The handling of water- and mold-damage claims by insurance companies has translated into multimillion-dollar verdicts nationwide - sending insurers scrambling for an out. Industry representatives convened at a hearing in Baltimore this month to urge the Maryland Insurance Administration to support a push for mold exclusion.
Kimberly Bray, a charter property and casualty underwriter for State Farm Insurance and a Maryland lawyer, hopes the insurance administration will be swayed by events elsewhere. Last year, a Texas jury awarded $32 million to a couple after Fire Insurance Exchange, a member of Farmers Insurance Group, improperly handled a mold claim.
About the same time, 125 New York City families filed an $8 billion lawsuit against their landlord, alleging that toxic mold throughout the premises caused illness to residents and the death of a 7-year-old girl with asthma.
In California, a resident made a claim on his Allstate homeowner's policy after a pipe burst in his house. Allstate offered an amount below the policy limits. The homeowner refused the offer, and Allstate failed to act for over a year. Meanwhile, toxic mold began to grow and spread throughout the house. The homeowner sued for breach of contract and breach of the duty of good faith and fair dealing. In 2000, the jury awarded him $18 million in punitive damages, although the judge later reduced the award.
"Here's the crux," said Bray. "[People in] Texas didn't think they had a mold problem in 1999. Rapidly, they discovered they did. In the first quarter of 2000 they began to see a trend and this mold phenomenon take off. By the end of 2001, they had a full-blown crisis."
"Our State Farm Lloyd's affiliate in Texas, in order to stay in business, had to borrow money from State Farm Mutual Automobile Insurance Co. State Farm Lloyd's is a company that has over 1 million homeowners' policies. They found that, for each premium dollar they were collecting, they were paying out $1.67. They can't stay in business very long like that. And they've now borrowed money from State Farm Mutual. It would be a shame to have this information available to us here in Maryland and fail to act."
The Maryland Insurance Administration has received more than 220 form filings from 147 licensed property and casualty insurers looking to exclude or limit coverage for damage arising out of mold or related exposures.
The MIA disapproved prior personal line filings for mold exclusions from policy claims, citing "inadequate statistical justification or other pertinent data" to support those filings.
In the official notice of the Nov. 7 informational hearing, the MIA requested that insurers provide Maryland-specific claims data regarding exposure to mold, including losses paid, related loss costs, expenses incurred, and conflagration and catastrophe hazards.
Instead, insurers provided limited data, and said the current sorting method for claims makes it nearly impossible to chart an actual number of mold-specific claims.
Typically, said industry representatives, many mold-related claims are filed under water- or fire-damage claims, if they occurred as a result of such damage. Further, they explained, the potential and extent of the cost of those claims has yet to be determined.
"It's so soon right now to try and gather statistics because we're finding that these mold claims have very long tails on them, so to speak. So, there are claims now that are open in which payments are being calculated and those payments have not entered the statistics," Bray said.
According to industry sources, insurers are threatening to cut back services or even withdraw from Maryland's homeowners' market, should the commission rule against them.
Sustained losses in the New Jersey auto market led to State Farm's departure from that state's auto market in July 2000, with the approval of the New Jersey insurance commissioner. "We did that after years of attempts to work with the regulators there in New Jersey to get some favorable regulations and favorable rates filings," Bray said. "But that was to no avail, and therefore we had no choice."
As of now, the insurance company has no plans to withdraw from the Maryland homeowners' market, Bray said. Instead, it has adopted a marketing plan to limit policy sales in the open market and to persuade the powers that be that mold exclusion is necessary to the industry's well-being.
Bray testified on behalf of State Farm. "We've asked them to be responsible, be a responsible regulator and take action to preserve the markets here in Maryland from the absolute devastation and catastrophe that the Texas market suffered."