Can Mold Be An Insurable Risk Again?

Fire retardant maker says inhibitor should ease builders'liability insurer concerns

Homebuilders may soon be offered a chance to spray and paint onexceptions to mold exclusions in their liability insurancepolicies, according to an executive of a company that makes a moldinhibitor.

Although no insurance company has actually removed a moldexclusion from a contractors or homebuilders liability policy yet,Ken Rusk, president of No-Burn in Toledo, Ohio, said his firm'sproducts--No-Burn MIH and WoodGuard MIH--can ease homebuilders'insurance concerns in several ways.

First, the products--which essentially are fire retardants thatcan be applied to drywall and wood--have been enhanced to limitmold growth. "If you have existing mold, we don't say we'll killit," but it will encapsulate mold and stop it from growing, heexplained, contending that while there are other mold inhibitors onthe market, No-Burn's patented products are the onlynon-carcinogenic, non-toxic products that stop both fire andmold.

"In our testing, we didn't just put wood and drywall in waterand wait for mold to grow," he said. Instead, testers smeared"thousands of mold spores" on treated samples of wet wood anddrywall. "We put five years worth of horrendous possible moldsituations into the test and accelerated it. There was zero-moldgrowth," he said.

"It's possible that a manufacturer like No-Burn would be betteroff if insurers did not get back in the business of offeringcoverage, said Steve Shechter, president of the Evans InsuranceAgency in Akron, Ohio, noting that the absence of mold coveragecould be a motivator for contractors to want to buy theinhibitors.

On the other hand, if a builder is able to obtain liabilitycoverage because the builder has agreed to have the productsapplied on a construction project, that could also be an incentive,he said.

The two explained that one insurance-related benefit currentlyavailable with the purchase of No-Burn's products is aninsurance-backed warranty covering homebuilders (of single-familyhomes and multi-family apartments and condominiums with 16 units orless) for up to $50,000 in mold remediation costs.

Mr. Rusk said that an international insurer backs the seven-yearwarranty, but said he didn't have permission from the A-ratedoffshore carrier to reveal its identity.

"Many builders can't get [mold] coverage," he said, likening thesituation to driving a car without insurance. "They're just waitingto get nailed by a huge mold claim," he added, noting that somebuilders set aside funds for potential claims.

"We have a way to eliminate that. All they have to do is use ourproduct in the home, and we take on that mold warranty for them,"he said. "We want people to know it's not just a local guy offeringa warranty that isn't going to be worth anything if somethinghappens," he added, explaining the reason the firm sought aninsurance company to back the warranty.

"Our goal is to prove that mainstream insurers should take thison," he said. "We don't think that an insurer should back a builderwithout any protection for mold. We understand why they're not. Butif you purposely spray a home to eliminate mold, that should beinsurable again."

Mr. Schechter's involvement with No-Burn began when he wascalled upon to place product liability coverage for the firm. Hisagency is now the partial owner of North American Safety andPreservation Associates--an organization dedicated to raising theinsurance industry's awareness of technologies that save lives andreduce losses, which has No-Burn as its first client.

"Recognition by the insurance industry is key," Mr. Shechtersaid, noting that at $1 to $1.50 per square foot, the cost is notinexpensive. "It's desirable for the insurers to understand whatthis does so they can price the risk accordingly."

While Mr. Rusk said insurers are considering 20 percentdiscounts on liability coverage for homebuilders who use theNo-Burn products, Mr. Shechter was unable to confirm this. But Mr.Shechter did say that he is working with a standard carrier that isset to roll out an enhancement to a contractors' liabilityprogram--a $150,000 mold sublimit. (He declined to reveal the nameof the carrier, noting that negotiations with the insurer are stillin progress.)

"These things take a long time," said Mr. Shechter, whorecounted efforts to get insurers to understand the "intumescent"fireproofing technology of the No-Burn products, and howintumescent fire-retardant coatings (IFRC) stack up againstfire-retardant treated (FRT) lumber.

He said that a very recent success for No-Burn on the personallines side marks a huge step for the insurance industry. MotoristsInsurance Group attended a live-burn demonstration and decided tooffer a 15 percent discount on homeowners' premiums in severalstates, he said, noting that NASPA recently presented the insurerwith a plaque to recognize its efforts.

"The fact that they took this step means we are no longer in thebusiness of trying to encourage somebody to be first," he said.

Mr. Shechter noted that the Insurance Services Office recognizesFRT as noncombustible material--making buildings constructed withit eligible for lower premiums. He added that a recent test by anaccredited lab found that IFRC outperformed FRT in preventing firedamage, suggesting that No-Burn's products could someday becomemore widely recognized by the insurance industry for propertypremium discounts.

A video of a comparison test performed by NASPA can be viewed atwww.noburn.com/video.asp or www.nasafety.org (Click on "No-BurnCoatings vs. Impregnated Wood.")

Art Caption

Applying a mold inhibitor not only limits mold growth, but twosuch products sold by No-Burn come with an insurance-backedwarranty for $50,000 in mold remediation costs--easing someconcerns about mold exclusions in homebuilders' liabilitypolicies.

Fast Fact

According to the Insurance Information Institute, the averagehomeowners mold claim costs $15,000 to $30,000 to handle.

Worth Noting!

While mold is almost universally excluded from contractors'liability policies, at least one carrier--American InternationalGroup--offers a Contractors Pollution Liability Policy which coversmold and other environmental issues.

While "mold is at the forefront," John O'Brien, executive vicepresident and chief operating officer of AIG Environmental,explained that contractors working on former contaminatedproperties can spread contaminated soil or puncture an undergroundstorage tank to exacerbate existing environmental conditions.