Mold and Insurance:Calming the Hysteria

David Golden

National Association of Independent Insurers

Everyone’s First Question:

• Maybe.

• It depends.

• Oh, good grief!

Is it covered?

Why can’t you say yes or no?

• Mold, by itself, was never intended as a covered cause of loss.

• In fact, it is usually excluded.

• The $32 million question: was the mold part of a covered loss?

Start with property coverage

Mold as part of a covered loss?

• A sudden and accidental loss

• A common sense approach

• Each claim must be evaluated for coverage

• Example: mold resulting from water used to extinguish a fire

Why isn’t the mere existence of mold covered?

• Insurance provides financial protection against fortuitous events.

• Fortuitous = sudden, accidental, unexpected

• Insurance is not a maintenance contract.

• Maintenance = expected, prevention

• Maintenance problems are not fortuitous.

• This is not health insurance.

Why isn’t maintenance covered?

• Not cost-effective to fund maintenance through insurance– No benefit to consumer

• More efficient to plan and budget

• Maintenance is predictable

• Retain incentive for property owner to maintain the property

Mold rarely becomes a problem in well-built and well-maintained

buildings, but...

• If small leaks are not repaired…

• If roofing materials wear and come loose…

• If HVAC systems don’t run properly…

• If windows aren’t kept caulked and painted to seal out water…

• If there isn’t enough ventilation…

Or

What can I be sued for today?

So much for Property, what about Liability?

So many lawsuits, so little time

• Home/commercial building seller:– Failure to disclose

• Home/commercial building lessor– Failure to disclose– Failure to properly maintain– Discrimination

• Real estate agent/broker:– Knowledge of above

So many lawsuits, so little time

• Business owner - sick building syndrome– Customers– Contract labor– Subtenants– Employee work comp claims (not lawsuits)

So many lawsuits, so little time

• Water damage remediation contractor - failure to properly repair

• Building contractor - construction defects

• Repair/renovation contractor - construction defects

• Architects/Engineers - inappropriate design/specifications

So many lawsuits, so little time

• Healthcare professionals - failure to diagnose correctly– No proof of causal connections– Reactions vary greatly, even among family

members

Why has mold suddenly become such a big issue?

• Mold loves modern building materials

• A new income source for plaintiff bar (where asbestos and construction defect experience would apply)– Lack of scientific information (focus on

emotion instead)– Profit from fear and hype (silicone breast

implants)

Why has mold suddenly become such a big issue?

• TV Sensationalism - memorable, emotional visuals from rare, extreme cases– Rare, large mold infestations in/on walls– Controlled-burn wrecking of a house– The tear-filled family

Why has mold suddenly become such a big issue?

• Print media sensationalism– “Haunted by Mold”– “Beware: Toxic Mold”– “Insurer Must Pay Family $32 Million”– “Will Toxic Mold be the Next Asbestos?”– “What Will Mold Cost Us?”

Emergence of the “Mold Economy”

• Profiteers always have the “easy” solution

• Testing companies - do it yourself tests

Mold Economy Advertising

• Do It Yourself Toxic Mold and Mildew Test Kits • Our simple, do-it-yourself test identifies dangerous molds &

mildew in 48 hours. Optional lab analysis is available to indicate the exact count and type of mold & mildew present.

•1 mold test kit is needed per room you want to test.

Each kit includes easy-to-follow instructions.

$ 9.95 per mold test kit

• From www.statremodeling.com

Emergence of the “Mold Economy”

• Profiteers always have the “easy” solution

• Testing companies - do it yourself tests

• Mold remediation “experts” by virtue of putting a magnetic sign on the truck

• Radon product becomes mold product

Mold Economy Advertising

• The RadonSeal Solution• RadonSeal is very effective in getting rid of

molds and mildew, dust mites, and other biological contaminants in homes. By deep-sealing the concrete in your basement or foundation slab with RadonSeal, you will eliminate the largest source of moisture and high humidity in your home.

• From www.radonseal.com

Emergence of the “Mold Economy”

• Profiteers always have the “easy” solution

• Testing companies - do it yourself tests

• Mold remediation “experts” by virtue of putting a magnetic sign on the truck

• Radon product becomes mold product• “Public” insurance adjusters • Attorneys specializing in mold

Mold Economy Advertising

From www.toxicmoldinfocenter.com

Profiteers?

• Texas attorney general investigating business practices in Corpus Christi area

• Average cost for mold claims per policyholder in Corpus Christi is more than six times the Texas average

Frequent Responses: Fear and Opportunity

• “I don’t want mold to make my family sick. I need to make a claim.”

• “This could cost money. I need to make a claim.”

• “I want to hit the lottery, too. I think I’ll sue. After all, I have nothing to lose.”

Mold Messages Not Often Heard

• Mold is largely controllable

• Every building has mold - naturally occurring organism

• Outdoor environment has mold

• Fix a leak quickly and prevent mold problems

Mold Messages Not Often Heard

• Keep the building dry and prevent mold problems

• Most mold is not harmful

• Most active mold can be killed with a bleach solution

What About Standards?

• California law - Health Dept. to study exposure standards

• New York bill is similar

• Little scientific data available

• Individual reactions vary greatly

• Special risk populations would require zero tolerance standard

What About Standards?

• No one knows how much mold is too much

• Standards would lead to preventive testing to prove a building was within standard

• Expensive

• Testing can be inconclusive

• Standards can be used to imply liability

Insurance Industry Response:Hard to Grasp - Many Areas

• Claim handling

• Homeowner property and liability

• Commercial Property

• General Liability

• Workers Compensation

• Yes, even Auto!

• Loss control/risk management

Insurance Industry Response:Hard to Grasp - Actuarially

• No “mold claim” statistics

• Most claims, not all, classed as– Water damage for property– Various for liability

• No “mold premium” collected

• These things may change

Insurance Industry Response:Changes

• Coverage clarification– vary by company and line of coverage– Exclusions, buybacks, limitations

• Claim handling - additional training– Adjusting, working with remediators

• Legislative and regulatory

• Education

Insurance Industry Response:Actuarial

• Estimates will have to suffice for now

• Include insurance responses to mold issue

• Use water damage and construction defects loss statistics for some guidance

• Take into account form changes and changes in claim handling

Education Can Help

• Reduce the hysteria

• Need good scientific information

• Prevention! Prevention! Prevention!

• Remember radon

• Avoid asbestos

Mold: An Old Problem, Yet New

• Book of Leviticus - 3,500 years ago

• Building materials and methods

• Diagnostic techniques

• “Mold economy”

• New claim handling techniques

• Education - reduce the hype & hysteria

Mold and the Insurance Industry

Mold can and should become another Radon, not the next Asbestos.