Texas Regulator Says Mold Issue Is ?Unreal'

By Steven Brostoff, Washington Editor

NU Online News Service, May 22, 11:02 a.m. EST,Washington?The issue of toxic mold claims is a difficultand emotional one for regulators to face, and is sometimes"detached from reality," Texas Insurance Commissioner JoseMontemayor said.

Speaking at a conference on mold sponsored by theWashington-based American Insurance Association, Mr. Montemayorsaid that regulators must try to maintain reasonable solutions to aconcern that is subject to fear mongering and "quack science."

"There is a void of solid knowledge about what's happening," hesaid.

Many consumers complain that a variety of ailments are caused byexposure to mold, Mr. Montemayor said. He noted one discussion hehad with a claimant who attributed his lung cancer to exposure tomold.

During their discussion, Mr. Montemayor said, the claimantacknowledged that he had been smoking cigarettes since age 18.Nonetheless, he said, the claimant insisted that mold caused hiscancer.

The issue of mold has had a very detrimental impact on thehomeowners market in Texas, he said. Texas, Mr. Montemayor noted,has been in the forefront of the issue, partly because of theunusual nature of its market.

First, he said, Texas essentially allowed only two types ofpolicy forms. These were an all-risk form and a reduced coverageform that insured only main perils.

While mold was an excluded peril, Mr. Montemayor said, there wasan exception involving other covered perils, including continuousseepage. That exception gave rise to mold claims, he said.

All risk homeowners coverage, under language in thestate-specified policy form covers "accidental discharge" of water,which encompasses seepage that leads to mold. In other states thepolicies read "sudden accidental discharge."

At the same time, Mr. Montemayor said, has a facility calledTexas Lloyd's, which is exempt from state rate regulation. Althoughoriginally intended to cover only certain risks, Texas Lloyd's nowaccounts for 95% of the homeowners market, he said, up from 20% inthe 1980s.

Thus, Mr. Montemayor said, Texas, in effect, had tight formregulation but no rate regulation. When the mold claims startedcoming in during the year 2000, he said, the market wasdisrupted.

Generally, he said, insurers did four things. First, if a policyapplicant had a previous water claim, insurers would rejectcoverage. Second, he said, some insurance companies stopped writingcoverage at all.

Third, Mr. Montemayor said, some companies switched to writingonly the main peril policy. Fourth, he said, some insurers raisedrates by 300 percent to 400 percent.

The state faced an availability and affordability crisis, hesaid, and had to take steps to resolve it.

To do so, Mr. Montemayor said, the insurance department wentback to basics. The exclusive use of standard forms wasreconsidered. The department recently approved a form filed byState Farm, he said.

The form covers water damage from sudden and accidental events,but not from seepage. However, he said, consumers can buy coveragefor seepage damage if they choose.

Mr. Montemayor said that he expects other forms, developed byUSAA and Insurance Services Office, will be approved shortly.

In addition, he said, a task force put together a best practicesguide aimed at consumers and insurers that hopefully will lead toless litigation.

The real key, Mr. Montemayor said, is putting common sense backinto the market.

There are still problems, he said. For example, Mr. Montemayornoted, many people are getting into the mold remediation businesswith little or no training.

"Some of these people come out of nowhere," he said. "They giverise to a lot of fear-mongering."

Looking to the future, Mr. Montemayor said he expects the Texaslegislature to try to address this issue by licensing andregulating remediators.

In addition, he said, he expects to see public hearings onstandards for exposure to mold. There is a real need, Mr.Montemayor reiterated, for sound science on this issue.

Third, Mr. Montemayor said, he expects legislation to beintroduced at some point establishing rate regulation of the entireindustry.

Mr. Montemayor said that his message to fellow regulators isthat this is a tough, emotional issue. The answer in Texas, hesaid, is to reestablish consumer choice.

Homeowners are asked to look at their own needs, he said. Basicpolicies are available to everyone, Mr. Montemayor said. Consumersare advised that if they need further coverage, they should buy it,he said.

Alan Chapman, senior vice president of state affairs with AIA,noted that while Texas has been the focal point of much of theactivity surrounding mold claims, legislation has been introducedin 10 states during the past two years.

The good news, he said, is that the legislation generally takesa "go slow" approach, aimed at developing information to understandwhat is happening.

The insurance industry, Mr. Chapman said, is in a containmentmode, trying to prevent a rush to judgment.

Any standards for mold, he said, must be based on soundscience.

But Mr. Chapman added that this is a very hard issue forpoliticians. It affects all the homeowners in their districts, hesaid.