Calif. Mold Bill Concerns Insurer Group

By Caroline McDonald

NU Online News Service, May 28, 3:58 p.m. EST?ACalifornia bill to regulate insurers' handling of mold damageclaims is a vaguely worded invitation for lawsuits, according to anindustry insurer association.

SB 1763, sponsored by Sen. Deborah Ortiz, D-Sacramento, wasapproved by the California State Senate last week on a 21-11 vote.It is now pending action in the Assembly. The bill consists of adisclosure section and a coverage mandate.

According to Mark Sektnan, American Insurance Associationassistant vice president-Western region, under the current law theonly disclosure requirement that an insurer has on a claim is thatan insured has a right to request all records related to it within15 days.

Section one of the revised measure would require that a claimshandler, adjuster or insurance representative "immediately" provideall relevant information related to mold "or the possibility thatthere may be mold related to the claim," he said.

The problem with this, Mr. Sektnan explained, is the ambiguityof the terms "immediate" and "relevant information."

In a water claim "that's handled correctly there should not beany mold," he said. "So does that mean that you have to disclosethat there could be mold?"

The bill is designed, he said, to open up "a whole new area ofliability. This is a virtual smorgasbord for the trial bar."

Mr. Sektnan said the bill's proponents "are spreadingmisinformation about the true impact it will have on the insurancemarket." The bill, he said, would make insurance for bothhomeowners and homebuilders more difficult to find and would hurtnew home construction "critical for the state's economicrecovery."

He continued that supporters of SB 1763 claim the bill "onlyclarifies existing law, but ignore the fact that the risk of moldhas fundamentally changed in the last two years." The increasedrisk, he said, has not been reflected in the current insurancerates.

Section two of the bill, he said, would keep insurers fromcreating sub-limits. "Most of the exclusions that are filed withthe department are simply clarifications of the existing policyparameters, because mold is not a covered peril."

The intent of the bill's sponsors, he explained, is "clearly todo away with sub-limits and make the liability up to the fullamount of the policy limits. That would be a fundamentalchange."

AIA also said that basing rates on prior year's loss experienceis no longer adequate due to the explosion of mold claims inCalifornia.

"The California Department of Insurance is required byProposition 103 to hold public hearings on all rate increases above7 percent," Mr. Sektnan said.

He said insurers face difficulty in getting rate adjustmentswhich accurately reflect their costs, because when they seekapproval for the necessary rate increases, they are oftenchallenged by trial attorney-sponsored "interveners" during publichearings.

Proposition 103, he said, allows trial attorneys to fightinsurers' attempts to properly price their product to reflectCalifornia's new mold reality. "Mold is rapidly becominguninsurable. Insurers cannot predict the risks for mold becausethere are no scientific standards for health impacts, testing,assessment or remediation."

Until we have sound science and standards for mold exist, hesaid, "mold will be difficult, if not impossible, to insure. Theinsurance industry is ready to join with other interested partiesto develop and fund a badly-needed, objective scientific study onthis issue."