ISO Clarifies Mold Coverage
To The Editor:
Michael McCrackens "FC&S On Lines" column on mold ("New Homeowners Language on Mold," see NU, March 10, page 38) mentions "restrictive language" in the Insurance Services Office Inc.s homeowners policy forms. Given insurers' increasing exposure to mold claims, its important for your readers to understand what ISOs optional limited coverage endorsements for fungi, wet or dry rot, or bacteria are intended to do.
In general, ISOs personal property and liability basic policy forms do not exclude loss caused by mold and fungi that develop as the result of a peril covered under the policy. However, the policy form excludes loss caused by mold and fungi not directly related to a covered peril.
ISOs limited coverage endorsements provide $10,000 in first-party coverage and $50,000 in third-party coverage–both on an aggregate basis–for loss or damage caused by fungi, wet or dry rot, or bacteria that results from a covered peril (other than fire or lightning).
There are also increased limit options of $25,000 and $50,000 for first-party coverage and $100,000 for third-party coverage. In instances where mold develops following fire or lightning, coverage is provided up to the full policy limits.
Our limited coverage endorsements will accommodate not only direct physical damage but also any pre- and post-testing and remediation measures required in connection with fungi, wet or dry rot, or bacteria. ISO decided to include bacteria with mold because bacteria is also known to grow in the same environment as mold, and to forestall the potential for circumventing mold-related claims by alleging injury or damage from bacteria.
The term "fungi" has been newly defined to mean any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi. For liability coverage, the definition does not include any fungi that are on, or contained in, goods or products intended for consumption.
ISO developed and filed these optional limited coverage endorsements–not total exclusions–with regulators countrywide for homeowners, dwelling property and liability lines of insurance in late 2001. Regulators have been generally positive about our filings, and, to date, 38 jurisdictions have approved these limited coverage endorsements.
Insurers can use these options to cap potentially high claims and to ensure that insurance coverage at competitive prices is available in the marketplace. These options offer insurers greater underwriting flexibility in writing policies for individual insureds, which would accommodate coverage for the vast majority of mold claims.
Mold is a real and increasing exposure for most insurance lines. Because there is no clear understanding of the mold exposure, and no uniform state and federal guidelines for handling this problem, courts are currently encouraging plaintiffs and insurers to reach out-of-court settlements. Flexibility in mold coverage is an absolute necessity to avoid potentially catastrophic problems of insurer insolvency, coverage disputes and expensive litigation.
ISO believes its limited coverage endorsements can help carriers structure coverages to ensure market stability and keep insurance affordable and available in the marketplace.
Kevin B. Thompson
Senior Vice President
Insurance Services Office
Jersey City, N.J.
Reproduced from National Underwriter Edition, May 19, 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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