Consumers and Restoration Companies Unclear on Texas Mold Coverage

Despite the headline on a recent Texas Department of Insurance announcement, that “Montemayor Protects Consumer Choice, Availability of Mold Coverage”, the consumers and restoration companies in Texas are left in limbo over what is covered and not covered on mold claims.

On November 28, 2001, the insurance commissioner for the State of Texas, Jose Montemayor, claims to have “restructured the state’s residential property polices to stress consumer choice on mold-related insurance coverage while helping Texas avoid a residential property insurance availability and affordability crisis.”

In a separate announcement from the Texas Department of Insurance the statement was made that:

“The order retains coverage for removal of mold related to certain water damage that is covered by residential property policies, including the most commonly purchased HO-B homeowners policy. But it eliminates coverage for high-priced procedures, such as testing, treating, containing or disposing of mold beyond that necessary to repair or replace property that is physically damaged by water. Such procedures have contributed to unexpected and dramatic premium increases.”

This order is ambiguous at best. It states that there is coverage for ensuing mold and then states that Insurance companies are not required to pay for any of the procedures that are required to “treat, contain, remove or dispose of mold, fungi or other microbes beyond that which is required to repair or replace the covered property physically damaged by water.”

After January 1, 2002 and prior to January 1, 2003 insurance companies that are offering coverage in Texas, will be required to offer the new coverage. Insureds can then purchase additional coverage for mold that will pay for these eliminated services.

It appears there will be a shift of responsibility for paying for mold remediation to the insured.

The order states:

EXHIBIT B

Endorsement No. HO-162A Homeowners Amendatory

Effective Mandatory Endorsement

January 1, 2002 (Applicable to Form HO-B only)

SECTION I – EXCLUSIONS, Exclusion 1. f. is amended to read as follows:

f. We do not cover loss caused by:

(1) wear and tear, deterioration or loss caused by any quality in property that causes it to damage or destroy itself.

(2) rust or rot.

(3) dampness of atmosphere, extremes of temperature.

(4) contamination.

(5) rats, mice, termites, moths or other insects.

We do cover ensuing loss caused by collapse of building or any part of the building, water damage or breakage of glass which is part of the building if the loss would otherwise be covered under this policy.

SECTION I – EXCLUSIONS, Exclusion 1. l. is added to read as follows:

l. We do not cover loss caused by or resulting from mold, fungi or other microbes.

However, we do cover ensuing mold, fungi or other microbial losses caused by or resulting from sudden and accidental discharge, leakage or overflow of water or steam if the sudden and accidental discharge, leakage or overflow of water or steam loss wouldotherwise be covered under this policy.

Sudden and accidental shall include a physical loss that is hidden or concealed for aperiod of time until it is detectable.  A hidden loss must be reported to us no later than 30 days after the date you detect or should have detected the loss.

For purposes of this exclusion, ensuing mold, fungi or other microbial losses covered under this policy include reasonable and necessary repair or replacement of property covered under Coverage A (Dwelling) and/or Coverage B (Personal Property).

We do not cover the cost for remediation, including testing of ensuing mold, fungi or other microbes.  We do not cover any increase in expenses for Loss of Use and/or Debris Removal due to remediation and testing of ensuing mold, fungi or other microbes.

Remediation means to treat, contain, remove or dispose of mold, fungi or other microbes beyond that which is required to repair or replace the covered property physically damaged by water or steam. Remediation includes any testing to detect, measure or evaluate mold, fungi or other microbes and any decontamination of the residence premises or property.

Consumers and Restorers should have concerns about this order. There appears to be a contradiction between the statement that the policy covers ensuing mold and then states that none of the procedures that are required to “treat, contain, remove or dispose of mold, fungi or other microbes beyond that which is required to repair or replace the covered property physically damaged by water” will not be paid. Remediation includes any testing to detect, measure or evaluate mold, fungi or other microbes and any decontamination of the residence premises or property.”

How do you cover something (ensuing mold, fungi or other microbes) then state that you won’t cover the cost associated with performing the services. What’s covered?

Where does this leave the consumer and the restoration industry in making decisions about performing mold remediation services? As a part of pre-qualifying a water damage the first step for restorers will be to determine whether or not the homeowner has purchased additional coverage for mold and then secondly to determine the level (%) of coverage.

If a home in Texas has water damage and there is ensuing mold, and the homeowner has not purchased any additional coverage, what should the insured and restoration company do next?

Apparently there is no coverage for costs incurred for sampling, personal protective equipment, erecting containment, utilizing HEPA filtered negative air machines, or any other remediation procedure that is not part of performing the water damage restoration.

Projects may come to a screeching halt until the scope of work and financial issues are resolved. What happens in the mean time? For the consumer what are the risks of having the remainder of the house contaminated without having containment erected? For the restorer what are the risks of contaminating or being wrongfully accused of contaminating the remainder of the residence? Does the restorer erect containment to prevent further contamination? Who is going to pay for it? If the restorer doesn’t erect containment will there be liability for the contamination of the remainder of the residence? Even if there is a decision to erect containment, without sampling to determine the extent of the spread of mold spores to other areas of the property, a scope of work cannot be accurately established and the restorer may not know where to properly erect the containment.

If the initial reaction of Texas homeowners is that that they will run the risk of not purchasing the additional coverage then one possible result of this order may be that some restoration firms will conclude that the liability may be too great to take on the simplest of water damage projects.

As stated earlier, this order is ambiguous about what is covered. For those consumers that can’t afford to or elect not to purchase this additional coverage, the acquiring of services for water damage restoration will be complicated by the reluctance of restorers to perform the services due to the potential liability.

One California attorney that I spoke to about this, stated that in his opinion, where there is ambiguity in policy language, such as in this case, there will be lawsuits. And in many cases where there is ambiguity in policy language, the court decisions tend to be in favor of the insured. That presents problems additionally for the insurance companies.

The one thing that appears to be definite, is that the consumer is going to pay for mold remediation one way or the other.

Copyright Restoration Consultants 2001