Eyes of California's mold watchers are upon Texas

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http://www.bizjournals.com/sacramento/stories/2002/07/08/story6.html

July 5, 2002

Mold Rush

Eyes of California's mold watchers are upon Texas

Staff Writer

When it comes to mold, Texas is the state California doesn't want to copy.

Nationally, Texas has the highest number of mold cases. California is

commonly thought to be second. In Texas, mold has made homeowner's insurance

scarce and boosted insurance rates.

There are a number of reasons why Texas is a hot spot for mold, mold-related

litigation and insurance woes related to mold.

To start, the state has high humidity. Moisture allows fungi to germinate

and turn into mold.

Unlike California and most states, homeowner's policies in Texas have

broader coverage than elsewhere, allowing more opportunity for claims. Its

Department of Insurance has no oversight over homeowner's insurance rates --

allowing rates to rise more easily, and making insurance harder to afford.

And a huge jury verdict in a mold-related case has inspired others to sue.

Mold claims in 2000 and 2001 cost Texas' five largest homeowner's carriers

$1 billion, the Texas Department of Insurance reported in June. During the

same two years, more than 44,000 mold-related claims were filed. Between the

first quarter of 2000 and the second quarter of 2001, the number of mold

claims in Texas increased by 548 percent, according to the Insurance

Information Institute, a New York City-based trade association.

The Lone Star State's most-talked-about mold-related lawsuit -- and one that

has caused insurers to panic -- is the one by a Dripping Springs family that

resulted in a jury verdict last year of $32 million against their insurance

company for the carrier's handling of their claim. It was the nation's

largest verdict for a mold-related case.

A jury agreed with Melinda Ballard and her family that Farmers Insurance

Group failed to properly handle a claim in 1999 for water damages resulting

from 11 leaky pipes, which allowed mold to infest the family's mansion and,

Ballard says, damage her family's health. Farmers and Ballard have each

appealed the verdict -- Ballard because the judge disallowed medical

testimony on health effects .

Since 1999, Ballard has run a nonprofit, 18,000-member organization called

Policyholders of America that helps policyholders get the insurance coverage

for which they've paid.

In Texas, homeowner's coverage for water-related damages is different from

coverage in other states. Texas policies cover damages caused by slow and

accidental water leaks. Insurance policies in California and most other

states cover water damages only if they're caused by a sudden accident, like

a pipe bursting.

True, Ballard says, but she notes that while Texas' coverage was broader,

insurers collected premiums that were sometimes twice the amount charged in

other states.

The average Texas homeowner's insurance premium is the highest in the nation

at $861, according to the Insurance Information Network of California, a

trade association. California's average is $578, while the national average

is $487.

The trade association says the average Texas homeowner pays an extra $147.68

in insurance premium to offset the effect of mold claims.

By some accounts, homeowner's premiums in some cases in Texas have already

increased as much as 200 percent. The California trade association estimates

that, based on current trends, Texas homeowners could face increases of 40

percent in their homeowner's insurance premiums, with the average rising to

$1,200.

That's if they can obtain coverage. Many carriers -- including the nation's

largest homeowner's carriers -- aren't renewing existing policies or writing

new policies, and that hurts home sales, the California group notes.

rs in Texas also are limiting mold coverage.

Customers have to shop around, Ballard says, but can find coverage. Other

carriers are picking up the business now that the industry leaders have

halted sales.

Meanwhile, the Texas Legislature and the state insurance commissioner are

still trying to find a solution. Some critics like Ballard believe the

Legislature and commissioner are just blaming each other without finding a

solution.

Part of the problem, some state officials contend, is that the state has no

oversight over 95 percent of homeowner's policies. Unlike in California,

Texas insurers don't have to get approval before adjusting rates. This has

allowed rates to rise unfettered, contributing to the financial side of the

mold crisis.

Since May, several Texas legislators have proposed reforms. Possible changes

include giving the Texas Department of Insurance authority to regulate

homeowner's insurance rates, plus seeking regulation of mold-remediation

companies.