AAIS Sets CL Policy Mold-Claim Language

An AAIS representative, Joseph S. Harrington, said that regulators in 10 jurisdictions have already approved endorsements. The 10 are Alabama, Arkansas, District of Columbia, Idaho, Indiana, Missouri, Pennsylvania, South Dakota, Tennessee, Wyoming. In Missouri approval has so far been given for only the business owners policy.

Janice Nieman, AAIS manager of commercial liability and the principal developer of its commercial liability coverages, said the mold and construction defect endorsements were developed and filed in tandem because the claims they address are interrelated.

"Many claims start out as construction defect claims and end up including claims for damage from mold," she said.

As an example, Ms. Nieman said, a new endorsement excludes coverage for damage or injury arising from the design or installation of "Exterior Insulation and Finish Systems," a "synthetic stucco" that has been found to trap moisture beneath where it is applied. Mold often results, sometimes causing damage to the structure or ailments to the occupants, she explained.

AAIS said three essential types of "mold" endorsements are being filed:

? One endorsement excludes liability coverage for damage and injury arising from direct contact with or ingestion or inhalation of mold and other organisms. Also excluded are any chemical compounds or toxins released by the organisms. There is an exception to the exclusion for injury caused by eating mushrooms grown for human consumption and for bacterial food poisoning from food or beverages.

? Another endorsement does essentially the same, but applies only to "contracting operations" (that is, installation and repair work away from the insured premises), and does not have an exception for mushrooms and food poisoning.

?A third endorsement provides limited coverage for injury or damage related to mold and other organisms, up to separate per-occurrence sublimits and aggregate sublimits.

Mushrooms and food poisoning are excepted, and covered up to full policy limits. (This endorsement is not available under the Commercial Umbrella, as it is customary to provide limited liability coverages in the underlying layers, AAIS said.)

In addition to the endorsements that address mold and synthetic stucco, two construction defect endorsements are being filed that would allow insurers to delete the exception for work done by subcontractors from the standard exclusion for "damage to your work."

One of the new endorsements deletes the exception for subcontractors generally, and the other deletes the exception for locations and projects specified by the insurer.

Ms. Nieman said liability polices have traditionally covered contractors for damage done by subcontractors not under their direct control, "but the exceptions have been used of late to make insurers liable for damage that ought to be assumed as business risk by the people performing the work."

AAIS said more information on its commercial liability and commercial package programs is available by contacting Joyce Tignino, vice president of marketing and industry relations, at joycet@AAISonline.com or by calling 800-564-AAIS.

For a more detailed discussion of the AAIS commercial liability endorsements addressing mold and construction defects, see the group has a report online "Mold: Where is the exposure?" at www.AAISonline.com.

AAIS is a national advisory organization and statistical agent. More than 600 property-casualty companies nationwide use its standardized policy forms and rating information.