Insurers fail to get exclusion for mold


The Maryland Insurance Administration denied an insurance industry request to exclude mold from homeowner and commercial policies but agreed to limit the coverage for the first time.

The agency ruled late Tuesday that insurance companies may limit mold removal coverage to $15,000 and liability to $50,000. The state previously placed no limit on mold claims.

Insurance companies had pushed for a full exclusion, saying rising claims nationwide have increased premiums during the past few years.

Of particular concern to the companies are hefty court judgments won by homeowners against insurers accused of acting in bad faith in handling mold claims.

The Maryland agency held a hearing on the issue in November after receiving more than 300 requests from insurance companies to limit or exclude mold coverage.

A representative of State Farm Insurance Co., the nation's largest homeowners insurance carrier, said the company was disappointed because at least 38 other states have excluded mold coverage. She said insurance costs in Maryland could rise because of the ruling.

Insurance regulators said they tried to balance the concerns of both sides by allowing the coverage while limiting the payments.

Donna Imhoff, deputy insurance commissioner, said yesterday that there was little evidence that mold has become a major problem for insurers in Maryland. The agency is to collect claims information from insurers during the next three years to decide whether changes are needed.

"It seems possible that there is an increase [in the number of mold claims] in Maryland, but we don't have enough data to really show it," she said.

Mold claims have been growing nationwide, and the issue has pushed insurance companies to seek relief from state governments.

Insurance costs have risen rapidly during the past year, in part because of increased mold claims and stock market losses, insurers have said. And securing homeowner's coverage has become more difficult because several companies have stopped issuing new policies.

High-profile mold cases in Texas and Delaware have raised awareness of the issue. State Farm said it paid $446 million in mold claims from November 2001 through June last year. Some states, including Texas, exclude mold coverage from standard homeowners policies.

Among states that allow such claims are Wisconsin, Vermont, Connecticut, Massachusetts and Nebraska, Imhoff said.

Some experts said homeowners' lack of awareness about the need to rid their homes of moisture has allowed toxic mold to grow unchecked in some cases.

Mold experts worry that most homeowners don't realize the danger toxic mold presents to those with allergies or other conditions. Insurance companies said the remediation industry is charging too much to remove mold that poses no health threats.

"We studied very carefully the factors that we believe will affect affordability and availability of insurance in the Maryland market, and we believe a mold exclusion was important," said Kimberly Bray, a lawyer with State Farm. "We'll evaluate this decision and our options.

"Every policyholder in Maryland will pay to extend the coverage to those who want it," she said.

Imhoff, the deputy insurance commissioner, said that before regulators would approve a rise in rates, State Farm would have to prove to the agency that mold costs would increase premiums.

The average U.S. homeowner paid $553 last year for homeowner's insurance. That is expected to rise to an average of $603 this year, according to the Insurance Information Institute.

State Farm has increased the average price for its homeowner's insurance policies in Maryland by 20.3 percent, the company said last month. State Farm is issuing new policies only when the company loses a customer in Maryland.

While some lawyers and those representing property managers applauded the agency's decision, some argued that commercial costs for mold removal would outstrip the limits set by the state.

Experts said removal costs vary but can reach several thousand dollars depending on the extent of the mold.

Homeowners have won substantial judgments against insurance companies, fueling arguments for tort reform.

"I'm very pleased that they didn't just put outright exclusions on it," said Jim Caffey, executive vice president for the Maryland Multi-Housing Association Inc., which represents rental residential properties in the state and had argued against an exclusion. "And certainly, we would hope they would take a close look at tort reform."

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