Florida, State Farm await court ruling on coverage of mold problems

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Florida, State Farm await court ruling on coverage of mold problems

By Purva PatelBusiness WriterApril 30, 2003State Farm Insurance Co. and Florida regulators spent the past three months sparring in court over mold. Now the two sides await a court order ruling whether the state's largest insurer must pay mold-related claims made by its Florida policyholders.In the meantime, State Farm and the Florida Office of Insurance Regulation have filed recommended orders with a Tallahassee court.The battle began last August when the insurance office rejected State Farm's request to drop mold coverage from homeowners' insurance policies as part of the company's nationwide effort to eliminate the coverage. Texas and 37 other states have already approved State Farm's requests, with 34 allowing total exclusion of mold coverage. None of the states saw corresponding rate reductions, according to documents the insurance office filed with the Division of Administrative Hearings.Regulators contend that State Farm should have submitted lower rates for approval along with the request for mold exclusions--assuming that if coverage was being reduced, rates probably should, too.But the current rates don't assume large payouts for mold losses, so eliminating the coverage won't necessarily translate into reduced rates, State Farm officials say."The concern was more of a proactive concern," said spokesperson Tom Hagerty. "We've seen our mold claims jump from 30 in 2000 to more than 900 last year. They're complicated and costly to investigate."State Farm, like other insurers, fears claims are spiraling and positioning the state for rocketing rates similar to those in Texas. In that state, a jury awarded $32 million to a family that said its insurance company failed to cover a water leak, which let toxic mold spread through the house and destroy their health. The award was eventually reduced to about $4 million, but the potential for such high settlements has the industry scared.Bob Lotane, a spokesperson for the Office of Insurance Regulation, said he couldn't comment on the ongoing litigation. The agency's filings indicate regulators recognize State Farm had significant losses because of mold in Texas, but say that's because Texas requires insurers to pay for mold that results from poor maintenance as well as sudden and accidental losses. Florida only requires the company to pay for mold that results from losses that are already covered, such as a burst pipe. Florida policyholders shouldn't have to lose coverage because of another state's losses, the office stated.There's also no crisis looming for consumers as State Farm suggests, the office argues. In fact, State Farm turned profits for nine months in 2002 -- despite paying mold claims -- after posting losses in 2001."Therefore it is impossible to state that there is a current mold crisis in Florida that requires a total exclusion of coverage for mold that results from an otherwise covered loss," according to the filing.State Farm eventually offered to give policyholders the option to buy back mold coverage at an additional premium, a practice one insurer has already started. Earlier this year, the state allowed the Florida Farm Bureau Insurance Co. to limit mold coverage in residential homeowner policies to one-time payouts of $10,000 with a cap of $20,000 per policy period.But the insurance office's filing says State Farm's buyback option wasn't offered with consumers' interests in mind. The agency points to a note written by a State Farm employee that indicates the company used the optional coverage as a "bargaining chip" with various state regulators when it began its national campaign for mold exclusions."If all efforts have been exhausted without success, buybacks could be considered," the note states.If the exclusions and buybacks are granted, regulators also fear State Farm won't pay legitimate water claims that may result in mold, and many policyholders won't understand what a valuable coverage they're losing."I can't imagine why we would do that," Hagerty said. "It's always been our policy to pay everything we owe under a policy."A judge is expected to issue a recommended order this week, following which the insurance office may file a final order. If State Farm wanted to contest the order, it could do so at the 1st District Court of Appeal.Purva Patel can be reached at ppatel@... or 954-356-4667. Copyright © 2003, South Florida Sun-Sentinel