Insurers seek tight limits on mold payouts
Sacramento Business Journal - by Kelly Johnson Staff Writer
Several homeowner's insurers have asked the state to let them limit the money they pay out for mold damage in California houses. More insurers are likely to follow.
A few weeks ago, Allstate Insurance Co. gained state approval to limit mold-related damage payouts to $5,000. Allstate is seeking these limits in all states.
Texas-based insurer USAA, which employs 1,250 at its Western regional office in Sacramento, wants to limit coverage to $2,500 on water losses related to mold, and to $2,000 for additional living expenses. A few other small homeowner's carriers have also asked to change their policies -- which they'd do by writing in new language to limit mold liability.
Insurance Services Office Inc., a New Jersey company that provides standard policy language to insurers, recently sent generic language limiting mold damage to the California Department of Insurance. If the state goes along, many insurers are expected to use or modify that language for their own policies.
Mold has become a hot-button topic in recent years as the number of mold-related claims increases and as large jury awards against insurers draw attention to the problem. California has the nation's second-highest number of mold claims after Texas, where mold has made homeowners insurance scarce and boosted insurance rates.
Big jury awards, like one in Texas for $32 million, are panicking insurers.
In October last year, a jury awarded $18 million to a 96-year-old Placerville man whose moldy house had to be leveled. A judge cut that to about $2.5 million plus about $1 million in other damages. Allstate appealed. Then Tom Anderson, now 98, cross-appealed the judge's authority to cut the amount.
The Ninth District Court of Appeals heard the appeals last month and the parties are awaiting a decision.
Meanwhile, experts dispute mold's true risk.
Technically, homeowners insurance doesn't cover mold. Homeowners who don't clean mold caused by everyday condensation in a bathroom, for example, can't expect their carrier to pay if the mold grows into a hazard. Homeowners insurance covers water damage, as if from a burst pipe that results in mold.
Until now, insurers didn't collect premiums for mold, said Stephanie Macadaan, regional manager of the Insurance Information Network of California, a nonprofit supported by insurers. If policyholders want mold covered, insurance companies need to charge for it.
Mold claims sent to home insurers have risen significantly only during the last year, reports the Insurance Information Institute, a New York City-based trade group. Many carriers are clarifying their homeowners policies. Some may decide to cover all mold claims and charge accordingly. Others may exclude mold, but let policyholders add the coverage for a price.
Most major carriers, the trade group said, have announced some type of limit in writing water damage policies.
The California Department of Insurance can't prevent insurers from excluding certain coverage, said Rick Holbrook, chief of its San Francisco rate filing bureau. If companies couldn't exclude mold, they might stop offering homeowners insurance altogether.
Traditional homeowners policies were written to cover more catastrophic or accidental losses, such as from fires, windstorms or hail, said Mike Trevino, Allstate spokesman. Mold can be prevented with proper care. It was never intended to be covered in homeowners policies. Rust or termites aren't covered either.
21st Century Insurance Co., a small player in the California homeowners market, is raising its rates. But mold isn't a factor and the carrier isn't seeking any mold exclusion, spokesman Marty Cooper said.
In Texas, the number of mold claims rose 548 percent from the first quarter of 2000 to the second quarter of 2001, according to the trade group and the Texas Department of Insurance. California statistics aren't available.
The Texas problem has been particularly bad because policies there were worded differently than in other states. Texas policies didn't specify that mold-related coverage was limited to sudden and accidental water damage.
Rob Schneider, senior staff attorney in Texas with Consumers Union, figures insurers in California are learning from Texas. "It seems like a pre-emptive strike before there's a real problem in California," he said.
Exaggeration has inflamed the situation, says the insurance industry. Trial lawyers are profiting from hype and fear, said Robert Hartwig, the Insurance Information Institute's chief economist, who discussed mold in October. Remediators are profiteers, he said, and the media are fanning the fear.
Consumers Union worries that policyholders might lose the debate over mold and insurance. Starting next month, homeowners insurers in Texas can limit coverage to the specific area physically damaged by water. Insurers won't pay to test or clean up mold outside the area directly damaged by water.
That fixed the problem for insurers, Schneider said, but not the mold problem.
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