The Wall Street Journal
February 5, 2003
Insurance Firms Carry Limited Mold Insurance
By RAY A. SMITH
Staff Reporter of THE WALL STREET JOURNAL

The need for mold insurance has never been more crucial for landlords. And never has it been so hard to get.

As mold has become a big legal and financial problem for landlords, many insurers have sharply reduced or even stopped offering mold coverage in their traditional property and liability policies. Instead, a handful of insurers are offering mold coverage in separate environmental insurance policies, under the umbrella of indoor air quality.

The new coverage, however, doesn't come cheap. For multifamily housing, annual premiums for an environmental policy with mold coverage generally run about 20% higher than the cost of a policy without such coverage; for commercial buildings, the premiums are about 10% higher than the cost of a standard environmental policy. And mold coverage can come with all sorts of limitations and conditions, such as the requirement that potential policyholders have a plan for preventive operations and maintenance for the property. What's more, there aren't yet uniform standards for what such coverage should include or cost.

Environmental policies that include mold insurance tend to pay mold-removal costs and sometimes will cover the cost of rebuilding the property if the situation warrants that, says Eric T. Schake, a managing director at insurance broker Marsh, a unit of Marsh & McLennan Cos. of New York. The policies also tend to pay the costs for defense of any claims from tenants, he says. But the payouts are capped at an average of about $20 million. Such coverage under property and liability policies had limits of hundreds of millions of dollars in the past, Mr. Schake says.

"There is something out there being called mold coverage, but it does not sufficiently cover the risk that many of my clients are concerned about," says Jeffrey R. Porter, manager of Boston-based law firm Mintz Levin Cohn Ferris Glovsky and Popeo PC.

Mold , a fungal growth found in damp or wet conditions, has been blamed for a number of health problems, including breathing difficulties, headaches, nausea, skin rashes and gastrointestinal ailments. High-profile lawsuits and big damage awards of late have shaken insurers and building owners alike.

Most insurers have reported triple-digit increases in the frequency of mold-related claims in commercial buildings over the past three years, says Robert P. Hartwig, chief economist of the Insurance Information Institute, a New York-based trade group.

Among the insurers that offer some form of mold coverage in their environmental policies, according to Marsh, are New York-based American International Group Inc., XL Capital Ltd. of Bermuda, Chubb Corp. of Warren, N.J., Swiss insurer Zurich Financial Services Group, Liberty Mutual Insurance Co. of Boston, and Gulf Insurance Group, a subsidiary of New York-based Citigroup Inc.

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Owners' Better-Have List

Environmental insurers require a loss-control program, generally referred to as a "Water and Mold Response Plan," in order to qualify for coverage for cleanup and liability associated with mold conditions. Here are some of the things insurers are looking for owners to have:

• Measures in place to prevent water intrusion into the structure.
  
• The development and following of a preventative maintenance and inspection program with the objective of stopping water intrusion, and if mold is detected, with the objective of being able to respond and immediately mitigate the condition.
  
• A plan that includes inspection of pipes for leaking plumbing systems, of foundation and exterior surfaces for cracking or material erosion, and inspections following major rain/snow weather events, including ensuring that roof and ground drainage systems are clear and functioning during storm events.
  
• A response plan to water conditions that is immediately implemented upon discovery of a water-intrusion event and includes the removal or drying of water-damaged materials.
  
• The institution of a series of reinspections of the affected area to ensure mold growth hasn't developed again.
  
• A plan to immediately engage experts to assess the extent and type of mold condition and to hire qualified remediation experts when a condition is discovered.
  
• Thorough record-keeping of all events, inspections and work orders associated with a mold event

Source: John Butler, vice president, PBC Environmental, an environmental insurance broker based in New York