Groups Urge Regulatory Constraint at Fla. Mold Hearings

Both the American Insurance Association (AIA) and the Alliance of American Insurers urged Florida policyholders, insurers, and regulators to take a rational approach to mold issues at a recent hearing held by the constraint by the Florida Department of Insurance.

The hearing represents the state’s first step in determining an appropriate regulatory response to mold and its effects on the insurance industry and insurance consumers.

The AIA asserted that the mold issue can have very adverse effects on the cost of insurance and the solvency of insurance companies if not addressed responsibly and rationally.

“Mold is now and always has been a fact of life in Florida, with literally thousands of strains of mold present throughout the state,” stated Eric Goldberg, AIA assistant general counsel.” In the current political environment, however, the typical property insurance policy is being called upon to cover mold remediation that is not a consequence of a covered loss. Property insurance is not a homeowners warranty; its purpose is to provide protection against sudden and accidental loss, not serve as a home service contract.”

The Alliance warned that the combination of a lack of scientific knowledge about the health effects of mold and an opportunistic trial bar could be a recipe for disaster for Florida’s insurance market.

“The lack of hard, laboratory science on unacceptable levels of mold, or whether or not mold is harmful in the first place, has opened the door for charlatans out to make a buck by fanning the flames of public hysteria about ‘toxic’ mold,” testified William Stander, government affairs representative for the Alliance’s Southeast Region.

“Add to this Florida’s aggressive, opportunistic plaintiffs’ trial bar and the potential for expensive class actions in the commercial liability arena, and the potential for catastrophe in the state’s insurance market clearly exists,” he added.

The AIA concurred, pointing out that many policyholders have false expectations about what their policies cover, and the lack of solid scientific data on mold toxicity and causation of ailments has heightened consumer anxiety. “Adding further to the uncertainties surrounding mold, there are no generally accepted standards for mold remediation, no licensing of remediation contractors and no state or federal agency testing services for mold samples,” said Goldberg.

In his testimony, Stander noted that mold is generally not a cause for concern, and while some individuals may have allergic-like reactions to some molds in some situations, no official health standards exist regarding unacceptable levels. “As a result, the mold-related claims issue is particularly susceptible to junk science rather than hard, laboratory science.”

He stated that this scientific uncertainty and a litigious trial bar “could combine to severely damage Florida’s insurance markets. Texas, for example has experienced a major market disruption, with many insurers either refusing to write new business or leaving the state altogether because of the massive number of costly mold claims. As a result, Texas now has the highest homeowners’ insurance rates in the nation.

“Contributing to the high claims frequency in Texas was the state’s use of a policy that provided the most expansive coverage for water damage in the nation. Texas’s insurance commissioner has recognized this problem and recently took steps to allow differing policies, but restrictive coverage mandates clearly contributed to Texas’s homeowners insurance problems.”

Stander also addressed the commercial liability area, “where mold-related problems largely arise as construction defect claims.” Compounding the problem for insurers is the fact that most construction defect lawsuits to date involve multi-family units, such as condominiums, where the opportunity to enlist multiple plaintiffs fosters costly class-action lawsuits.

“Indeed, the trial bar has found that having a large number of plaintiffs and getting the lawsuit certified as a class action can dramatically increase its payout,” Stander said.

He described one such result in which nearly 5,000 California homeowners will recover about $8,000 each, while two law firms will split more than $10 million. “Florida, with its high density of multi-family dwellings, seems an especially lucrative target,” Stander said.

“The Alliance believes that choice is a critical factor in the establishment of a competitive environment. Therefore, we urge the department to provide insurers with the maximum amount of flexibility in coverage offerings. This, in turn, will provide consumers with the freedom to choose the coverage and price that is right for them. Mandated mold coverage, on the other hand, will put new and potentially devastating pressure on Florida’s insurance markets. Already threatened by hurricanes, tornadoes and sinkholes, this state doesn’t need any more catastrophes,” Stander concluded.

The AIA noted that the current lack of knowledge on the subject of mold, coupled with the lack of standards in dealing with it, work together to put insurers in an untenable position. The association noted some of the problems associated with mold that are systemic and seemingly unavoidable in some cases:

* Mold grows quickly, but the most likely places for growth are in locations not easily or normally accessible, so it may not be found for some time;

* Once mold is discovered, it is often difficult to fairly ascertain whether remediation measures are covered under a typical insurance policy – in many if not most instances, determination of causation is at best uncertain;

* Given the lack of standards, insurers are not certain when remediation is necessary and, even when necessary, how it should be done;

* It is not at all uncommon to have mold occur as a result of faulty repairs done at the direction of the property owner (which ostensibly would not be covered under a typical property insurance policy); and,

* Property insurance policies require an owner to mitigate damages – yet application of this requirement is problematic given the difficulty in discovering the problem itself.

“This is a very complex issue, and right now there do not seem to be clear answers. Given the lack of scientific standards and the fact-determination problems inherent in almost every claim, it is incumbent upon policyholders, insurers and the Department of Insurance to study this problem very carefully before acting on a solution,” concluded AIA’s Goldberg.

Topics Florida Carriers Texas Legislation Homeowners Property Market