NAII Says Calif. Mold Legislation Is Wrong

California state senators advanced legislation May 23 that would forbid insurance companies from restricting mold coverage in property and liability policies.

In a 21-11 vote, the California Senate passed Senate Bill 1763, which would prevent insurers from excluding mold losses when such claims are triggered by a covered peril-such as a fire or heavy water damage. The bill would require property or liability insurance policies issued or renewed on or after Jan. 1, 2003 to cover mold as an “ensuing loss.”

“It is a disappointment that the Senate approved a bill which could worsen the already troubled marketplace for homeowners insurers,” Sam Sorich, general counsel and senior vice president of the National Association of Independent Insurers (NAII), said. “With no ability to limit the clean-up or investigation costs involving mold claims, insurance companies can’t predict their losses, which may make it more difficult for them to stay in the market.”

Traditionally, insurance companies have been paying to remediate mold that ensues from fire or water damage. However, because of the widespread consumer frenzy and concerns in addition to threats of being sued over mold damage in the last year, companies have been filing exclusions from covering mold in such circumstances, Sorich said.

SB 1763 would continue to allow an insurer to exclude mold as a non-covered loss as long as the exclusion is clearly stated. It also would require insurers to provide notices whenever mold is likely to be present in a claim situation.

Great uncertainty exists about the risk and remediation of molds, making it difficult for insurers to assess the risk posed by mold damage, according to the NAII. As a result, some insurers exclude mold coverage from their policies or cap coverage limits, allowing insurers to stay in the market and offer premiums affordable to their customers, Sorich commented.

“Mandated coverage creates the potential for insurance availability and affordability problems,” Sorich said. “The coverage mandate in SB 1763 would prevent insurers from managing their risk of loss, and has the potential for driving insurers out of the California market as well as driving up the insurance premiums for consumers,” Sorich added.

Topics California Carriers Legislation