Mold: Insurance Industry Response

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Industry response to mold

We all know that mold is having a real impact on insurance these days. The big question now is how the insurance industry is going to respond to the mold issue.

There are four possible approaches:

Exclude mold losses entirely

Put a limitation in the policy for mold as to a maximum payout

Attempt to deny claims based on present policy language

Pay claims based on present policy language

Insurers are running CLUE reports on homes and homeowners in response to the mold issue. About 600 insurers, representing about 90% of the homeowner market, feed into a national database called the Comprehensive Loss Underwriting Exchange, or CLUE. The CLUE database, maintained by the Georgia firm ChoicePoint Inc., contains about 40 million claims records on homes in every state.

The records show insurance claims for the past five years for damage caused by, among other things, water, wind or fire. According to ChoicePoint spokesman Chuck Jones, 30-40% of the homes in America have a loss history. A bad report can delay escrow when it's time to sell a house, and that has real estate agents in tight insurance markets up in arms about CLUE.

Some real estate transactions are being cancelled as the buyer is unable to find homeowners insurance on a home with prior water damage claims.

In light of all this, you may want to advise prospective home buyers who call for a homeowner's insurance quote that they might want to make the sale contingent upon the seller providing a CLUE report on the property.

(The CLUE report can be obtained from ChoicePoint. As of 2003, it's $12.95 for an electronic copy or $9 for a mailed copy. You can contact the company online at www.choicetrust.com or call 866-527-2600.)

Fearing an explosion in mold claims, most insurers have tried to limit their coverage. In California, more than 130 insurers have petitioned the state's Department of Insurance since the Ballard case, asking for permission to stop covering mold claims or at least to limit the amount of money they can pay on the claims.

Insurers have successfully lobbied 35 states to allow insurers to exclude coverage for loss caused by mold and wet or dry rot, unless the conditions result from a covered peril.

The next step, according to the Insurance Services Office, which collects data for the industry, is to push for new limitations on homeowner policies, such as a $10,000 per year cap on losses caused by wet or dry rot or bacteria, including the cost of tearing out and replacing any part of the property to gain access to the mold.

In this course, we'll examine both property and liability concerns around the mold issue and see how these concerns might be addressed.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.