2005 Insurance Reference Manual

Personal Insurance Federation of California Insurance Reference Book

Mold: The High Cost of No Science

Humans have been living with mold since the beginning of time. There are countless sources - both manmade and natural - that could lead to the formation of molds. Yet, as of late, mold has been in the news and the hysteria surrounding it has exacerbated an already tight homeowners insurance market. After a few attempts to either mandate mold-specific coverage or establish standards, the Legislature wisely concluded that more science was needed. Legislation passed mandating a state-sponsored study to determine if there are health risks related to certain molds, but a lack of funding threatened to delay the study. The insurance industry and others eager to see more science supported a bill to allow private funding. Currently, the Department of Health Services is crafting parameters for the research. Following are facts about mold and homeowners insurance:

Sound science must serve as the foundation for any legislative guidelines, standards or mandates surrounding mold
Leading scientists, government and research agencies have not developed any conclusive findings regarding alleged serious health impacts and mold. The Centers for Disease Control, National Institutes of Health and the Environmental Protection Agency have all said there are no universally accepted scientific links to mold and serious health problems. Priority should be given to developing better scientific understanding.

Explosion in lawsuits and "Cottage Industry"
Despite the absence of scientific links to mold and serious health problems, there has been a significant increase in insurance costs associated with mold. There has also been an explosion of multi-million dollar mold-related lawsuits, the largest being a $32 million jury verdict in Texas (later reduced to $4 million). The publicity and uncertainty surrounding the Texas judgment and others like it in California helped spark an explosion of mold-related lawsuits and a high-cost cottage industry of "forensic contractors" and "mold remediation experts" who seek to profit from mold hysteria and charge expensive fees to unsuspecting homeowners.

Text Box: Did you know?? A typical water claim from a toilet overflow in 1999 cost $3,527.66. That same claim today costs $36,397.99. Consumers pay for mold hysteria and lack of science
Escalating claims and rising cost of mold-related claims threatens to paralyze California 's fragile homeowners insurance market. Uncertainty and fear of multi-million dollar lawsuits has forced insurance companies to spend on average six times more to remediate water-related claims ( see attached ). In the current climate it is virtually impossible for insurance companies to anticipate costs and manage risk for mold-related claims. The lack of science and realistic remediation standards threatens the overall availability of homeowners insurance in California.

The Legislature should guard against taking actions that create public hysteria or disrupt the already-delicate California homeowners insurance market
Uncertainty and abusive practices by those who stand to profit from mold hysteria has already detrimentally impacted our housing and commercial real estate market and exacerbated the cost of skyrocketing water damage claims (see Homeowners Section of Reference Book for water claims). Given the climate, legislators must take extreme caution before enacting any policies that heighten public hysteria or further exacerbate the delicate homeowners market.

The High Cost of No Science

Typical Water Damage from Toilet Overflow (With Mold Present)
Remediation Steps & Cost in 1999 vs. 2003

Uncertainty and fear of multi-million dollar lawsuits, along with a new high-cost cottage industry of mold "experts", has forced insurance companies to spend on average six times more to remediate water. Below is an example how repairing a typical water loss claim (toilet overflow) has become much more costly due to the uncertainty, paranoia and lack of science surrounding mold:

Remediation Steps Taken in 1999 vs. 2003	Remediation Cost in 1999	Remediation Cost in 2003
Emergency call (initial call to clean/dry-out from water)	$1,545.38	$1,545.38
Interior Repairs: 1999: Clean carpet, spot seal and paint drywall 2003: Completely replace carpet and drywall	$1,982.28	$4,982.28
Mold Pre-testing:	N/A	$1,334.47
Mold Clearance Testing:	N/A	$1,150.00
Mold Remediation: (install and remove containment, demolition, Hepa vacuum and filtering, personal protective equipment)	N/A	$13,845.86
Subtotal Building Damages:	$ 3,527.66	$22,857.99
Loss of Use - Additional Living Expense Claim: 1999: No claim necessary 2003: Insured out of home 3+ months	N/A	$13,540.00
Claim total:	$3,527.66	$36,397.99

¹ U.S. Environment Agency, Indoor Air Quality Report, 2001

² California Department of Health Services Indoor Air Quality Info Sheet, 1998.

Back to Table of Contents