Homeowners insurance is a critical safeguard against the unexpected, yet many policyholders remain unaware of a significant gap in their coverage: mold damage. Despite its potential to wreak havoc on properties and health, mold is often excluded or limited in standard homeowners insurance policies. This article delves into the history and implications of this coverage gap, highlighting real-life cases and expert insights.
The exclusion of mold from homeowners insurance policies can be traced back to a series of high-profile lawsuits in the early 2000s. One landmark case, Ballard v. Farmers Insurance Group in 2001, initially resulted in a $32 million jury verdict for the homeowner, although the award was later reduced to $4 million. This case sent shockwaves through the insurance industry, prompting many insurers to cap or limit mold coverage to mitigate financial risks.
Amy Bach, executive director of United Policyholders, a consumer advocacy nonprofit, recalls the industry's reaction: "We called it at the time a mold stampede. One carrier after another said, 'We're capping it, we're limiting it'". The high costs of mold remediation, coupled with uncertainties about health impacts and the memory of substantial asbestos settlements, drove insurers to restrict mold coverage.
Today, standard homeowners insurance policies typically do not cover mold, fungus, or wet or dry rot unless the damage results from a covered peril, such as a burst pipe or a sudden leak. Homeowners may need to purchase additional riders for mold coverage caused by other situations, like water backup or undetected leaks.
Scott Shapiro, KPMG's U.S. insurance sector leader, explains the rationale behind these exclusions: "The unknown risk of the development of losses over long periods of time, that's the risk that the consumer is transferring to the company, and that's why it's so regulated".
Real-Life Impact: The Schmitt Case
The real-life consequences of mold exclusions are starkly illustrated in the case of Brandi Schmitt. In 2018, a nor'easter caused extensive damage to her home in Lothian, Maryland. Despite having additional coverage for "fungus, wet or dry rot" up to $15,000, Schmitt found herself battling mold issues that her insurer, USAA, failed to adequately address.
An independent expert initially found no mold, but a follow-up investigation months later revealed visible moisture and a strong musty odor. Schmitt and her family experienced health problems, and tragically, their pets died. Despite paying for additional coverage, Schmitt reported that USAA did not remove wet insulation from the attic, where mold was suspected to be proliferating.
In 2019, Schmitt and her husband sued USAA, and in 2023, a jury found that the insurer had materially violated their homeowner policy, awarding them $41,480. However, Schmitt is appealing the decision, as repair costs are expected to exceed the awarded amount.
The Rising Threat of Mold
Experts warn that mold claims may become more prevalent as extreme weather events, such as windstorms and flooding, increase in frequency and severity due to climate change. In 2022, water damage claims, including those related to mold, accounted for 27.6% of homeowners insurance losses.
Will Melofchik, general counsel for the National Council of Insurance Legislators, notes that while there hasn't been a notable increase in mold claims reported by their members, the potential for such claims is significant. "As long as customers can get the coverage they need somewhere in the market, carriers should have the ability to exclude things as long as the exclusion is clear and customers are aware of it," Melofchik stated.
Navigating the Coverage Gap
For homeowners, understanding the limitations of their insurance policy is crucial. Rick Holeman, a media relations expert, advises that mold damage is unlikely to be covered if it has been present for an extended period or results from negligence, such as a long-term leak.
Insurance is regulated at the state level, leading to discrepancies in coverage. Some states impose specific limitations, while others do not. For instance, in South Carolina, a state prone to hurricanes and flooding, no homeowner policies cover all mold instances, as coverage depends on the specific peril.
Mitigating Mold Risks
To mitigate the risks of mold, homeowners should:
Regularly inspect their property for signs of leaks or water damage.
Maintain proper ventilation in areas prone to moisture, such as bathrooms and basements.
Consider purchasing additional mold coverage if they live in areas susceptible to flooding or severe weather.
By taking proactive measures and thoroughly understanding their insurance policies, homeowners can better protect themselves against the costly and health-threatening consequences of mold.
