Insurers Take Aim At Mold Claims

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Insurers Take Aim At Mold Claims

They're Seeking Regulators' Approval To Limit Liability

May 27, 2002

By DIANE LEVICK, Courant Staff Writer

It began with the sliming of Texas.

Thousands of mold claims later, home and business insurers are striking at

spores around the nation as they move to limit or wipe out coverage for the

gross growth.

Even in Connecticut, where property-casualty insurers have had relatively

few mold claims, more than a dozen companies are now seeking regulators'

approval to tighten up policies. State Farm is already changing its

policies.

Property insurance premiums are rising sharply in some states where mold is

more of a problem than in Connecticut. In Texas, some companies nearly

doubled their rates for existing customers and stopped writing new

homeowners policies. Certain businesses in some states are having a hard

time finding liability insurance to cover mold.

The fungal funk has been descending over the industry for at least two

years, with a boom in mold-related claims in Texas and an increase in some

other states, including California, Florida, Arizona and Nevada.

Fungus kicked up a furor with media headlines about " killer mold " and

lawsuits filed by mold-plagued homeowners Ed McMahon - ny Carson's

sidekick - and film namesake Brockovich.

Some trial lawyers and consumer advocates say that insurers are overreacting

and that the mold mess is partly their own fault for mishandling

water-damage claims.

But insurers, having spent an estimated $1 billion to date on homeowners'

mold claims, say their run for cover is meant to keep policies affordable.

Most policies already were restricted to cover mold only when it results

from an insured accidental event, such as a pipe bursting or rain entering a

house when a tree falls on the roof. Policies were never meant to be home

warranties, paying for damage caused by failure to properly maintain a home,

insurers say. But the policy language apparently hasn't been watertight.

So the industry is shifting more of the cost of mold damage - which can cost

tens of thousands of dollars per case - to homeowners and businesses. Many

customers will have to pay additional premiums if they want to buy back the

coverage, and even then, it will be limited.

" Insurers can, and are, inserting mold exclusions and will, if necessary,

walk away from whole lines of business where mold is a problem, " warns

P. Hartwig, vice president and chief economist for the industry's

Insurance Information Institute.

Policy restrictions encompass fungi, wet and dry rot, and bacteria.

Mold - fungus that grows where there's moisture and is most visible when

it's black, green or gray - is ubiquitous and dates back eons. Mold may be

innocuous or cause routine allergy symptoms. However, some varieties such as

stachybotrys chartarum may produce mycotoxins - substances that can cause

more serious symptoms, especially in people with respiratory disease or

compromised immune systems.

Stachybotrys led a Texas family to abandon their mansion and win a highly

publicized $32 million jury award last year in a bad faith case against

Farmers Insurance Group. The company appealed. It says the homeowners failed

to make prompt repairs.

Though mold claims are more common in warmer states, stachybotrys has been

found in every state. Farmers Group recently paid nearly $30,000 on a claim

from a Cromwell home involving water damage and mold, including

stachybotrys. Several Connecticut schools have also had serious and costly

mold problems.

But why the current spurt of claims in some states?

Part of the problem is that many buildings in recent decades have been

constructed more airtight and are thus more apt to trap moisture that breeds

mold.

Also, Texas had mandated broad coverage for mold, fueling claim costs. The

state now excludes testing and inspection for mold from basic new homeowners

policies, but will require insurers to let customers buy back more

protection as an option.

In addition, insurers blame trial lawyers, their perennial nemesis; media

attention that whips up hysteria; and mold-abatement contractors who exploit

the situation.

" This is entirely a trial lawyer-manufactured phenomenon, " Hartwig says. " It

went from nil to thousands [of claims] in a year. "

In Texas alone, Allstate had $250 million in mold-related claims last year

and received 1,200 claims a month in the first quarter of this year, says

company spokesman J. Trevino.

But foot-dragging by insurers and bungling adjusters have escalated water

damage claims into mold problems, says Dan Lambe, executive director of

Texas Watch, a research and advocacy organization that focuses on consumer

law and insurance.

" The bottom line is there are hundreds, if not thousands, of Texas families

that, because of stalling and delaying and unfair claim practices by

insurance companies on water damage claims ... were forced to seek legal

help " to get claims settled properly, Lambe says.

Quicker To React

In turn, insurers say they're now jumping on water damage claims quicker and

acting more defensively, hoping to keep lawyers out of the picture and mold

to a minimum.

Travelers executives, for instance, say the company is more aggressive in

getting adjusters and contractors to the scene of the scum.

" It's extremely important to do remedial work right away, and if you do

that, you've met your obligation, " says I. Lipp, chief executive of

Travelers Property Casualty Corp. " If you do that properly, your liability

is greatly limited. "

Travelers in some cases is apt to do more testing for mold or to have

drywall torn out to make sure there's no unseen mold, says Pete Higgins,

executive vice president of underwriting. The cost of more careful

remediation, he notes, " is ultimately passed on to consumers " in rates.

Travelers doubts it's had more than 50 mold-related claims in Connecticut.

The Hartford Financial Services Group Inc. says that its Connecticut mold

claims " are in the single digits " and that, nationally, mold claims

represent less than a tenth of 1 percent of total claims.

State Farm, too, has had few mold claims in Connecticut but has filed with

regulators here and nationwide to exclude losses from mold, mildew, scents,

spores, fungi and mycotoxins.

The exclusion " assures the availability of coverage " by preventing the mold

situation from getting out of control, says Tom Keller, State Farm's claim

team manager for property-casualty claims in Connecticut.

The Connecticut Insurance Department has asked insurers to postpone changing

their policies until regulators can study the issue more. State Farm says

that because of a misunderstanding, it has excluded mold from homeowners

policies that renewed April 1 or later.

Allstate, the largest homeowners insurer in Connecticut, says at least 23

other states have approved its $5,000 cap on mold remediation and the

company is seeking approval here, too.

The Insurance Services Office Inc. (ISO), whose policy forms are used by

many smaller to medium-size insurers, says 27 states had approved its

narrowed mold provisions for homeowners by early May, and 24 states had

signed off on curbs for commercial coverage. The mold restrictions would

apply to liability claims against customers as well as customers' own

property damage claims.

Under ISO's program, insurance payments to homeowners could be limited to

$10,000 a year for their property damage caused by fungi, rot or bacteria.

ISO estimates homeowners who want $25,000 of coverage would pay at least $27

more a year - the amount needed to cover claims, though insurers would

likely charge more to cover other expenses and make a profit.

Liability coverage from mainstream insurers against mold claims has been

drying up for some businesses, such as real estate and property management

companies. Specialty environmental insurers are responding by " dipping their

toe in the water a little bit to test [the market] out " after seeing

homeowners' insurers getting creamed by claims, says Dan Lavoie, senior vice

president and group leader for insurance broker Marsh Inc.

Meanwhile, U.S. Rep. Conyers, D-Detroit, plans to push a bill that

would allow states to tap federal money to clean up mold disasters and call

on the federal government to offer insurance for mold-related costs not

covered by other policies.