A LOOK AT THE MOLD EXPOSURE

(July 2020)

Mold has existed for more than four billion years and it is a species of fungi which plays an important part in the ecological cycle. It decomposes organic matter. Mold needs a food source, water at an acceptable temperature, and time in order to multiply. Mold is, naturally, harmful to structures and mold, as do dust mites, pets, and bacteria, can create allergies.

Getting rid of moisture is the best way to get rid of mold and bacteria problems. Older buildings were built in a manner that permitted a lot of airflow to remove moisture. Newer buildings and homes are sealed, so there is a much higher likelihood that excess moisture is trapped, creating bacteria and mold, and resulting in what is termed "sick building syndrome." Symptoms include any of the following:

· Sensory irritation in the eyes, nose, and throat

· Skin irritation

· Neuro-toxic symptoms (problems with memory, concentration, language, sleep, and others)

· Hypersensitive reactions

· Odor and taste symptoms

The easiest way to detect possible mold problems is to look for signs of water damage on the ceiling and for sources of standing or leaking water. Flat-roofed buildings and failed ventilation systems are the greatest sources of moisture. Mold identification can be done simply by following your nose.

What Is Covered?

How do insurance products respond to mold? Personal lines property provisions typically include several areas that may trigger either coverage or exclusions. In general, coverage exists if the mold arises from a covered cause of loss or from accidental discharge of overflow from a plumbing, heating, air conditioning, or sprinkler system. Coverage is usually excluded if mold develops from "errors, omissions, or defects" or if it occurred due to insured neglect.

Examples:

A windstorm might create an opening in covered property that would allow moisture into the home.
Water from fighting a fire might create a moist area that is hidden from an insured where mold could grow. In this instance, coverage may exist because fire was the proximate cause.

Another potential area that could trigger a need for coverage is the increased cost to correct mold damage to meet requirements of a building regulation. This might be covered as an incidental coverage with a separate sub-limit. A coverage need also may be triggered when local authorities require testing or monitoring for mold, or from laws that require homeowners to install features that act as preventative measures after mold damage is discovered.

Property owners have the responsibility of maintaining their property and should not depend upon an insurance contract to handle poor or nonexistent maintenance.

Insurance contracts and endorsements address mold in the following three ways:

1. Complete exclusion endorsement barring coverage for all mold perils (perhaps with exception of coverage for food poisoning),

2. Limited coverage for mold damage that arises from covered perils provided under an annual aggregate limit and limited liability coverage, also on an annual aggregate limit, with exception for food poisoning

3. Limited coverage for mold damage that arises from accidental discharge.

Cleaning Up After Mold

Treating sources of moisture is critical to handling mold. Being educated about mold is also important. Mold growth does not occur unless there is moist, organic material. Further, mold growth is not rapid and can be reduced or eliminated by keeping the environment clean, getting rid of excess water, and getting rid of sources of moisture.

Extracting water from wet surfaces is important, but disposal of all wet materials is usually a drastic and unnecessary step. Mold growth takes time and that allows time for mitigation and prevention. Keeping structures clean and dry is the most important element for avoiding or mitigating mold loss.

Restoration services can play an important role. However, before their use, restoration contractors should be able to prove to insurers and adjusters that they have expertise in handling water losses. They also should have the right training and equipment to properly detect and monitor moisture levels in key areas of a building. Such tools and skills are critical in order to be sure that, after a remediation effort, the affected structure has been dried.

Personal Lines Mold Claims

The following conditions contribute to mold problems:

· Temperature

· Lack of air movement

· Water source

· Plaintiff's bar

· Public adjusters

Mold’s outbreak as a serious insurance industry issue was due, primarily, to the publicity about high-profile mold claims that centered in Texas and resulted from a perfect storm of unique policy forms, extremely moist conditions, and an agreeable court system. The state's insurers responded by substantially increasing pricing and adding exclusions but the court precedents had been established and the localized mold issue soon became a nationwide mold issue.

ISO created forms to specifically exclude mold and then provide an annual aggregate limit of $10,000 optional mold coverage with the ability to add increased coverage limits.

Related Article: ISO Homeowners Optional Endorsements

Commercial Lines Mold Claims

In commercial lines, mold claims can become large and complicated. An insurer must be involved in contractor selection so that mitigation can proceed efficiently. It is important that adjusters recognize and deal with mold damage, even if coverage for such damage is subject to exclusion. There are several steps that insurance companies should use when faced with a property claim that may involve a mold loss:

· Quickly determine whether or not mold damage is involved with the claim.

· If coverage exists, determine how much mitigation and remediation work is necessary.

· If coverage does not exist, notify the insured immediately so that he or she can minimize further loss.

· Communicate openly and quickly with all affected parties, even when the news is negative.

When claims arise, it is important that a claims person locate the right people to assist in investigating the loss, with a priority on establishing whether coverage exists and communicating properly with the insured. It is critical to determine whether an insured's action or inaction created the mold loss. Insurers should make it part of their practice to take the following steps:

· Begin with a non-waiver agreement or a reservations of rights letter

· Conduct a thorough loss investigation

· Determine the cause of loss, including ruling out what did NOT cause the loss

· Decide whether the particular claim is eligible for coverage