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Mold delineated: Insurance Services Office has introduced policy language on mold to help insurers limit exposure but retain underwriting flexibility. (Mold: Property/Casualty).

Article Excerpt
A California jury awarded $18.5 million to a homeowner in a coverage dispute with his insurance company, an award that a judge later reduced to $3 million. A construction company in Florida paid $17.3 million in a sick building and construction defects case. A Texas family initially was awarded $32 million in a jury verdict for the insurer's delay and denial of the homeowners insurance claim, although an appeals court cut the amount to $4 million.

The tie that binds these high-profile lawsuits and judgments is a four-letter word: mold.

Seemingly overnight, mold claims have proliferated in many states--a rapidly unfolding underwriting nightmare that potentially threatens insurers' claim-paying ability and is likely to crimp availability of affordable insurance for millions of homeowners and businesses.

The growing number of multimillion dollar claims, high remediation costs, and a large number of third-party and class action lawsuits--by some estimates as many as 9,000 countrywide--are making many insurers apprehensive that mold could potentially escalate into the "new asbestos" liability for the property/casualty industry.

Insurers are encountering the most mold claims in Texas, but the problem has surfaced in California, Florida, Louisiana and Alabama.

The Environmental Protection Agency estimates approximately 1,000 species of mold exist in the United States, not all of them harmful to humans. Several species, however, have been alleged to cause health problems. Studies by the Centers for Disease Control and Prevention suggest a lack of verifiable proof linking mold to serious health risks, but other experts disagree. (See "Mixing--and Separating--Mold and Myth," page 45.) Clear federal regulations or guidelines on evaluating fungal contamination and remediation are lacking. The result is a flurry of complex and expensive litigation.

New Rules

When it became apparent the industry's exposure to mold-damage claims was growing significantly, Insurance Services Office Inc. developed and filed with insurance regulators new coverage...