Mold Claims: Agents Options Limited

From there, the problem got worse, observed Paul Martin, manager of continuing education programs for the Independent Insurance Agents of Texas in Austin.

"It could happen anywhere, but it just caught fire here," Mr. Martin said.

It is estimated that the aftershock of the judgment has amounted to a "$150-per-year tax" on homeowners throughout the state in premium increases, said Mr. Martin.

The average insurance claim for water damage in 2000 was $2,800. By the following year it had jumped to $8,000 and insurers found they were losing a lot of money, he said.

To avoid large settlements in Texas, insurers have gone beyond what they had done in the past with water damage claims, said Mr. Martin.

Where once insurers paid for clean-up and repair, some are now footing the bill for a whole environmental remediation effort: closing off rooms, testing, moving families and cleaning everything in the home from clothes to furniture.

"Insurers had to change their loss adjustment practice" in light of Ballard, Mr. Martin pointed out. "There is no question that it had an impact on the cost of claims."

Policyholders have seen increases of anywhere between 20 and 300 percent on renewal, depending on loss history, Mr. Martin reported.

Insurers who remain in the market are increasingly moving their business into Texas Lloyds companies that are free of rate regulation.

Insurers also are restricting their underwriting to avoid the long-term clean-up peril resulting from leaky pipes or other water damage.

For small agencies this has meant the loss of their insurance company markets, Mr. Martin pointed out. Their long-time company associations in many cases have left the state, and the small agent has discovered few, if any, replacements.

"Insurance agents are pulling their hair out, working longer hours to find more surplus lines" coverage, Mr. Martin explained. "It is hard, and agents have to deliver a lot of bad news."

The biggest headache is placing new business, Mr. Martin said, because a number of carriers that have remained in Texas are not writing new business.

For the agents it is largely a matter of trying to explain the new realities to customers, who, Mr. Martin remarked, find it difficult to comprehend what is happening.

"I think folks in the industry are not muddling through the issue, but just trying to do the best they can with it," Mr. Martin said, adding that the association has posted as much information as it can on its Web site to help agents explain the situation to customers.

Texas is not alone.

Robert P. Hartwig, vice president and chief economic officer for the Insurance Information Institute in New York, said California, Florida, Arizona, Nevada, New York, Illinois and Pennsylvania are all seeing mold claims.

In an address posted on the IIIs Web site, he said Texas and California are leading the list but that claims are taking place everywhere.

In California, communication is key, said Laurie Zangwill-Infantino, president of Insurance Skills Center, headquartered in Huntington Beach.

The organization specializes in the training of insurance personnel and is currently conducting seminars on the topic of mold.

She said there is a major effort underway to educate agents and the public about the issue.

If there is any water damage, even if it is not covered because it falls under a deductible or it is a minor claim, agents are being told to advise customers to report the incident to their insurer because it could become a bigger issue within a year.

However, the "Catch-22," Ms. Zangwill-Infantino said, is that if two claims are filed during the policy period, the insurer could cancel.

"Its a tough call," she observed.

Agents also must "not overstep" their responsibility by suggesting someone to perform remediation. Instead, they should allow the insurer to handle the claim, Ms. Zangwill-Infantino noted.

Calling mold exposure the new "whip-lash" injury for litigation, Carl Hart, vice president of risk management services for BellAnderson Insurance Inc. in Kent, Wash., said building contractors need to be careful about the coverage they obtain because insurers are excluding mold under their liability coverage.

It is still available, he pointed out, but usually at extra cost as an environmental liability. To protect themselves, contractors, especially on public construction projects, are carrying the mold endorsements for about three years in case of claims filed after a project is completed.

Agents, Mr. Hart said, are reviewing policies to ensure contractors either maintain proper coverage or obtain it for specific projects. Agents are also advising their clients to review their sub-contractors' coverage to make sure that no claims come back to haunt them.

In Pennsylvania, insurers are paying close attention to the type of construction going up, said Dennis Dyorchak, president of Murray Insurance Associates in Lancaster, Pa. Carriers are putting exclusions on stucco-type finishes because they have a tendency to retain moisture and create mold issues when not done properly.

While coverage is still available and claims are light, he said the mold issue is becoming more notable.

Mr. Dyorchak remarked that, in the face of a growing problem, there is often not much an agent can do but explain the situation and tell the clients they have to pay more.

"Sometimes the only choice the client has is to know the exposure and try not to let it happen," counseled Mr. Dyorchak.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 25, 2002. Copyright 2002 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.