If you find it harder to get a homeowner's policy next month, you
could blame mold.
State Farm, the largest insurer in California representing 22
percent of the market, decided last week that it would no longer
write new homeowner policies in the state starting May 1. While
that's partly due to past losses, it's also in large part due to the
rising cost of mold-related claims.
Across the country mold has become a toxic problem, with
homeowners, renters and building tenants alleging that a severe form
of the fungus in their homes or offices is causing symptoms from
allergies to lung bleeding.
For insurers, the issue threatens to become their next asbestos:
a health hazard they'd never anticipated that could potentially cost
billions of dollars in both claims and lawsuits.
For consumers, the issue is likely to increase the cost of
homeowners insurance, already poised to go up as much as 25 percent
for reasons related to past underpricing and rising construction
costs. In Texas, which has had the most claims increases in the
nation, rates have already nearly doubled for many homeowners.
In California, where the rise in claims comes second only to
Texas, insurers are scrambling to stem their losses from mold.
Currently, most insurers in the state cover mold cleanup if it is
part of a claim for sudden and accidental water damage, such as a
pipe bursting. Most insurers exclude mold if it's not part of a
water damage claim, such as mold that has grown over years.
Allstate, the third-largest insurer in the state, in January capped
the amount it will pay for mold cleanup at $5,000, even if it's part
of a water-damage claim.
More than 200 insurers have now applied to the state's insurance
department for permission to further restrict mold coverage, leaving
out mold caused by faulty maintenance by the homeowner or even in
some cases mold from water damage.
A bill making its way through the state legislature would
essentially require insurers to keep the level of coverage that's
now standard, and forbid many requested restrictions. The bill,
despised by the insurance industry, passed the Senate insurance
committee Monday and now must be approved by the Senate and Assembly
to become law.
State Farm says its moratorium on new policies is temporary but
indefinite. A spokesman said it is not a reaction to the proposed
legislation but aims to avoid further losses until it rebuilds a
financial cushion. State Farm has 1.5 million home policyholders in
The reason for the explosion of mold claims is a matter of bitter
debate. Some consumer lawyers and activists blame certain new
construction materials such as stucco, mold-friendly glue for wood
floors, recycled newspaper used as a backing for sheetrock, and
impermeable vinyl wallpaper. Some claim that newer energy-efficient
buildings are airtight, which doesn't allow water to dry.
Insurers say consumer lawyers have invented an epidemic and have
exploited generous insurance laws in states like Texas, where
insurers until recently would cover even costs from longstanding
Still, mold has its high-profile victims, including entertainer
Ed McMahon -- who blames the fungus for sickening his family and
killing his dog Muffin -- and Erin Brockovich, the famous legal
assistant who helped win hundreds of millions of dollars from
PG&E over environmental contamination.
Water-damage claims involving mold are soaring.
Farmers Insurance, the second-largest insurer, is getting 800
such claims a month in California, up from 200 earlier in the year.
State Farm said the average water-damage claim for the region that
includes Silicon Valley was recently nearly $3,400, up from $2,300
Mold is an especially expensive problem for insurers for many
reasons. For one, they are more often evacuating homeowners during
mold cleanup and paying for temporary housing to avoid allegations
of endangering health. Also, contractors who don't want to be sued
over their own work sometimes won't repair water-damaged homes
unless their work is inspected by so-called industrial hygienists.
Such inspections can cost $3,000 to $5,000 apiece, said Robert
Hartwig, chief economist for the Insurance Information
``The expenses associated with adjusting the claim can outstrip
the cost of paying the claim itself,'' said Hartwig.
Emanuel Enes, a San Jose claims team manager for State Farm, said
he's seeing a marked increase in public awareness about mold,
including some paranoia. For some policyholders who discover mold,
the fungus is blamed for ``every ache and pain, even though they
might have had it before the damage.''
Already, mold is contributing to skyrocketing insurance rates for
home and apartment or condo builders, who sometimes get sued years
down for allegedly faulty construction that causes mold. Some
insurance brokers report that liability insurance costs for
construction clients have gone up 500 percent or more, while others
have difficulty finding coverage at all.
The mold surge comes as California homeowners are already facing
increased homeowners rates of 5 percent to nearly 25 percent.
Allstate has recently requested a 22 percent increase in homeowners