Calif. Bill Would Make Insurers Provide Mold Coverage

April 16, 2002

A bill mandating mold damage coverage in all property and liability insurance policies would force all California consumers to pay significantly more for their homeowners and renters policies, according to the National Association of Independent Insurers (NAII). The bill will be considered by the Senate Insurance Committee on Tuesday.

“Senate Bill 1763’s coverage requirement has the potential for driving insurers out of the California market and escalating insurance premiums for consumers,” Sam Sorich, senior vice president and general counsel for the NAII, remarked. “The bill would create impossible claims handling rules, as well as prevent insurers from taking action to keep insurance coverage available and affordable.”

Under SB 1763, any property or liability insurance policy issued, amended or renewed on or after Jan. 1, 2003 must cover mold as an ensuing loss.

“The scope of the bill simply is too broad,” Sorich said. “Mold damage concerns have risen in relation to homeowners and commercial property insurance policies. There is no reason to impose SB 1763’s requirements on other types of insurance policies, such as those addressing motor vehicle insurance.”

In California, insurers are currently able to exclude mold coverage from their policies if they feel it would be difficult to assess the risk posed by mold damage. This option allows insurers to stay in the market and offer premiums that are affordable to their customers, Sorich said, adding that the coverage mandate in SB 1763 would prevent insurers from managing their risk of loss.

“Great uncertainty about the risk and remediation of molds exists,” Sorich went on to say. “Because research has not determined health risks and there is conflicting information regarding mold, these claims provide fertile ground for fraud. Lawmakers should also remember that a homeowners insurance policy is not a home warranty or maintenance product and, to that end, insurers should not be liable for losses generated from improper maintenance or normal wear-and-tear.”

Lawmakers and consumer should also be aware that molds are ubiquitous in indoor and outdoor environments. SB 1763 would require an insurance claim handler to make disclosures whenever mold is “likely to be present.” The practical effect of this requirement would be that whenever a claim is made, the claims adjuster would have to advise the claimant that mold may be present.

“Such a disclosure would not give the claimant any useful information,” Sorich said. “In most cases, the disclosure would merely create unfounded anxiety.”

Originally, SB 1763 only would have directed the California Insurance Department to study the impact of mold on the availability of property insurance coverage. On April 9, the bill was amended.

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