Insurers now allowed to cap N.C. mold claims

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http://www.bizjournals.com/triad/stories/2002/07/22/story5.html

July 19, 2002

Insurers now allowed to cap N.C. mold claims

The Business Journal

Despite a lengthy drought that has dried out most of the Triad, insurers and

contractors in recent months have been paying close attention to growing

concerns about mold, which typically thrives in a moist environment.

In May, insurers for the first time in North Carolina were allowed to place

caps on mold-related claims coverage, placing $5,000 caps on homeowners'

policies and $15,000 caps for policies on commercial properties.

Insurers have never covered mold specifically, and these caps apply to mold

damage resulting from a previous claim. Meanwhile, the N.C. Building Code

Council has formed an ad hoc committee to explore building techniques to

provide better ventilation and limit indoor moisture.

Nationwide, mold-related insurance claims have increased more than 80-fold

in the past three years, according to Policyholders of America, a

Texas-based group formed as the mold issue began to gain notoriety in the

Lone Star State.

But despite the scrambling, some insurance and legal professionals downplay

the issue in North Carolina, where 513 mold-related claims were filed from

1987 to February 2002, according to the most up-to-date information from the

Texas policyholder group. Most of those claims were from homeowners.

By comparison, North Carolina had 36,600 fire-related claims from

home-owners' policies in 1999 alone, the most recent year data is available,

said Tim Lucas, a personal lines manager with the N.C. Rate Bureau.

" Without the media exposure, mold would be nothing today, " Lucas said.

Still an issue

Despite the media coverage, some industry experts say the mold issue has

been quietly gaining momentum over the past two decades as builders have

found ways to build homes designed to lock in heat and moisture -- creating

a potential breeding ground for mold. The same sources credited media

exposure over the last three years for the explosion in claims simply by

raising awareness of the issue.

But North Carolina and the Triad so far have seen a very small amount of

stachybotrys, or the infamous " toxic black mold, " reported in Texas, said

J.R. Managbanag, director of the microbiology lab at Greensboro-based EMSL

Analytical.

Black mold so far comprises less than 1 percent of all the mold identified

in EMSL's lab, he said.

" It is a small number, " said Raleigh attorney Ed Gaskins Jr., referring to

the state's 513 mold-related claims. Gaskins, a partner at Everett Gaskins

Hancock & s, has handled litigation on behalf of homeowners exposed to

the fungus.

Gaskins said as awareness has increased, builders and insurers are looking

to better position themselves against mold claims. As such, he said he

believes the number of mold claims will steadily decline from record highs

last year.

Policyholders of America data so far substantiates that claim. Nationwide,

claims are on pace to drop by 50 percent in 2002 compared with the previous

year.

High and not-so-dry

Despite the drop in claims, Gaskins and other industry observers said mold

of any type can still be intrusive, posing literal and figurative headaches

for property owners, insurers and contractors.

Last year, the insurance industry successfully lobbied the state Department

of Insurance for the claims caps, which went into effect on all new and

renewed policies signed after May 1, said Stuart , director of

technology and technical affairs for the Independent Insurance Agents of

North Carolina.

said the move was seen by insurers as a necessary step in salvaging

homeowners' insurance in the state. The cap, he said, solved the insurance

problem at the potential expense of the property owner.

said the caps could also lead to more third-party lawsuits being

filed against builders and repairmen. That's because many mold claims

typically follow some type of water damage, whether the result of storm

damage or a questionable repair job.

" People are going to be looking for someone to pay for repair costs, pain

and suffering and the trouble of moving out (for repairs), " said.

" And if they can't get it from their insurance, where are they going to

look? They're going to look at the builders. "

Making adjustments

Many builders could be partially insulated from liability due to North

Carolina's six-year statute of repose against suing contractors for faulty

work.

, however, said he feared a large number of builders could still feel

the impact of increased litigation because of the potential impact on

liability insurance premiums and capacity.

Insurance sources said many home builders already have seen liability

coverage skyrocket by up to 500 percent due to Sept. 11, mold claims in

Texas and California and lawsuits tied to various other construction issues.

Pricing already is a problem, said, adding that he is even more

concerned with the availability of liability coverage going forward.

" We're in for a three to five-year strain on underwriting and capacity, " he

said. " It's going to be a long dig out. "

In response, the N.C. Building Council, which operates under the state

Department of Insurance, earlier this year formed an ad hoc committee to

study the effects of indoor moisture.

" If we deal properly with the moisture, then the mold should take care of

itself, " said Dan Tingen, president of Tingen Construction in Raleigh and

chairman of the committee.

" The real shortfall for us is that as an ad hoc committee we don't have a

budget, " Tingen said. " We will not be a full research instrument, but we can

still make recommendations to the council. "

No insurance for insurers

Though insurance companies were successful in having caps placed on mold

coverage, the industry still faces exposure to litigation, said Gaskins, the

Raleigh attorney.

" Caps don't insure the insurers from all liability, " he said. " If they are

slow in responding to a water-damage claim, they could still be sued on a

bad-faith claim. "

Gaskins said that North Carolina law allows bad-faith claims to be tried as

an unfair trade practice, which could expose insurers to triple damages.

For that reason, insurers have urged agents to respond quickly to

water-damage claims, said Tim Ward at Senn Dunn Marsh & Roland, a

Greensboro-based insurance agency.

" They (the insurers) want us to report water damage, no matter how small --

and to report it right away, " Ward said.

Despite the time and effort spent by insurers and builders, sources said it

could take years before specific guidelines are drawn up in regards to mold

exposure and remediation.

" Sensitivity is relative -- you can't just set a standard, " Gaskins said.

" There's a lot of toxicological and medical work that must be done before

anyone can say what a safe level of mold is for any individual. "

For now, most industry sources said they are reading a study by the

Environmental Protection Agency on mold in schools and commercial

properties.

But they said that study leaves a lot of issues unresolved and many

questions unanswered.

In North Carolina, for example, building inspectors still are not required

to list mold on their paperwork.

And scientists such as Managbanag at EMSL said they are frustrated when

clients ask if the mold found in their homes is dangerous.

" The jury is still out really, " Managbanag said.

can be reached at (336) 370-2916 or pdavis@....