affected, it could cross over into class-action territory.
Another recent incident involved a leak of carbon dioxide. On Oct. 31, one worker was in critical condition and three more were hospitalized after a carbon dioxide leak in a utility room at Los Angeles International Airport, which required one terminal to be evacuated. All property owners should be aware of these threats, take steps to prevent and detect leaks, and ensure their Commercial General Liability (CGL) Insurance would cover such incidents.
“If a property did not have carbon monoxide detectors and the leak causes a fatality or any long-term impairment, it could be a very significant event,” said Chris Siegel, Associate Vice President, Managing Director, Burns & Wilcox, Orlando, Florida. “Given the number of individuals potentially affected, it could cross over into class-action territory.”
Costly claims possible after carbon monoxide leak
Accidental carbon monoxide poisoning kills at least 430 individuals in the U.S. each year and sends an additional 50,000 to emergency departments, according to the Centers for Disease Control and Prevention. In Canada, more than 300 deaths and 200 hospitalizations due to carbon monoxide poisoning are reported annually, CBC News reported in 2021.
“The primary concern with CO is not necessarily that it has escaped, but the prolonged exposure to CO. That is where you run into the real issues,” Siegel explained. “The sooner you can detect it, the sooner you can respond to it and get it fixed, and the less exposure to those medical conditions that can lead to a claim.”
The sooner you can detect [CO], the sooner you can respond to it and get it fixed and the less exposure to those medical conditions that can lead to a claim.
Requirements for having carbon monoxide detectors in apartments and businesses vary by state, according to the National Conference of State Legislatures. After the recent carbon monoxide leaks at a daycare and an elementary school, a CBS News investigation found that Pennsylvania and Missouri are among “many states” that do not require CO detectors in schools and childcare centers.
When individuals are injured at an apartment complex or commercial business, CGL Insurance can cover third-party medical expenses for those affected and pay for legal defense and settlements in the event of a lawsuit. This is the same type of coverage that can also apply to slip-and-fall accidents, assaults, and other potential hazards, Siegel said. Excess Liability Insurance may also be recommended for these properties.
If an event does happen, a $1 million policy is not worth as much as it used to be. It does not take a whole lot for any bodily injury claim to go straight through that CGL Insurance limit.
“In a daycare, for example, if one of the teachers happened to be pregnant, carbon monoxide poisoning can lead to fetal distress and could cause miscarriage. There is no number you can put on emotional distress at that point in time,” he said.
Freeman said he would recommend Excess Liability Insurance for any commercial business operator, but especially for any facility that houses multiple individuals, such as an apartment complex. “If an event does happen, a $1 million policy is not worth as much as it used to be,” he said. “It does not take a whole lot for any bodily injury claim to go straight through that CGL Insurance limit.”
Pollutants often excluded on CGL Insurance
In 2013, a jury awarded $28 million to a woman who suffered a permanent brain injury due to a carbon monoxide leak at her apartment, which was caused by a faulty furnace, according to the Associated Press; in 2016, an appeals court reduced the award to less than $2 million, AP reported. In 2001, seven individuals who suffered brain damage due to carbon monoxide poisoning at an apartment complex in Miami, Florida, were awarded more than $30 million from the complex owners and managers, who reportedly failed to fix a water heater that was leaking the gas, the South Florida Sun-Sentinel reported at the time.
Carbon monoxide leaks are possible “anywhere we go,” Freeman said, noting that leaks are often linked to malfunctioning HVAC equipment. “If the building is not safe and individuals get sick or even worse, the owner is liable for that, regardless of whether their city or county requires carbon monoxide detectors,” he said. “That is very much a general liability loss.”
That said, CGL Insurance policies often have a “total pollution exclusion,” which could mean the denial of any claims related to carbon monoxide leaks or other gasses. “That exclusion is on virtually every policy, but it can be easily changed if you know to ask for it,” Freeman said. “It all can come down to one fairly simple endorsement. If an owner is not quite sure what to ask for, there are very real-world consequences for that one seemingly simple mistake or oversight.”
That [pollution] exclusion is on virtually every policy, but it can be easily changed if you know to ask for it. It all can come down to one fairly simple endorsement.
With this in mind, property owners should always “pay attention to their insurance policies, do their research, and know what questions to ask,” Freeman emphasized. “You want to work with a broker who has an understanding of premises liability and the various perils so they are not caught with a gap in coverage that could come back and bite them later on,” he said.
Commercial property owners should also know that in the event of a carbon monoxide leak, coverage for any loss of business income due to the incident — for example, if a daycare center had to shut down while its heating system was repaired — would typically fall under Commercial Property Insurance. However, physical damage to the property itself is generally required to prompt coverage.
“Carbon monoxide would not usually cause direct physical loss to the building,” so coverage for lost income would be unlikely, Siegel said. “If it was a gas leak that caused a small fire, for example, then it could be triggered,” he said.
Property managers could be liable for maintenance failures, contractor hiring decisions
According to reports, the recent carbon monoxide leak near Clemson University set off multiple CO detectors but not all residents could hear the alarms, and some residents reported only finding out about the evacuation from a group chat. Some students felt the situation was mishandled by management and said they no longer felt safe at the complex, WYFF reported.
Concerns over possible mismanagement could increase the risk of a lawsuit, Siegel said, and the building could ultimately see multiple tenants looking to break their leases. “The tenants could take that property management company to court,” he said.
In this type of situation, the property manager’s Professional Liability Insurance may be triggered, Siegel said. Most landlords and management companies should carry Professional Liability Insurance, or Errors & Omissions (E&O) Insurance, which can cover damages resulting from a mistake made in the course of their professional duties.
“If the owner of the complex has turned over management of the complex to a property manager, then they need to make sure that property manager has their own CGL Insurance policy and in addition, a Professional Liability Insurance policy,” he explained. “The article mentioned that the Clemson students felt that the management company mismanaged it, and that could fall more under an E&O Insurance exposure because the property manager is held to a higher standard than a building supervisor or maintenance worker on site.”
The decisions these property managers make, such as whom they hire for HVAC repairs, could also lead to a Professional Liability Insurance claim. “As a property manager, you want to make sure you are verifying that contractors are properly insured,” Siegel added. “The claim could be turned over to the contractor that did the work, but that does not remove any level of negligence from the complex itself, because if you hired the contractor, you could be vicariously liable.”
To mitigate these risks as much as possible, it is critical to regularly check detectors, follow recommended maintenance protocols, and have HVAC systems professionally inspected. “It gives you as a business owner the opportunity to spread the risk further out,” he said. “If the investigation finds that the detectors were malfunctioning, that is not necessarily your fault, and that claim could be turned over to the manufacturer. Instead of assuming all liability, risk management allows you to spread and transfer that risk and minimize your potential exposure to a catastrophic loss.”
Working with a specialized broker is also advisable. “Make sure you have a good broker and wholesale partners who have a strong command of the nuances within this class of business,” Siegel said. “You want somebody well-versed to be sure the insurance coverage is going to be there for you.”