MoldA New Crisis for Insurers

The problemProperty exclusionsWhy insurers are involvedMold casesThe cost of mold claimsWhy mold problems are developingRole of the insurance adjusterFuture developments

The Problem• Mold is everywhere• 100,000 types of mold• Most mold is not harmful

– Blue cheese– Penicillin

• Toxic mold– Stachybotrys chartarum

• Potential health effects– Internal bleeding– Skin irritation– Respiratory problems– Chronic fatigue

Property ExclusionsHomeowners Policy

Coverage A Exclusion (pages 672-3)We do not insure, however, for loss:e. Any of the following:

(3) Smog, rust or other corrosion, mold, wet or dry rotCoverage C – Named Perils

Does not include mold Section I Exclusions (pages 674-5)

Water Damage, meaning:(1) Flood, surface waters, etc.(2) Water which backs up through sewers, etc.(3)Water below the surface of the ground, etc.

Why Insurers are InvolvedHomeowners Policy

Coverage A (Dwelling) does not exclude water damage from broken pipes

Coverage C (Personal Property) covers (page 674):

12. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance

Why Insurers are Involved (2)

Water damage from frozen or broken water pipes is covered

If insurer refuses to pay for the damage caused by a covered water leak, it could be liable for subsequent damage

Additional Considerations

• Losses must occur during the policy period• Losses must be reported promptlyHomeowners PolicySection I Conditions (page 675)

Your Duties After Loss. In case of a loss to covered property, you must see that the following are done:a. Give prompt notice to us or our agent

Mold CasesBallard v. Farmers Insurance (Texas)

Water damage to floor of 22 room houseFarmers delayed settlementToxic mold developedFamily developed health problemsHouse eventually had to be bulldozed and rebuilt$32 million verdict

$6 million actual damages 5 million mental anguish12 million punitive damages 9 million legal fees

Ed McMahon lawsuit for $20 million

Mold Cases (2)Florida courthouse

Developed mold problems due to constructionJury awarded over $40 million in personal injury claimsOver 200 Workers’ Compensation claims

New York City apartment complexTenants have filed suit for $10 billion

Erin Brockovich caseUsed settlement from Pacific Gas & Electric to buy dream home in Agoura HillsShe and her daughter developed illnessesShe discovered the home was infested with toxic mold

The Cost of Mold Claims

• Farmers has paid $400 million in Texas• Allstate has paid $180 million in Texas• Insurance companies are raising rates 30-40%• Remediation and removal of mold is 10 times as

expensive a regular removal and replacement• Average water leak claim in Texas in 1995 $4000• Currently $30,000-40,000

Why Mold Problems are Developing

• New construction methods– Energy efficient homes with little air circulation– Faulty construction– New building materials

• Assumed to be primarily a problem in humid climates

• Increasing awareness of problem• Trial lawyers advertising

– “Mold is gold”

Role of the Adjuster

• Adjuster must identify any covered damage

• If mold is present, it would be covered unless adjuster can document that was present before the loss or not caused by the loss

• Important to inspect water damage claims within 48 hours

Future Developments

• Insurers are trying to exclude or cap mold claims

• Insurers are declining to write new policies on homes that have suffered water damage

• Contractors are being sued over construction • Contractors are having problems obtaining

liability coverage• Home sales could be affected