Alliance Asks Calif. Senate Panel to Vote 'No' on Proposed Mold Bill

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Alliance Asks Calif. Senate Panel to Vote 'No' on Proposed Mold Bill; Says

Measure Will Create Availability, Affordability Problems

Sacramento, CA -- A bill being heard today by a California Senate panel that

would require insurers to cover mold will create affordability and

availability problems across all property/casualty lines of business,

according to the Alliance of American Insurers.

" As it currently stands, SB 1763 would make it difficult for insurers to

seek exclusions on mold coverage as an ensuing loss, " said Gorman,

vice president of the Alliance's Western Region in a letter to members of

the California Senate Insurance Committee. " By mandating mold coverage, the

bill would strip away an insurer's ability to accurately underwrite

property/casualty risks at a fair price, ultimately impacting solvency. "

SB 1763 would require all property liability insurance policies to cover

mold as an ensuing loss. It also would create a duty on all insurers to

disclose whether " mold is reasonably believed to have ensued from a covered

loss. "

Although the bill permits insurers to exclude mold as a non-covered peril,

it sets such high standards for exclusionary language as to be unattainable

or unenforceable.

" It is often difficult, if not impossible, to express exclusions 'clearly,

explicitly and in readily understandable terms,' as called for in the bill

in a manner that will meet both this test and the scrutiny of prior case

law, " Gorman wrote to the panel. " The result will be judicial overrule of

policy language in favor of the injured. The Alliance believes that this

imposes an unfair contractual disadvantage on the insurer and should not be

expressed in a statute, exposing insurers to bad faith allegations. "

Gorman also characterized as " unreasonable " the bill's requirement that

insurers inform customers when they have " reason to suspect " that mold is

likely to be present or results from a given claim. " SB 1763 creates a

subjective standard that invites further bad faith allegations that an

insurer 'should have known' that mold was present or would be present, " he

wrote. " This is clearly an unreasonable burden to place on insurers. It

would result in insurers having to conduct expensive laboratory testing in

an effort to protect themselves. The net effect of SB 1763 would be to

dramatically increase premiums for both residential and commercial property

coverages. "

" This bill is being proposed to aid consumers in obtaining coverage for

mold-related losses, " added Rita Nowak, Alliance assistant vice president of

property/casualty. " Instead, it could cause insurers to contract their

coverage offerings, causing the very availability problems it was designed

to solve. In this regard, the bill is poorly conceived and should be voted

down by the committee or drastically altered. Instead of mandating a

cookie-cutter approach to mold coverage, a better tactic would be to

encourage the market to develop products that address the needs of specific

consumers. "

The Alliance of American Insurers, based in Downers Grove, Illinois, is a

national trade association representing 338 property/casualty insurance

companies.