I.I.I. President Says Mold Reaching Crisis Proportions in Texas
Gordon Stewart, president of the Insurance Information Institute (I.I.I.), said in Congressional testimony July 18 that mold has become a major factor in rising homeowners costs, reaching crisis proportions in Texas, and a serious problem in several other states, including California, Florida, Arizona, and Nevada.
Testifying before the House Financial Services Subcommittee on Oversight and Investigations and Subcommittee on Housing and Community Opportunity, Stewart said that up until the last few years, insurance adjusters routinely handled mold in the context of claims for water damage from a “sudden and accidental” cause, which is the only circumstance under which mold is covered in the standard homeowners contract. “For many years mold damage has been specifically excluded from standard homeowners insurance policies, unless it is the result of a covered peril such as a burst pipe.”
Companies face a growing number of court cases with accusations of severe and permanent health damage, without any peer-reviewed scientific research that establishes a link between mold and serious health consequences, he said. “Health claims are being brought under property policies that were never intended to cover them, instead of health insurance,” Stewart said. “Fearing bad faith lawsuits, insurers often agree to expensive tests and remediation procedures. Finally, there is no accepted body of research on the relation, if any, among building materials, construction technologies, and mold.”
Stewart added that the simple presence of mold, like termites and damage from vermin, is considered a home maintenance issue and not covered by insurance. Nevertheless, the traditional homeowners policy contract and certain commercial insurance policies are now being called upon to deal with a surge of claims for mold damage and related health problems for which there is no coverage and no premium has been collected.
“In homeowners insurance, large jury awards, adverse judicial and regulatory decisions and fear of litigation have led to uncertainty about the longstanding coverage exclusion for mold. The result is that insurance has become more expensive and more restrictive, with insurers being forced to pull back from markets in many states,” he said.
“Mold claims in Texas rose 1,306 percent between the first quarter of 2001 and the fourth quarter of 2002,” Stewart commented. “The frequency of mold claims per 1,000 policyholders rose 1,286 percent during the same period. In Texas, mold claims costs rose 560 percent between 2000 and 2001.”
According to Stewart, the surge in the frequency and cost of mold claims in Texas cannot be explained by changes in the weather, nor can it be explained by population growth or expansion in the stock of housing.
“What has changed is the legal climate dominated by some who see mold as a huge moneymaker and use mass marketing and media to advertise for clients and class action participants, as well as to instill fear in the public,” he said. “The anxiety that follows the publicity has been exploited by so-called mold experts, testers and remediators who have joined in the money chase and who often target vulnerable populations.”
Partly as a result of the uncertainty around mold, the cost of homeowners insurance nationally is expected to rise by close to 10 percent this year on average, but some states are seeing increases far in excess of that amount, Stewart confirmed. A number of insurers are implementing or seeking rate increases of up to 25 percent in Texas and California, the two states that account for most mold claims today. Rate increases in the 10 to 15 percent range are common elsewhere.