Panel to address problem from legal,
architectural and insurance viewpoints
"How the insurance industry is going to deal with the mold problem is an unknown. The whole issue is still developing."
--Susan Harker, Underwriting Manager, Insight Insurance Services, Inc.
Homeowners insurance has traditionally been considered one of the less volatile lines of business in the insurance industry. It is true that homeowners who reside in flood-prone areas or along coastlines pay more for coverage and, in some cases, have to resort to residual markets to obtain insurance. This has caused considerable controversy ever since Hurricane Andrew caused massive destruction in 1992.
Also, in the wake of September 11, insurers have had to raise the premiums they charge for homeowners insurance pretty much across the board; and that has sometimes raised the ire of buyers who had become used to the soft market years of the 1990s. But, as a line of business, homeowners insurance has been relatively stable over the years. Also, the majority of homeowners have become accustomed to homeowners insurance premium increases, which have been on the rise since 1995, albeit not to extent that they are rising now.
However, there could be some drastic changes in the homeowners insurance marketplace, primarily because of "mold" that is turning up in houses all over the country. So important is the issue that there will be a special panel on mold at this year's annual PLUS meeting in Orlando.
There have been some recent, high-profile lawsuits related to mold damage and, in some states, homeowners premiums have soared. Insurers are reconsidering how they will write homeowners in the future because of the problem of mold litigation.
One case involved a Texas family whose 11,000-square foot mansion was destroyed by mold damage. In addition, family members alleged that they were coughing up blood as the result of exposure to the substance. The family sued Farmers Insurance Group, saying that the insurer had mishandled their mold claim. The jury agreed, awarding the family $32 million in damages. In another case, television celebrity Ed McMahon sued his insurance company for $20 million after alleging that mold destroyed his California home.
The Independent Insurance Agents and Brokers of America (IIABA) estimates that about 30% of new homes could experience major mold problems. "It's a new phenomenon based on airtight construction, which allows the mold to grow," says Madelyn Flannagan, an IIABA spokesperson. "If you've got this kind of construction you can expect to pay substantially higher premiums, or have mold excluded from the policy, or you may not be able to get insurance from the company of your choice."
If the current situation in Texas is any example, those "substantially higher premiums" could be increases as high as 500% to 600%. States such as California and New Mexico also are experiencing huge rate rises.
Usually, damage from mold or mildew is not covered under the standard homeowners insurance policy unless it is the result of a covered peril, such as water from a burst pipe. Mold resulting from excessive humidity and condensation are not covered because it is considered the responsibility of the homeowners to clean the mold up before it becomes a serious problem. The fear on the part of the insurance industry is that regulators or court rulings might erode this distinction.
What has all this to do with professional liability? That's what the PLUS panel is going to explore, according to Susan Harker, underwriting manager for Geneva, Illinois-based Insight Insurance Services, Inc. "We will have representatives from the insurance and reinsurance industries on the panel," she says. "In addition, we will have a representative from the legal profession who will talk about the legal implications of the mold problem, and an architect who will discuss housing design and what can be done to mitigate the mold problem."
Harker says that the overall insurance marketplace is a tough one at the moment. As the result of years of soft market conditions and, of course, September 11, reinsurers have tightened up their terms and conditions and raised premiums. "Of course, when that happens, primary companies have to follow suit. We're having a reinsurer on the panel who is bringing along a sample mold endorsement so that we can talk about it and analyze it," she continues.
Harker sums up the mold situation this way: "How the insurance industry is going to deal with the mold problem is an unknown. The whole issue is still developing. We don't as yet know how it will affect professional liability. That's what we intend to find out." *