Mold A New Crisis for Insurers The problem Property exclusions Why insurers are involved Mold cases The cost of mold claims Why mold problems are developing Role of the insurance adjuster Future 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 Exclusions Homeowners 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 rot Coverage 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 Involved Homeowners 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 promptly Homeowners Policy Section 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 Cases Ballard v. Farmers Insurance (Texas) Water damage to floor of 22 room house Farmers delayed settlement Toxic mold developed Family developed health problems House eventually had to be bulldozed and rebuilt $32 million verdict $6 million actual damages 5 million mental anguish 12 million punitive damages 9 million legal fees Ed McMahon lawsuit for $20 million

Mold Cases (2) Florida courthouse New York City apartment complex Developed mold problems due to construction Jury awarded over $40 million in personal injury claims Over 200 Workers’ Compensation claims New York City apartment complex Tenants have filed suit for $10 billion Erin Brockovich case Used settlement from Pacific Gas & Electric to buy dream home in Agoura Hills She and her daughter developed illnesses She 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