Insurers All Over Are Raising Costs by Sarah Sue Ingram, Daily Press
October 9, 2002
Virginia insurers are nervously watching a rise in claims involving pernicious black mold in the Commonwealth, mindful of the havoc the fungus has wreaked in other states.
The scale of the mold problem in Virginia has not yet reached the epidemic proportions it has in other states, such as Texas. State Farm Insurance, which has more than one-fifth of the state’s homeowners’ insurance policies, didn’t even track Virginia’s mold claims as recently as a year ago. But now, “mold is on the rise,” said Mary Beth Cramer, State Farm’s spokeswoman in Charlottesville, noting that fewer than 100 mold claims have been filed in Virginia since November.
Toxic black mold, which claimants link to such things as neurological damage, memory loss and coughing up blood, has also had an almost catastrophic effect on the insurance industry in Texas. Claims in California and Florida have also surged in the past two years. Gigantic payouts from loss claims and lawsuits have forced some insurers to bail out of or drastically reduce their coverage. For example, State Farm has stopped writing new homeowners policies in Texas, and Farmers Insurance Group announced last week it would not renew the policies of 700,000 homeowners. Allstate Insurance Co. remains the only insurer writing policies among the three biggest home insurers in the Lone Star State. And after recently witnessing a spike in claims, Californians started calling the phenomenon “the Mold Rush.”
What all this means to Virginians is that a standard insurance policy still typically pays for damage from mold caused by a single, sudden water-related event (covered peril), but not damage from years of wear and tear or from undetected damage. “If the mold came as a result of a covered loss, such as a broken water pipe, your insurance policy would cover that,” Cramer explained. But if a pipe has been leaking undetected behind a wall for several years, insurance is not going to cover the mold problems that result.
The outbreak of black mold claims has been a boon to a few Hampton Roads businesses, such as Hall Construction Co., a York County restoration contractor that does repairs for direct water loss to homes and commercial buildings. “There’s mold everywhere,” said Mike Hall Jr., who has attended a week-long seminar on mold in Louisiana and a weekend course in Maryland. “It’s outside in the air you breathe. It’s inside. Very few of the kinds of mold are toxic.” He has seen his share of those, however. “If you have a direct water loss, more mold spores grow,” Hall said. “We did one in Newport News after Hurricane Bonnie. Some of the units were condemned and sat there for two weeks. You talk about mold and mildew all over the walls – it looked like wallpaper. We had to tear out all the Sheetrock and abate the mold. That was $20,000 just for mold abatement.”
Those kinds of jobs aren’t the ones staggering the insurance industry. That was for multiple units in an apartment complex. The blockbuster that hit insurers happened in Texas last June, when a jury awarded $32 million after family members charged that their insurance company, Farmers, failed to cover a claim for a water leak, which allowed toxic mold to spread through the house and destroy their health. Though huge payouts haven’t become common in Virginia, loss claims from mold are on the rise, said William L. Burke IV, who heads a firm of independent insurance adjusters in Newport News. “We’re seeing mold claims more frequently,” said Burke, president of Pete N. Marcos Agency Inc. “The problem is when folks have water damage behind the walls and they don’t know it’s going on. Or they have a claim and a vendor comes out and dries out the floor, but inside the walls, the mold is still growing. If you go in and clean and dry it properly, mold is not an issue. Still, there is little consensus on how to eradicate black mold – or on its health consequences.
Gretchen Schaefer, spokeswoman for the American Insurance Association, said the Centers for Disease Control are studying the issue but have not published conclusive evidence about the health effects of mold. But the impact on all insured homeowners can swiftly become significant. In 2001, 70 percent of the mold claims in the country came from Texas. Today, Texas homeowners pay an additional $444 a year in insurance premiums for mold coverage, compared to additional costs to Texans of just $22 a year in early 2000.
Now the spread of the problem in Texas is causing “the rest of the country is having to share the expenses,” said Jeff Johnson a Nationwide Insurance agent in Williamsburg. Nationwide, losses for the insurance industry have escalated to $41 billion last year from $31.3 billion in 1992. Katha Treanor, from the Commonwealth’s State Corporation Commission, said the insurance industry was already getting tighter before the mold issue and the Sept. 11, 2001, terrorist attacks. “Underwriting guidelines have become stricter,” Treanor said. “They’re taking a closer look at water-loss claims.” Cramer, State Farm’s Virginia spokeswoman, said she was not surprised that her company stopped writing new homeowners policies in Texas – given the amount of money that was paid out. “If you keep losing money, you have to stop that loss of dollars,” she said. “Our first responsibility is to our current policyholders.”