Toxic Mold – A Puzzling Problem for the Insurance Industry
Thursday, December 8, 2011
Watch out!
Mold is lurking in your homes, in offices, in plants, factories, and potentially anywhere there is moisture. Increasingly, it can be found in courtrooms too, as a wave of litigation spreads like wildfire across the country.
Rather, it is the contagion of mold-related property and casualty claims and lawsuits that have spread across the U.S. Mold comes in many forms, some harmless to humans and others harmful, though to what degree remains, in some cases, a source of controversy. To many, it would seem as though mold was an invention of the 21st century. Rather, it is the contagion of mold-related property, casualty claims, and lawsuits that have spread across the U.S. much more rapidly than the mold itself. All of this makes for a costly epidemic for the insurance industry and for you. For the uninitiated, here’s a mold primer…
Mold requires three basic conditions to thrive:
- Warmth (typically above 70 degrees Fahrenheit)
- A host environment (any porous surface or material)
- Moisture (in any form)
As might be expected, mold litigation similarly thrives in environments where higher temperatures are prevalent. Texas has produced the largest single verdict to date ($32 million reduced to $4 million on appeal) and more lawsuits than any other state. Predictably, states like Florida, California, Hawaii, and Louisiana are not far behind. However, warm climates are not the only culprits and even cold-weather states are not immune to outbreaks. Roy Harris, in a recent article in CFO magazine, cites so-called “tight buildings”, in vogue since the energy crisis of the 1970s, as a source of the problem because their restricted airflow, while preventing mold intrusion from the outside, prevents moisture release.
Toxic Mold Litigation
The spread of toxic mold litigation and the observations of the insurance industry pundits hailing mold as “the next asbestos” have inspired insurers to try to get a handle on the toxic mold issue. Unfortunately, for clients seeking coverage for mold-related claims right now, the news is not good. Insurers have filed exclusions for many homeowners and commercial policies to eliminate or drastically reduce the amount of coverage available for the exposure. On the more promising side, insurers are slowly coming to grips with the coverage. If history is any indication, once there is a belief that the exposures can be adequately quantified, assessed, and contained, coverage should broaden and prices will rise or sink to appropriate levels. Naturally, the situation will vary from state to state and the coverage line, but if you are looking for coverage for mold right now, be prepared for expensive, but limited coverage. If history is any indication, once there is a belief that the exposures can be adequately quantified, assessed, and contained, coverage should broaden and prices will rise or sink to appropriate levels.
What may delay the industry from fully assessing the exposure is the lack of cohesive data around mold as a source of claims activity. Mold cuts across so many different insurance product lines, from workers’ compensation to professional liability. Insurer data doesn’t track the cause of claims across all these product lines. The result is a bit of a black hole for underwriters and actuaries.
While claims against homeowners’ policies and commercial packages have been at the forefront, the issue affects realtors, property inspectors, appraisers, product manufacturers, architects, engineers, contractors, landlords, and a myriad of other types of businesses drawn into the flood of litigation by plaintiffs.
It may take years to track the claims data in a meaningful fashion, and by then the next “flavor of the month” in litigation may hit, and toxic mold fears may gradually or abruptly fade away. In the meantime, risk management is the key, particularly in environments where mold flourishes. Whether you are a homeowner, business owner, or both it makes sense to monitor HVAC systems for sources of moisture, invest in a dehumidifier if conditions warrant it, and take care to investigate and remedy any water damage quickly and thoroughly. If it means ripping up carpets or replacing old, rusty pipes – do it. It will be well worth the investment. Last but not least, consult your insurance company for your homeowners and business insurance options.
