PDF Managing the Risks and Reputation

A report prepared for members of:

Bed Bugs

Managing the Risks and Reputation

Bed bugs (Cimex lectularius) have become a muchdiscussed topic in recent months, surfacing after many years as a public health menace and a recurring issue for businesses. The Canadian Pest Management Association says that in the past 2 years, the number of bed bug calls have dramatically increased by 200 to 500 percent, depending on the region.

This resurgence can be attributed to:

Increased global travel, with bed bugs hitching rides on clothing and luggage;

Use of second-hand objects (sale and exchange of used furniture and clothing);

Increasingly specialized pest control practices (bed bugs would inadvertently be killed in the cockroach fumigating process, but with the increasing use of bait traps, bed bugs are escaping unscathed); and

Infestations going unrecognized and unreported due to shame and embarrassment of affected citizens and businesses (which only exacerbates the problem).

A Serious Issue Across North America

At this point, bed bugs are being found everywhere there is a high turnover of people--from retail stores to five-star hotels. Bed bugs do not discriminate based on cleanliness and can thrive in any environment where there are people and places to hide and breed. Generally, this has been thought of in the past as an issue for properties containing beds--residential, hotels, and health care. However, this risk poses a large problem for all real estate owners and managers, with bed bug infestations appearing in office buildings, shopping malls, hotels, shelters, residences, and even schools and movie theatres. The only asset class that doesn't seem to be affected so far is industrial.

How can I identify an infestation?

Bed bugs are flat, oval-shaped, brownish, wingless insects that are 4 to 7 millimetres long. They cannot jump, but are able to hide in extremely small locations because of their flattened bodies (e.g. under wallpaper, behind picture frames, in electrical outlets, filing cabinets, upholstery, carpeting, inside box springs, in mattresses, mattress pads, and night tables. They may also spread to cracks and crevices in behind baseboards, window/door casings, and mouldings.

These bugs are dull and flat if they have not been feeding, making them hard to identify. When they have been feeding, they become shiny, larger, and filled with blood. Bed bugs feed at night, exclusively on human blood, every 3 to 7 days (however, they can live up to a year without food).

Bites on the skin are typically the first clue that there are bed bugs in an area. These look like mosquito bites and are often clustered in groups of 3 or 4. Watch for black spots (signs of excretion) along mattress seams, and blood on sheets and pillows. These bugs are visible to the human eye, so the best technique to identify their presence before being bitten is to thoroughly hunt for them on your properties--both on fabric surfaces or items (e.g. clothing, rugs, curtains, upholstery, mattresses, etc.) and small hiding spots such as baseboards, switch plates, and furniture.

How can an infestation impact my business?

Several major businesses and retailers in the U.S. and Canada (e.g. Nike, Abercrombie and Fitch, the Empire State Building, and the Time Warner headquarters) have recently had to shut down operations due to bed bug infestations. These real-life examples demonstrate the potentially devastating impacts an infestation can have on real estate owners, asset and property managers, and tenants, including:

Reputational/brand damage (particularly for highly-recognizable brands, as well as any companies/ buildings that are listed by the public as problematic on Web sites such as the Bed Bug Registry);

Business interruption (e.g. loss of rental income, revenue from sales, financial loss from contaminated inventory, continuing to pay rent without generating any revenue, etc.);

Loss of repeat business; Human resources issues ? physical

and mental anguish of personnel involved/affected, as well as paranoia and stigma associated with having bed bugs. These factors could lead to significant personnel loss, especially in corporate environments; and Legal action ? for example, a Fox News employee who claims she got bugs from the network's New York City newsroom didn't sue her employer, but did sue the building owner, management, and other entities for unspecified damages.

Strategies for Preventing, Detecting, and Controlling Infestations

I. Prevent

Begin with a Vulnerability Assessment. The most important first step of dealing with a widespread risk is understanding what parts of your real estate business make you the most vulnerable and concentrating your resources on those areas (see Vulnerability Assessment section on the last page).

Qualify new tenants, as uncooperative tenants can become a large impediment to dealing with a bed bug problem (e.g. some tenants do not care, do not report due to stigma, etc.)

Communicate the potential of an infestation, as well as prevention tactics, with all property managers via company-wide publication ("fact sheet").

Identify and pre-qualify pest control specialists to ensure immediate response and implementation of action plan once an infestation is discovered at one of your properties.

Train resident property managers and others (especially frontline staff) to recognize bed bugs and the first signs of an infestation.

Advise tenants to conduct thorough checks of all materials and clothing coming into retail stores (returns and new shipments).

Seal cracks and crevices between baseboards, floors, and walls with caulking.

Repair or remove peeling wallpaper, tighten loose light switch covers, and seal any openings where pipes, wires, or other utilities come into the establishment.

II. Detect

Consult your public health department or professional pest control services about how to confirm an infestation.

Conduct a careful and thorough bi-weekly inspection of all areas where bedbugs may be hiding such as along mattress seams, behind wallpaper, in smoke detectors, carpeting and rugs, appliances, etc.

Engage the assistance of bed bug sniffing dogs used for detection of bugs (could cost $1,000 to $5,000 for a large corporate office building).

Understand that if one unit is infested, it is likely that the bugs have spread to surrounding units. In this case, inspection/detection of surrounding units is imperative to preventing large-scale infestation.

Vacuum regularly and immediately dispose of any fabric vacuum bags after checking bags for bed bugs.

III. React

Once detected, a bed bug should be collected and sent to a knowledgeable expert to confirm the identity of the specimen.

Educate property managers, tenants, staff, managers, service providers, etc. that they have a role in the successful treatment of bed bugs.

III. React (continued)

Document the dates and locations where the pests are found to help focus your efforts on problem areas.

If the existence of an infestation at one of your properties is already well-known, open up channels of communication--inform all stakeholders of what you are doing to manage this and why you are doing it:

- Prepare a media statement, and designate a single spokesperson for all media inquiries; and

- Release a statement of mitigation actions you are taking to remedy the situation, demonstrating your proactivity.

IV. Eliminate

Remove rugs, carpets, and wallpaper since these are places where bed bugs can hide.

Implement your action plan to deal with the infestation (e.g. pest control professionals).

Be familiar with your organization's business continuity plan as operations may need to cease while the problem is being investigated.

Enlist the participation of everyone affected by the infestation (e.g. tenants, pest controllers, customers, etc.) to help solve the problem once discovered.

See inset on Pest Control Tactics for different options for extermination.

V. Monitor

Allow exterminators to come back a second time as part of the pest control process (generally recommended to get rid of all pests).

Placing "sticky" type cockroach traps near bed legs, in corners, or along baseboards in rooms where there was a previous infestation might alert you to any bed bugs that still remain.

Facilitate a communication structure and reporting mechanism that makes it easy for frontline staff to undertake a role in postinfestation monitoring enabling easy communication of problems to property managers.

For a hotel or property where beds exist, consider using bug-proof mattress covers.

Important Considerations for the Real Estate Industry

Lease Terms

Some leased areas may become untenantable (or perceived to be untenantable). Who makes the ultimate decision, the public health sector?

If so, how will you cover the loss of revenue and other complications associated with untenantable property?

The first reading of Bill 94 was released June 2010 and is set to amend the Residential Tenancies Act, 2006, making it mandatory for landlords (before entering into a tenancy agreement) to provide the prospective tenant with a report stating: - Whether any information has come to the landlord's attention during the previous five-year period with respect to bed bugs in the rental unit or in any other rental unit in the residential complex.

Pest Control

How would your property be impacted by the usage of pest control chemicals? What procedures do you have in place to ensure compliance with wait times and

owner/tenant safety?

Preventing Legal Action

Recently, a Fox News employee sued the building owner, management, and other entities, but not the employer. This is an example of how building owners/ managers owe a duty to tenants and breach of that duty could result in legal action.

Being proactive and avoiding any possible negligent action is the best way to keep lawsuits at bay; having a policy in place and presenting it upfront makes it much more difficult for a stakeholder to bring actions against you.

Pre-Loss Communication

Ensure that the channels of communication are open so tenants will report any concerns about, suspicion, or detection of bed bugs immediately (e.g. have an anonymous or open-forum discussion board on your Web site or supply a hotline number).

Lack of awareness of contributing actions, failure to promptly detect and act on infestations, and lack of cooperation between building owners and occupants are all problematic factors across North America leading to the rising number of infestations. As such, information-sharing becomes a crucial step in developing the most effective strategy to prevent and control bed bugs.

Pest Control Tactics for Bed Bugs

1. Fumigation - Cheapest method involves spraying a large amount of pesticides

in infested areas. This can cause bed bugs to move to unsprayed areas. Research also shows bed bugs may be acquiring resistance to pesticides. For smaller office buildings, it is not uncommon to pay $5,000 to $10,000 for bedbug exterminations, while the price for larger offices can easily hit six figures.

2. Multi-Step Approach - Pest control companies use a combination

of techniques including inspection (sometimes with sniffer dogs), vacuuming, steaming, and use of a powdered product called diatomaceous earth (a fossilized algae). Areas for application of this product would includes small spaces such as under light switches, underneath baseboards, and in the box spring--anywhere bedbugs might hide. Companies generally follow-up in a few weeks to ensure the bed bugs haven't returned.

3. Heat - Bed bugs are rapidly killed

when exposed to temperatures over 45 degrees Celsius, but a slow increase in heat will cause the bugs to scatter and possibly cause the infestation to spread. It is best to engage a specialist that will provide the heat lamps and perform the procedure.

Leadership, Knowledge, Solutions... Worldwide.

Recommendations Arising from Bed Bug Summit in Toronto (September 29, 2010)

1. Public education awareness campaign partnership with the provincial government of Ontario on pest control including information kits for real estate owners, and an information/ reporting hotline for residents.

2. Possible new building code guidelines for construction and renovations to promote use of materials that would stop the spread of bed bugs (i.e. diatomaceous earth).

3. Federal government involvement in establishing procedures at various border crossings to ensure that proper protocols and inspections are undertaken to stop importation of bed bugs across the country;

4. Establish best practices for pest control to determine the best method model for pest control protocols. This should result in elimination of delays and confusion in the approval of safe chemicals to fight bed bug infestation;

5. Long-term sealing, caulking, scrubbing program to be established as a possible standard for all public health agencies, in cooperation with residential housing providers; and

6. Best practices for waste disposal in terms of mattresses, used furniture, clothing, etc.

Vulnerability Assessment

As a real estate owner or manager, your exposure to these pests is specialized. In order to effectively manage this risk, conducting a pre-loss vulnerability assessment is highly recommended. Ask yourself the following questions to identify highest potential points for infestation: Does the nature of the business lend itself to be a target for infestation? Does the profile of clients/users make it more prone to an infestation (e.g.

residential properties, public housing, or a hotel)? What physical parts of your property are the first/most likely to be affected

(e.g. merchandise in a retail store, beds in an apartment building, carpeting in an office building, etc.)? Asking these questions will give you insight on where to concentrate your prevention resources for the best results.

Frequency of Pest Control Companies Reporting Bed Bug Infestations for Various Properties

90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Source: Survey of 509 U.S. Pest Control Firms on Properties Treated for Bed Bugs (By Potter, Romero & Haynes, University of Kentucky, 2008. "Battling Bed Bugs in the U.S.A.", from Proceedings of the Sixth International Conference on Urban Pests, 2008).

For more information on this topic, please contact your local Marsh representative, or:

Neil Gilbertson: 416 349 6656 | neil.gilbertson@

The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy. Marsh makes no representations or warranties, expressed or implied, concerning the application of policy wordings or of the financial condition or solvency of insurers or reinsurers. The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation, and should not be relied upon as such.

Statements concerning tax and/or legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as tax and/or legal advice, which we are not authorized to provide. Insureds should consult their own qualified insurance, tax, and/or legal advisors regarding specific coverage and other issues. Statements concerning legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal advice, which we are not authorized to provide. All such matters should be reviewed with your own qualified legal advisors.

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This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh Inc., except that clients of any of the MMC companies need not obtain such permission when using this report for their internal purposes, as long as this page is included with all such copies or reproductions.

Copyright ? 2010 Marsh Canada Limited and its licensors. All rights reserved. marsh.ca |

B101102 (C101201TB): 2010/12/02

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