Fitch: Insurers' Mold Problem Peaking

NU Online News Service, Oct. 15, 10:37 a.m.EST?The number of mold-related damage claims insurers arereceiving has probably already peaked or is close to doing so,according to a New York-based rating firm.

Fitch Ratings, which made the finding in a new study, said itbelieves insurers will largely be able to control loss exposure tomold damage through coverage constraints, exclusions and pricingadjustments.

Fitch noted that although mold is not a new issue for theproperty-casualty industry, mold contamination claims have becomesignificant only during the past few years. Awareness and fear ofthe possible health hazards associated with mold, Fitch found, havebecome much more commonplace due to considerable publicity andsizable jury awards.

Brett Lawless, director, Fitch Ratings, commented that moldremediation costs have been additionally impacted by higherremediation standards.

"These standards were imposed by insurers to effectively addressthe new mold environment and avoid disputes, which could lead tolitigation," he said.

Fitch said it is important to note that catastrophic events suchas hurricanes and earthquakes will become more expensive due to thehigher remediation standards. The company said this trend hadalready been observed with Hurricane Allison.

During the first half of 2002, Fitch found that Texas remainedthe focal point of national mold related claims activity, despiteits reduction in mold claims in 2002 versus 2001.

Texas, Fitch said, has garnered the greatest claims activityprimarily as the result of homeowners' insurance policy language,which, until recently, did not specify that claims would be coveredonly in relation to 'sudden and accidental' damage.

The high mold claims level in Texas, in addition to the policylanguage, was driven by the high density of people living in areaswith a warm and humid climate, and by a trend of significantlyhigher jury awards in recent years, Fitch said.

The study found that from a ratings standpoint, mold, in and ofitself, will likely not cause negative rating adjustments.

"Although Fitch recognizes that losses have [been] incurred andwill continue, Fitch does not view mold as the next asbestos.Instead, it is viewed as one of numerous problems that exposesproperty and casualty insurers to sizable claims," said Mr.Lawless.