Insurers Must Battle Mold Hype, Hysteria

Only a few years ago, mold was something you occasionally found on your bread or in your shower. Eliminating it consisted of throwing the bread to the birds or wiping the shower tile down with bleach. But now the mere mention of mold can strike fear in the hearts of many consumers and insurers because entrepreneurial lawyers, so-called remediation experts and some in the media have portrayed mold as a national health hazard.

Consumers, acting out of fear, have torn apart their homes, sometimes moving out for months on end, to rid their dwellings of what in most cases is harmless mold. Insurers have then been faced with claims for “losses” that most property policies never intended to cover. State insurance departments have been left with the task of trying to address consumer concerns while also protecting their insurance markets.

Fortunately, state regulators have done a commendable job of applying common sense to an issue that is too frequently surrounded by hype and hysteria. By approving property policy endorsements that provide a reasonable level of benefits for costs associated with remediating mold, regulators have helped maintain stability in the personal lines market. Their actions have ensured continued availability of important coverage for consumers while containing costs and premiums and protecting insurers from financial disaster.

However, theres still more work to be done, and insurers must be prepared to help insurance departments and the media educate consumers about the reality of mold. Effective education is the key to meaningful consumer protection.

In spite of scientific evidence to the contrary, homeowners are concerned because of widely publicized stories alleging common household mold is hazardous to your health. Insurers worry about the growing number of mold-related claims and the related escalating cost of investigating and adjusting water damage claims.

Traditionally, mold by itself has not been a covered peril under the standard homeowners policy form, which is designed to cover sudden and accidental occurrences. Mold generally presents a maintenance issue that can be avoided if the homeowner takes appropriate precautions against water leaks. In most cases, a thorough scrubbing with a diluted bleach solution is all it takes to rectify mold problems.

Since 1999, insurers have witnessed an explosion in the number of mold claims. In the first quarter of 2002, Allstate averaged some 1,200 mold claims per month in Texas alone. Other carriers had similar experiences. As a result, insurers sought to amend policy language to set reasonable limits on mold exposure where mold results from certain covered losses.

During 2001, Allstate began the process of filing policy form changes with state insurance departments for review and approval. Allstates endorsement is designed to provide insureds with payments for remediation of mold that occurs as a direct result of certain covered losses, while eliminating the opportunity for entrepreneurial trial lawyers and remediation firms to take advantage of the availability of higher limits.

Not surprisingly, a high priority was placed on addressing the crisis that erupted in Texas, where the companys mold claim losses for 2001 and prior reporting years were some $250 million. The Texas insurance department approved Allstates new homeowners policy form–HO-A-Plus–which provides coverage for damage resulting from specifically named perils. This approach has significantly helped address the tremendous increase in costs created by the mold crisis in Texas.

Of course, different companies took different approaches, which is one of the virtues of the competitive market. Companies that use policy forms developed by the Insurance Services Office, for example, provide options to buy additional dwelling coverage and afford third-party liability coverage specifically for mold. Consumers in the competitive market will make the decision on this important matter. Different policies from different companies should be available, with consumers buying additional coverage if they want it and are willing to pay for it.

As of this writing, 41 insurance departments have approved reasonable limitations on mold remediation expenses incurred as a result of certain covered losses, with most states setting the limit for mold remediation at $5,000. We believe that this approach will help maintain or restore some stability in those markets.

We believe the experience will be similarly positive in Maryland, where Commissioner Alfred W. Redmer Jr. concluded that mandating mold coverage was not appropriate and that encouraging a competitive market was the best way to provide coverage and protect consumers.

The basis of some of the hype and hysteria is a lack of understanding about mold itself. Some trial lawyers and mold remediation firms view mold claims as a cash cow, with many of them blatantly conducting “Mold is Gold” seminars on how to convince consumers to file outrageous claims against homeowners insurers. Ads seeking participants for class-action lawsuits have become common.

These tactics ignore many recent scientific findings on mold, which universally debunk the “toxic” mold claim, including statements from The Center for Disease Control and the American College of Occupational and Environmental Medicine.

Quite simply, mold is a homeowners nuisance that can generally be avoided by preventing water leaks through regular and careful home maintenance. If mold is discovered and reported in a timely fashion following a covered water loss, appropriate remediation coverage will be available under Allstates amended homeowner policy.

The best way to provide meaningful consumer protection against mold losses and prevent attorneys and other mold entrepreneurs from unreasonably profiting from mold claims is to give consumers more information on mold and how to avoid and mitigate water losses.

Edward T. Collins is counsel for public policy at Allstate Insurance Company in Northbrook, Ill.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Insurers Must Battle Mold Hype, Hysteria

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