OII Backgrounder: Mold coverage in Ohio
9/03

Because of the growing problem of mold and the confusion of what is and is not covered by homeowners insurance, many insurance companies have added language to homeowners policies to provide a tighter definition of when mold damage is covered.

If the mold is the result of a covered peril, insurers representing at least half of the homeowners insurance market in Ohio cover mold up to a stated limit. Examples of likely covered perils would be:

• Costs of cleaning up mold that is the result of a burst pipe
• A water heater ruptures while the insured is out of town. As a result of not being available to mitigate the rupture in a timely manner, the homeowner came home to a soggy basement with extensive mold damage.

Mold that is not the result of a covered peril is excluded from coverage under homeowners insurance. Examples of mold not covered include:

• •Mold caused by water from excessive humidity, leaks or condensation. These situations are maintenance/deterioration issues that are the responsibility of the property owner as is damage caused by termites, mildew or dry rot. Typical property wear and tear or deterioration problems have been standard exclusions on most policies for a number of years. These are spelled out in the exclusions section of the homeowners policy.

ISO (Insurance Services Office) filed and received approval from the Ohio Department of Insurance on an amendment to the homeowners policy that would limit coverage for mold on homes and for third party liability (i.e. if a person who becomes ill as a result of exposure to mold and the insured is deemed liable for the illness).

Mold coverage endorsements

Before limited mold coverage endorsements received state approval, there was no separate category for mold damage under the homeowners policy. Coverage for mold claims fell under the covered peril of "water damage"-- i.e., accidental discharge or overflow of water or steam, or windstorm -- with coverage and/or exclusions specified in the insurance policy. In 2000, about 20% of all homeowners claims filed in Ohio were for water-related losses.

ISO's mold coverage endorsement for homeowners has been approved in 42 jurisdictions as of September 2003: AL, AK, AZ, CO, CT, DE, Washington DC, FL, Guam, ID, IL, IN, IA, KS, KY, ME, MA, MD, MI, MS, MO, MT, NE, NV, NH, NJ, NM, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, W.Va., WI and WY. The program in Texas is not identical to those adopted in other parts of the country. The Insurance Services Office, Inc. (ISO) provides information, products and services related to property and liability risk. Among its services, ISO provides statistical, actuarial, underwriting, and claims information and analyses to the property/casualty insurance industry.

Currently, ISO's standard homeowners policy excludes coverage for loss caused by mold, wet or dry rot unless mold, wet or dry rot results from a covered peril, such as a accidental discharge or overflow of water or steam, or windstorm.

According to ISO, its mold endorsement provides the following coverage:

Basic property limit option of $10,000 on an annual aggregate basis during the policy period for loss caused by fungi, wet or dry rot, or bacteria; cost of
removal of fungi, wet or dry rot, or bacteria from the covered property;
cost of tearing out and replacing any part of the building or other covered
property to gain access to fungi, wet or dry rot, or bacteria; and the cost
of testing the air or property to confirm the existence of fungi, wet or dry
rot, or bacteria. Insurers also can offer higher optional coverage limits
of $25,000 and $50,000.

Basic liability limit of $50,000 on an annual aggregate basis during the
policy period for all fungi, wet or dry rot, or bacteria-related damages.
Insurers can also offer a higher optional coverage limit of $100,000.

Mold coverage by Ohio insurers

20 insurance companies participated in a coverage survey conducted by the Ohio Insurance Institute in January 2003. The participants represent 77.6% of state's homeowners market share based on 2001 homeowners premium volume. Results of the study show:

• Companies representing over half of the Ohio homeowners market continue to offer coverage for mold-related claims. Coverage is typically in the $5,000-$10,000 range. 27% of the homeowners market exclude coverage for mold. Coverage by 23% of Ohio's homeowners market share is unknown.
• About 24% (based on market share) of those companies offering mold coverage also offer endorsements for higher limits of coverage.
• Insurers representing 48% of the market adopted a mold endorsement in the past year or plan to this year. (ISO/similar endorsements/company hybrid)