State Farm: Mold Coverage Should Be Optional Like Sewer and Drain Backup Coverage

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http://www.flains.org/newfic/mediapublic/

August 15, 2002

State Farm: Mold Coverage Should Be Optional Like Sewer and Drain Backup

Coverage

State Farm Florida Insurance Company became the first insurer to testify at

Florida Department of Insurance mold hearings and it urged DOI to make mold

coverage optional, like sewer and drain backup coverage.

State Farm testified Wednesday night in Orlando at the second of three

scheduled hearings by the department on more than 400 mold exclusions and

endorsements which have been filed by some 150 carriers. A third hearing is

scheduled for Monday, from 3 p.m. to 7 p.m. in the City Council Chambers in

Temple Terrace, a Tampa suburb.

Several hundred people attended the hearing, including a group of State Farm

agents from the Orlando area. " The public is obviously interested in this

issue. For the second time now, there was a large public turnout, " says

Grawe, Allstate, St. sburg, chair of the FIC Property Committee.

Attending his first mold hearing was Insurance Commissioner Tom Gallagher.

Gallagher listened to most of the four hours of testimony, but did not speak

himself.

Vince Rio, State Farm attorney and lobbyist from Tallahassee, said mold

damages should no longer be covered by the basic homeowners policy, even if

it is part of damages from a covered peril. Now that the mold litigation

crisis, which began in Texas and California, has moved into Florida, whether

the mold resulted from a covered peril will be the primary contested issue,

subject to Florida's one-way attorneys fees and bad faith standard, Rio

said. The bad faith standard, unlike almost any other in the country, allows

an insurer to be sued even if it had a reasonable basis to deny or reduce a

claim.

" Friction costs, " including attorneys fees, bad faith judgments and bodily

injury awards - likely to be produced as a result of Texas and California

precedents - will cause mold losses in Florida to explode out of control, he

said. State Farm is concerned about " whether we will be able to continue to

sell homeowners insurance at all, or at a premium our policyholders can

afford, in light of the mold litigation that has occurred.Florida

policyholders cannot afford to pay for mold as a mandatory part of every

insurance policy. "

Mold coverage should be left to the marketplace, with carriers deciding on

their particular coverage options, subject to DOI approval. rs must be

authorized the appropriate premium for the optional coverage. In State

Farm's case, mold coverage would become an option like sewer and drain

backup coverage. State Farm proposes a mold exclusion for the basic

homeowners policy and buybacks of $25,000, $50,000 or dwelling policy

limits.

Two issues were raised by department officials. Steve Roddenberry, deputy

director of the Division of Insurer Services, asked industry representatives

whether carriers who might get department approval of a total exclusion for

mold damages should not file a rate rollback. No, Rio responded. Mold losses

have been virtually nonexistent in Florida until the last few months. Mold

losses are not in the company's losses experiences, so premiums to cover

them are not in the current rate base.

DOI general counsel Mark Casteel wanted to know whether companies would

non-renew a homeowners policy or refuse to issue one because of a prior

claim for mold damages. Risks do not become ineligible for State Farm

coverage once a mold claim has been filed, Rio said.

Don , NAII assistant vice president for business and personal lines,

urged Florida DOI to approve the various company filings and the ISO

commercial and residential filings. He noted that Texas was forced to

approve comparable exclusions, but only after huge losses produced a $400 to

$500 mold tax on every policyholder in the state.

also noted that 31 state have approved the ISO Homeowners program

and 38 states have approved the ISO General Liability program.

" Let's learn from Texas before there is a crisis here, " said.

About a dozen consumers testified and many contended they had been

mistreated by their insurance company. One area consumer said his initial

settlement offer of $27,000 was increased to $121,000 after he got a public

adjuster and an attorney. He said it took 14 months and that all of his

losses are still not covered. He has filed a bad faith lawsuit against his

insurance company.

Another consumer testified that her insurance company is spending $28,000 a

month to remediate her home, but running into problems because the

experience is a new one for its claims adjusters. " My insurance company is

attempting to cooperate, but I don't believe they know how. "

She said she is afraid she will lose her coverage once the mold damage has

been addressed and have trouble getting insurance from another company. That

concern prompted DOI general counsel Casteel's question.

Another homeowner said he is concerned because there aren't standards to

guide insurance companies and remediation contractors on when mold has been

removed and when it is safe to return to a home. That is not within DOI's

purview, Roddenberry said, but it should be addressed by someone in Florida

state government. He indicated the department will raise the need for

development of remediation standards at some point.