1. Forms
2. IL
3. IL-02-90

Form IL 02 90: Fungi Or Bacteria Exclusion

1. What the Form Is

The IL 02 90 "Fungi Or Bacteria Exclusion" is an insurance policy endorsement designed to eliminate coverage for loss or damage caused by, resulting from, or arising out of fungi (including mold) or bacteria. Its primary function is to remove liability and/or property coverage for claims related to mold or bacteria, which can be a significant source of loss. This exclusion typically applies to bodily injury, property damage, and potentially personal and advertising injury, as well as costs associated with testing, monitoring, cleaning up, or otherwise responding to fungi or bacteria. The exclusion is broadly written to encompass losses even if other causes contribute concurrently or in any sequence to the injury or damage. An exception may sometimes exist for fungi or bacteria that are on, or contained in, a good or product intended for bodily consumption.

2. Classes of Business It Applies To

This exclusion is prevalent across various lines of business, particularly in Commercial General Liability (CGL) and property policies. It has a significant impact on industries and businesses with higher exposure to moisture and organic materials, which are conducive to mold and bacterial growth. Examples include:

• Real Estate: Building owners, property managers, and landlords, especially for older buildings or those in humid climates. For instance, a property manager facing a tenant lawsuit due to mold found in an apartment unit would likely find coverage excluded under a policy with this endorsement.
• Construction and Contractors: General contractors, plumbers, HVAC installers, and especially water damage restoration and mold remediation contractors. A restoration company that, during a water damage cleanup, inadvertently causes or fails to prevent mold growth could face uninsured liability claims. Some insurers mandate this exclusion for contractor clients.
• Hospitality: Hotels, motels, and resorts where moisture from bathrooms, pools, or HVAC systems can lead to mold issues.
• Healthcare Facilities: Hospitals and nursing homes where bacteria and fungi control is critical, and the presence of such could lead to significant health-related claims.
• Agricultural Businesses: Operations dealing with organic materials that might foster mold or bacteria growth.
• Educational Institutions: Schools and universities, particularly older buildings, can be susceptible to mold growth, leading to potential health concerns for students and staff.

3. Special Considerations

There are several important considerations when the IL 02 90 or a similar fungi/bacteria exclusion is attached to a policy:

• Broad Scope: The exclusion is typically very broad and aims to eliminate most, if not all, coverage related to fungi or bacteria. This includes not only direct damage or injury but also costs related to remediation, testing, and monitoring.
• Coverage Gaps: This endorsement creates a significant coverage gap for businesses that have a notable exposure to mold or bacteria-related losses. Businesses involved in cleaning, remediation, or even inspection of properties with potential mold or bacteria may find their entire operation related to such activities excluded.
• Limited Buy-Back Options: While the summary mentions that limited buy-back options may be available via other endorsements, these are not always offered, may provide insufficient limits, or may come with a substantial additional premium. For example, some states may have guidelines suggesting minimum coverage buy-backs for mold, but these can be aggregate limits and may not cover all aspects of a loss.
• Regulatory Landscape: Although the form is applicable in all states, state-specific regulations or court interpretations can sometimes influence how these exclusions are applied or what buy-back options insurers must offer.
• Triggering the Exclusion: The exclusion can be triggered by the mere "threatened existence" of fungi or bacteria, even in minute quantities, potentially voiding coverage for an entire claim if mold or bacteria is involved in any way.
• Impact on "Category 3 Water": The exclusion's language can also impact claims involving "Category 3 water" (grossly contaminated water), as bacteria is inherently present.

4. Key Information for Agents and Underwriters

Agents and underwriters must be particularly diligent when dealing with the Fungi Or Bacteria Exclusion:

• Risk Assessment: Thoroughly assess the insured's exposure to fungi and bacteria-related losses. Businesses in high-risk industries (e.g., restoration, older building management, certain manufacturing) require careful evaluation. Consider the age and condition of properties, climate, and the nature of the insured's operations.
• Client Communication: Clearly explain the significant impact of this exclusion to clients. Ensure they understand the potential coverage gaps and the types of losses that would not be covered. This is crucial for managing expectations and avoiding E&O claims.
• Pricing and Alternatives: If limited buy-back endorsements are available (e.g., forms like CG 24 25 offering sublimits for fungi/mold), discuss their costs and limitations. For businesses with significant exposure, explore specialized environmental insurance policies like Contractors Environmental Liability (CEL) or Environmental Impairment Liability (EIL) that are designed to cover pollution and mold-related exposures.
• Underwriting Guidelines: Adhere to company underwriting guidelines regarding the mandatory or optional use of this exclusion for specific classes of business. Be aware that some insurers may have very strict stances on offering any mold coverage, particularly on non-admitted paper.
• Claims Implications: Understand that this exclusion can lead to claim denials even if fungi or bacteria are only a part of the loss, due to anti-concurrent causation language. This makes the initial risk assessment and coverage structuring even more critical.
• Documentation: Document all discussions with the insured regarding this exclusion and any decisions made regarding buy-backs or alternative coverage.