Boston Globe As mold claims surge, worry spreads for firms 6/14/03 Page 1

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As mold claims surge, worry spreads for firms

By Bernard , Globe Staff, 6/14/2003

WEATHERSFIELD, Vt. - The trouble began for graphic artist Sam Hamill on a frigid winter's night more than two years ago, when he returned from a business trip to find broken pipes flooding his house in this remote area of southern Vermont. Today, Hamill's dream home is considered worthless by county tax assessors, and he takes medication for tremors brought on by what his doctors say is noxious mold as he battles with the financially troubled Rhode Island company that insured his home.

The lawsuit Hamill has filed against Pawtucket Mutual Insurance Co. is one of more than 10,000 cases that have been filed nationwide since 2001 over mold, a problem almost unheard of until five years ago. The surge in claims couldn't have come at a worse time for insurers, as they also come to grips with terrorism, corporate liability, identity theft, and computer viruses.

Hoping to head off ''the next asbestos,'' lobbyists have fanned out across America over the past 18 months to lobby regulators and legislators for more limits on mold coverage. Individual companies, meanwhile, have been battling large mold claims in the courts, rather than pay hundreds of thousands of dollars to remove infected walls, floors, and ventilation systems.

The Insurance Information Institute, a New York-based industry group, estimates that total asbestos-related losses for US companies ultimately will exceed $65 billion, more than for the Sept. 11, 2001, terrorist attacks and 1992's Hurricane combined. The institute said insurers in Texas alone were paying out $200 million a month for mold claims by last summer.

Nationwide, said the institute's chief economist, Hartwig, the numbers are more difficult to track because most states don't separate mold claims from water claims. But he said mold ''is definitely a multibillion-dollar problem'' for the industry.

''There were concerns that mold was the next asbestos, that it was going to be a huge, huge problem for the industry,'' said , vice president at the Alliance of American Insurers, in Downers Grove, Ill.

For Hamill, the issue has nothing to do with industry trends or economic principles. His house is uninhabitable, he said, and Pawtucket Mutual should make his Vermont house liveable again.

The 155-year-old Pawtucket Mutual is in ''voluntary rehabilitation'' with Rhode Island regulators, trying to avoid liquidation. On Thursday, the company laid off 67 of its 164 employees at the insistence of the regulators.

A company attorney and the Rhode Island official overseeing Pawtucket's rehabilitation both refused to comment on Hamill's case, but depositions that senior executives have given in the lawsuit show they believe he is trying to take advantage of the situation to get an unwarranted home upgrade.

Marilyn McConaghy, director of Rhode Island's Department of Business Regulation and de facto chief executive of Pawtucket Mutual during its rehabilitation, said the company's financial woes were not caused by a sudden surge of mold claims, but by general mismanagement. Policyholder advocates, though, say the aggressive way the company fought Hamill's claim has become common.

Hamill said investigators paid by Pawtucket Mutual have interviewed dozens of friends, family members, and even former girlfriends, searching for information they can use to discredit him or to force him to drop his lawsuit. He said he stepped out of the shower last month to see a photographer taking pictures of him through a window in the New Hampshire house where he lives now. ''The tactic is to pound me down, pound me down, pound me down,'' Hamill said. ''The company's lawyers want to humiliate me, both professionally and publicly.''

Policyholders of America, a consumer-advocacy group in Texas, said that at the end of last year, 23,738 homeowners nationwide had reported unresolved mold-related claims. Before 1998, the group reported, few mold-related claims were filed.

The reasons behind the upsurge remain a mystery. After all, mold in all its forms has been around for eons.

Policyholder advocacy groups say new materials and construction techniques that allow less fresh air to circulate through walls and frames are to blame, as well as slow-moving insurance companies that mishandle water claims. Allowing a building to remain damp for any period of time dramatically increases the odds of fungal growth.

Industry spokesmen point, instead, to a media frenzy over ''toxic mold'' and ''killer mold'' since a $32 million Texas verdict in 2001 against an insurance company for failing to deal with fungus that made a family sick. The damages were later reduced to $4 million, plus interest and lawyers' fees, but the image of possibly toxic mold growing in the walls of suburban America was here to stay. ''You don't have a mold problem, you have a mold hysteria problem,'' said , of the Alliance of American Insurers. ''We've tried to educate the public and the media and the legislators, and some of that hysteria has gone away.''

Government lobbying has been a big part of that effort, and it has largely been successful from the industry's point of view. Primarily at the insurance lobby's urging, 52 mold-related bills have been introduced in 20 states during the 2003 legislative sessions, many aiming to limit mold claims. Massachusetts and Rhode Island have bills pending that would fund state task forces to study the health effects of mold in buildings.

Thirty-eight states, including all six in New England, allow insurers to exclude mold coverage, as long as they offer riders to make the coverage available for an additional cost.

In Massachusetts, policyholders get no mold coverage in their standard homeowner policies, but can buy extra coverage with limits of $25,000 or $50,000 in mold-related costs. The riders cost $50 to $80 a year.

At the urging of Massachusetts insurers, the state Division of Insurance implemented rules on mold last year, and companies are applying them to new policies, and existing ones as they come up for renewal.

Hamill's policy, however, predates the changed regulatory environment and does not have an exclusion for mold coverage. Even so, he hasn't been able to get the company to pay his claim.

A half-dozen estimates from contractors in Vermont placed the cost at $155,000 to $193,000 to remove and replace mold-infected sheetrock, insulation, and flooring.

The company paid Hamill an initial $10,000 in October 2001, and has offered to settle the claim for another $5,000. Hamill said the adjuster told him to use paint and sealant to cover the mold damage, rather than take out the water-logged building materials.

February 2001 was a bitterly cold month. Sometime on Feb. 10, while Hamill was out of town making a sales pitch for his T-shirt and ''resort-wear'' company, the power went out at his home. The temperature inside the house dropped below freezing, and the pipes burst in a dozen places, sending a 15-foot geyser of water shooting into Hamill's living room and soaking floors and walls in several other areas.

A plumber who inspected the damage early on Feb. 12, after Hamill had returned, estimated that at least 15,000 gallons of water had run through the house.

It wasn't until March 2, though, that the independent insurance adjuster hired by Pawtucket visited the house. By then, it had been three weeks from the time of the initial flooding.

''When it comes to water damage, time is the most critical thing,'' said Melinda Ballard, who runs Policyholders of America. ''In their policies, homeowners are disallowed from making repairs while the insurance company is investigating. But that investigation can take forever, while the homeowners' hands are tied and the mold grows.''

Hamill said he had no idea that mold could be a problem until months later, as the company's investigation of his water claim dragged on and he began to develop nose bleeds, tremors in his hands, and unexplained dizziness.

When the company still hadn't dealt with the water damage by November 2001, and an environmental study he commissioned had found extensive mold in the house, Hamill filed a lawsuit to enforce the contract, he said.

''To me, mold is the blue stuff on your English muffins,'' he said. ''Who knew it could be dangerous? It's the insurance company's job to take care of that stuff.''

Bernard can be reached at nelson@....

This story ran on page A1 of the Boston Globe on 6/14/2003.

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