Most Insurance Won't Cover Mold Damage

Add mold to the growing list of household hazards that insurers won't cover.

After suffering steep losses relating to mold-related claims between 2001 and 2003, property and casualty insurers moved quickly to restrict coverage for mold damage in states such as California, Texas and Florida, where heat and humidity create an ideal breeding ground for mold.

Now those coverage cutbacks are spreading to the Northeast, Midwest and other areas of the U.S. More consumers are receiving notices from their insurers informing them that mold is being excluded from standard policies, unless the damage is a direct result of a water-related events that are covered under their policies. Currently, some 44 states have such exclusions, according to the Insurance Information Institute, a trade group based in New York.

As a result, homeowners must decide whether to pay extra for mold insurance "riders" that provide additional coverage, or take responsibility for preventing the spread of mold in their homes on their own. This week, I look at some things homeowners can do now to limit their exposure to mold-related damage.

Keeping Mold at Bay

Amid the confusion, many homeowners may take the "better safe than sorry" route and sign up for additional coverage to protect against mold. But generally that's a bad idea. Mold riders on standard insurance policies can be expensive, and insurers typically set low ceilings for claims.

Wayne Holdredge, a principal at Tillinghast, the insurance-consulting arm of Towers Perrin in St. Louis, says the cost of additional coverage for mold damage ranges widely, depending on the insurer and the homeowner's location.

"I've seen costs as low as $50 for an additional rider up to $1,400 or more with [fees]," he says.

Coverage caps also vary, but generally claims are limited to a maximum of $25,000. But that's still far shy of the mold-cleanup claims in Texas that averaged $35,000 in 2003.

Instead of paying extra for limited mold protection, Mike Kuhn, a veteran home inspector and co-author of the "Idiot's Guide to Home Inspections," says it's smarter to spend your time and money on mold prevention. The following are steps to prevent mold in your home and a list of detection and prevention techniques to keep mold at bay.

Forget about mold insurance riders. Instead, spend some time being vigilant in performing preventative maintenance and inspecting damp areas of your home for the first sign of infestation. Here are a few steps to follow:

  • Repair water leaks immediately. Mold can form in as little as 24 hours. Dry exposed area thoroughly;
  • Uses your senses: A damp, musty smell or particles in the air that cause your eyes to water are signs of a mold problem. Look for water stains on sheet rock or discolored ceilings or floor boards;
  • Control water and moisture in your home by keeping indoor humidity below 60%. An air conditioner or central-air cooling system can help;
  • Keep exhaust vents (or windows) open in bathrooms and kitchens, ensure clothes-dryer exhausts are clear and keep gutters and drains clean of debris;
  • Drainage and landscaping should slope away from foundations;
  • If condensation forms typically often on windows, walls, or pipes, install a de-humidifier;
  • An inexpensive leak-detection system (less than $25) will set off an alarm when it senses rising water.
  • If you detect mold growing, clean it up immediately. Scrub mold off hard surfaces with detergent and water, and dry the area completely. There is more info on prevention and cleanup of mold at the EPA's Web site (

If you're uncertain whether you have a mold problem, you may be tempted to hire an air-quality expert to test your home for contaminants. But while air-quality tests that cost between $500 and $600 can sample the air for mold, the tests often can be misleading, says Mr. Kuhn.

"Our industry shies away from [air testing] because what you see may not represent what's going on elsewhere in the house," he says. "That test may not address the issues in other inaccessible places in the home, such as an attic or crawl space," so an all-clear reading "can give a false sense of security to the homeowners."

Your best bet is to routinely do some thorough investigative work on your own, checking and re-checking sources for potential leaks or dampness throughout your home. If you find that mold is a problem and you need professional help removing it, do some due diligence first to ensure you get a competent, experienced removal expert.

There are no federal or state guidelines for certifying or licensing mold remediators because the Environmental Protection Agency and the Centers for Disease Control and Prevention are still struggling to define what levels of mold contamination are dangerous.

'Black Gold Rush'

In the past, protection from mold never was explicitly detailed in standard insurance policies. Instead, mold cleanup generally was covered as part of water- or fire-related claims.

That changed after a couple in Dripping Springs, Texas, filed a small claim with their insurance company for water damage to a hardwood floor in their 22-room mansion. The claim later grew to include allegations of rampant mold contamination throughout the home and health problems resulting from the mold, which the couple blamed on the insurer's mishandling of the original cleanup project.

In 2001, the mansion's owners, Melinda Ballard and her husband, Ron Allison, were awarded $32 million after a jury found their insurer, Farmers Insurance Group, at fault. The award later was reduced to $4 million by a state appellate court, and the couple settled out of court for an undisclosed amount.

"When a home has been so infested with very aggressive wood- and sheetrock-eating mold that the structure of the home has actually been compromised, it can be financially devastating to a family," says Ms. Ballard. The battle with her insurer prompted her to launch Policyholders of America, a consumer advocacy group in Austin, Texas.

The couple had the contaminated home bulldozed two months ago.

Jose Montemayor, insurance commissioner for the state of Texas, says the couple's multimillion-dollar court award resulting from its mold claim set off a "black gold rush." The average number of mold claims in Texas grew tenfold in the space of just two years, says Mr. Montemayor. And as mold-related claims increased exponentially, insurers in turn drove homeowners' premiums through the roof as they struggled to stem losses.

Soaring claims and growing losses had a chilling effect on the industry, causing most insurers to explicitly limit or suspend coverage of mold-related claims in homeowners' policies.

What insurers haven't been doing, says Ms. Ballard, is slash homeowners' premiums to reflect the diminished coverage.

"The insurance companies lobbied their state regulators for premium increases based on what they perceived to be their liability from these mold claims, and they got their wish," she says. "Then [the insurers] said they wouldn't cover mold claims anymore, and guess who's stuck with the raised rate? The consumer."

Texas state legislators passed reforms in September 2003 aimed at lowering sky-high premiums there after cutbacks in coverage by insurers helped stem the flood of mold-related losses. All but two of the insurance companies, State Farm and Farmers Insurance, doing business in Texas are complying, with premium reductions ranging from 1% to 32%, according the state commissioner's office. The other two insurers are disputing the reforms in court.

If your insurer is cutting back or limiting your coverage on mold-related claims, lobby your state insurance commissioner to do something about providing relief in your state. Also, you can file a complaint with your state insurance commission.

Copyright Dow Jones & Company, Inc.

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