Home Insurance Crisis: Is Mold To Blame?

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Home Insurance Crisis: Is Mold To Blame?

Premiums Keep Rising, End In Sight

October 24, 2002

LOS ANGELES -- No matter who's discussing the squeeze on homeowners'

insurance rates and coverage, the surge in claims for mold damage comes up.

So do a lot of other issues.

SURVEY

Have your homeowner's insurance rates gone up in the last year?

Yes

No

I'm not sure

So what's really behind the insurance crisis? And more importantly, what

will it take to reign it in?

Homeowner Bill Studley got a jolt when he opened his insurance renewal and

saw the jump in his premium. " $702 last year to $1,049 this year, " said

Studley.

State Farm homeowner premiums are up 21% on average. Allstate's rates are up

18%. Farmer's rates are up 27%.

So what's the industry's explanation?

" I think the main reason is somebody found there's a lot of money to be made

in mold lawsuits, " said Pete Moraga of the Insurance Information Network of

California.

A Texas woman with a moldy mansion got $32 million. Celebrities

Brockovich and Ed McMahon also have high-profile cases involving claims of

health damages from mold.

Nowadays, there's even a mold magazine for lawyers.

Mold, that slimy fungus that thrives on moisture, considered little more

than a nuisance until recent years, when it took on the intensive and

expensive clean-up procedures developed for asbestos.

Abatement companies awash in this surge of business say this is not overkill

for severe mold.

But Jeff Huddleston of Pacific Abatement Services says he does see mold

paranoia taking root where it is not needed.

The Insurance Information Network calculates water-damage payouts have been

increasing twice as fast as other claims -- more than doubling in four

years.

Besides raising rates, many insurers have imposed mold coverage limitations

and exclusions. State Farm has stopped writing new homeowners policies in

California.

Moraga says lawsuit risk intimidates insurers.

But many find it hard to see insurers as mold victims. Consider Robyn and

Goodmanson, parents of two young daughters, only recently returned to

their mold-infested Long Beach home. They are still in the throes of mold

removal.

Their problems were unleashed by an invisible leak in the ceiling space

below a second floor toilet. They learned that if the mold-nurturing leak is

deemed " not sudden, " but gradual -- as theirs was -- an insurer will say it

is " not covered. "

" We had to cover the expenses out of our pocket, " said homeowner Robyn

Goodmanson, who said the cost forced the couple to take out a line of

credit.

The Goodmansons estimate they have already spent $200,000.

Allstate did cover an unrelated auto robbery claim, then declined to renew

their policy.

Now stigmatized by mold, they find no other insurer wants to write them a

standard policy.

" Who's created this crisis? Is it me? Or the insurance companies? " ask the

Goodmansons.

" The insurance companies, " says consumer activist Harvey Rosenfield, who

argues that the industry has exaggerated the impact of mold as a

smokescreen. Rosenfield calls rate increases an industry effort to recoup

stock market losses.

" Wouldn't it be great if I could say, 'hey, it lost money, reimburse me.' We

can't, but they try. 'Hey, you're filing too many claims,' " said Rosenfield.

It was Rosenfield who went after auto insurers in the late 1980s with Prop

103, which led to some rollbacks of rate increases. Now Rosenfield sees

parallels to what's happening with homeowner premiums.

" That's why we have to intervene under Prop 103. Take a look at the books

ourselves. Because it's clear to us that they're cooking the books, "

Rosenfield said.

The industry denies that claim and sides with many in mold abatement that

there is need for state-set mold standards.

" We need regulations to bring normalcy, " said Huddleston.

The legislature called for this. It failed to pass another mold bill that

would have set minimum insurance coverage standards.

Meantime, the industry urges homeowners to be proactive against mold by

checking periodically for leaks or hoses about to go.

Spokesman Moraga, who worked at KNBC in the 80's, will gladly demonstrate

how.

His industry acknowledges mold is not the only bogeyman, contending other

factors came together like a " Perfect Storm " -- yet insists industry

soundness requires limits on coverage and raises in rates.

" I need it so I'm going to pay it... not a lot of choice...kind of angry, "

said Studley.

Industry spokesman Moraga said insurers expect the situation will begin to

stabilize by next spring. But of course, at a higher cost, with less

coverage -- unless the Legislature or Insurance Commissioners intervenes.

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