PIFC Claims Higher Costs and Disruption in Homeowners Costs if SB 1763 Passes

April 17, 2002

Diane Colborn, vice president of the Personal Insurance Federation of California (PIFC) remarked that SB 1763, a bill authored by Senator Deborah Ortiz requiring all property and liability insurance policies to cover mold claims in California after January 1, 2003, has the potential to disrupt the homeowners insurance market in the state and lead to much higher homeowners insurance rates.

“Our members write approximately 35 percent of the homeowners insurance in the state,” Colborn said, “and we are urging a no vote on SB 1763 because the property mold coverage mandate on insurers will interfere with their ability to manage loss exposures. It is impossible today for insurers to continue to charge current rates yet be expected to pay thousands of incoming mold claims with such high dollar loss amounts. SB 1763, if enacted, could lead to substantial increases in homeowners insurance premiums in the state.”

Colborn outlined the major problems with SB 1763:

Although many homeowners’ insurance policies currently cover mold damage resulting from an otherwise covered loss, if mold claims costs continue to skyrocket in California, insurers may find it necessary to place further exclusions on mold in the future. SB 1763 would prohibit insurers from doing so by requiring them to cover mold that ensues from a covered loss thereby preventing them from properly managing their loss exposure and creating potential capacity and solvency problems.

This legislation could have the effect of requiring all homeowners, commercial and auto policyholders to pay higher rates to subsidize a few mold claims that are based on insufficient scientific understanding of the effect of mold.

SB 1763 is overly broad and applies to all types of property and liability policies, many that were never intended to cover this type of damage. Mold coverage would not only be mandated in homeowners’ policies, but commercial property, auto liability and many other policies.

SB 1763 requires insurance companies, agents and claims adjusters to become mold specialists and to notify policyholders when a claim is filed that there may be a reason to suspect mold damage whether it is related to a claim or not. “There is a huge void when it comes to scientific evidence about the health effects that mold has on people. With hundreds of thousands of types of mold existing today, there is a real need for sound scientific evidence,” Colborn remarked. “Last year, SB 732 by Senator Ortiz was signed into law. It calls on the Department of Health Services to conduct a study to establish mold exposure limits and cleanup standards. It is vital for consumers’ peace-of-mind and insurers that standards be set. The publicity of high dollar awards for mold claims and the total misinformation of health risks sensationalize the current public concern and have caused near panic in many parts of the state,” Colborn continued.

“For example, in Texas, the explosion of mold claims and water damage costs, combined with mandates for mold coverage, led to a shutdown of the homeowners market last year,” she added.

“We would like to see the study on mold and cleanup completed before any new laws are passed. California should learn from, and not replicate the mistakes of Texas,” Colborn concluded.

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