The New, New Scourge - mold in your house - Brief Article

Kiplinger's Personal Finance Magazine, Oct, 2001 by Elizabeth Razzi, Josephine Rossi

HOME | Even if your house isn't THREATENED BY MOLD, your pocketbook could be.

WHEN Melinda Ballard and her family fled their $3-million home in Dripping Springs, Tex., in 1999, she didn't know she would become a poster child for mold. Since then, she's become the nightmare of insurance companies--and an object lesson for homeowners.

The insurers' bad dream features the $32.1-million verdict a Texas jury ordered Fire Insurance Exchange, a member of Farmers Insurance Group, to pay Ballard earlier this year. While the final payout will likely be less, the jury's point is unmistakable: It agreed with Ballard that Farmers improperly handled a claim for a water leak in the home--a leak that allowed a toxic mold, Stachybotrys, to take hold.

The case has piqued the interest of trial lawyers, property inspectors and assorted contractors, who are trying to drum up business around this latest threat to homeowners. Scientists, though, are divided over just how hazardous mold can be.

The Centers for Disease Control and Prevention say exposure to mold does not always present a health problem indoors, but concedes that some people are especially sensitive to it. David Straus, a microbiologist and leading mold expert at Texas Tech University, says toxic molds, such as the stachybotrys found in Ballard's home, throw off tiny spores that can be inhaled. These molds also produce mycotoxins that can cause symptoms associated with "sick building syndrome," such as eye, nose and throat irritation, headaches, and fatigue.

The latest threat. So mold is the latest thing for homeowners to fear, joining the roster of radon, formaldehyde, asbestos and lead, each of which has had its day as the next thing to worry about--and to search for before sealing the deal to buy a home. Ballard's lawsuit, and others like it, could wreak havoc on the way insurance companies deal with claims for water damage, wherever you live.

Until a couple of years ago, claims for mold damage were almost unheard of. But they're growing like kudzu now, according to Robert Hartwig, chief economist for the Insurance Information Institute, an industry-funded group. Hartwig won't give specific numbers but says Texas accounts for 75% of claims, followed by California. Claims are also cropping up in Florida, Illinois and elsewhere.

There are several reasons the flash point is deep in the heart of Texas. The state is the perfect breeding ground for an insurance brawl. In most of the U.S., policies cover water damage only when the event is "sudden and accidental," such as a burst pipe or wind-driven rain. Insurance adjusters routinely reject claims for slow leaks--such as a pinhole in a water pipe that seeps water into the wall or a leaky air-conditioner drain. They say those are maintenance issues, and not their problem.

But a sudden and accidental event is not required for a claim in Texas, and those pinhole leaks and seepage problems may well be valid claims, according to officials in the Texas insurance commissioner's office. Texans pay for beefed-up protection with the highest insurance premiums in the nation--80% higher than average. If regulators or courts force insurers across the country to pay for more mold-related damages--or if insurers pay extra to investigate and reject such claims--premiums could spike 30% to 40%, warns Hartwig.

Meanwhile, insurance companies in Texas are running for cover. As of mid August, Farmers' new policies in Texas won't cover water damage unless it's associated with a windstorm, hurricane or hail. That's nearly the same as refusing to sell insurance in the state: Because water damage is the most frequent reason for an insurance claim, a homeowner would be crazy to buy such coverage.

Progressive Insurance backed away from plans to sell policies in the state, and Allstate is considering changes to its homeowners policies, including carving out more exclusions, raising rates and even abandoning the Lone Star State altogether.

Drying out. Your grandma's grandma knew better than to let mold grow inside the house. Take a cue from Grandma, and banish dampness from every corner. Fix leaks at the source.

* If you have any water damage, report it to your insurer immediately and get an adjuster to look at it pronto. If a leak (or subsequent mold growth) is related to a covered peril, your policy should pay for repairs.

* If the adjuster can't get there promptly, take photos of the damage and start drying things out yourself. You can fight with the insurance company later. Mold can take hold within 24 to 48 hours. Its favorite spots are behind wet drywall, in crawl spaces beneath the house, under carpeting and inside the attic. Cut out a portion of the drywall, if necessary, to make sure the wall is dry. Small patches of mold can be cleaned with a solution of ten parts water to one part bleach, according to the CDC. But an extensive growth of mold--especially if it's one of the toxic varieties--will require attention from professionals.

* Watch for mold after a repair. If you see discoloration on drywall or smell a musty odor, get to the root of it. Get your contractor--and insurance adjuster--back for another look.