November 29, 2001

State Insurance Commission Jose Motemayor, facing a crisis in the homeowners’ insurance market, issued an order Wednesday sharply restricting mold coverage for Texas homes.
Most homeowners will still have some protection against mold under the order, but coverage for expensive procedures such as air testing and disposal of mold-contaminated items will be eliminated. Protected losses will be limited to repair or replacement of property physically damaged by water or mold that results from a water leak.
Those who want full mold coverage will have to pay higher premiums in a state that already has the highest homeowners’ insurance rates in the country.
The insurance industry attacked the plan as too little too late to ease huge financial losses that companies have suffered from a soaring number of mold claims.
The industry had sought to eliminate all mold coverage in the basic homeowners’ policy.
Consumer groups also criticized the decision as giving away too much protection for homeowners.
But Mr. Montemayor defended his order as a “common-sense approach” to the problem of mold coverage for Texas homes.
“My goal is to preserve as much protection as possible for homeowners while coming to grips with the excesses that have driven Texas to the brink of crises in the residential property insurance market,” the commissioner said.
A recent study by the Texas Department of Insurance indicated that the cost of mold-related claims has increased nine-fold this year from a year ago.
All three of the states largest insurers – Allstate, Farmers, and State Farm – have quit selling comprehensive policies to new customers because of the mold situation. And Farmers has announced it will quit selling comprehensive policies – known as “HO-B policies” – in Texas even though it has 600,000 customers of such coverage. Nearly 96 percent of homeowners have an HO-B policy, a common requirement to obtain a mortgage.
Bill Miller, a spokesman for Farmers Insurance Group, said Mr. Montemayor’s plan will have no effect on the company’s decision to pull out of the comprehensive homeowners policy market. Farmer’s hopes to persuade its customers to buy a limited homeowner’s policy it is selling – an HO-A policy.
“The commissioners decision moves in the direction of more consumer choice, which is good. But it falls short of what is needed,” Mr. Miller said. “It is insufficient for us to change our business plan in Texas.”
Don Lambe of Texas Watchman a consumer group that closely followed the mold debate, is “filled with loopholes and wiggle room for insurance companies to avoid paying water damage claims by Texas homeowners.”
“This does not appear to have done anything to address the root of the toxic mold problem in this state, or help Texas families who may now be forces to pay for clean up out of their own pockets,” he said.
“It is a Texas homeowners who will be forced to pay the price in terms of higher insurance premiums for less coverage.”
Rob Schneider of Consumers Union agreed, saying that homeowners will lose the bulk of mold coverage they now have and will be faced with fighting their insurance company for any water or mold claim they file. For those who want to buy special mold coverage, the cost will be almost prohibitive, he added.
“Insurance companies hold all the cards here,” he said.
Gov. Rick Perry called Mr. Montemayor’s decision “a fair and balanced response to the no-win issue of mold coverage and homeowners’ insurance.”
“I hope that future reports show that the rates are stable and justified. If the market cannot correct itself, we will need to look at other remedies and possible explore legislation,” he said.
Mr. Montemayor’s order retains some existing mold coverage in the standard policy, but only if it is a water leak and is reported by the homeowner to his or her insurance company within 30 days of the date it is discovered.
The changes will take effect Jan. 1.
The commissioner promised that the Texas Department of Insurance will closely monitor premiums and how companies implement new coverage to ensure consumers are treated fairly.
“By addressing the major cost drivers, we intend to stabilize homeowners; insurance availability and cost. If insurers cannot control rates and losses, we may have to recommend increased state regulation to protect Texas consumers,” he warned.
Industry spokesman reacted to that warning by pointing out that Mr. Montemayor took a long time to deal with the problem, which has festered for months.
“Unfortunately, this decision is too little too late,” said Rick Gentry of the Insurance Council of Texas. “today’s announcement lacks the innovation and decisive change in direction that were needed.”
Jerry Johns of Southwestern Insurance Information Service said the commissioner should have given companies more freedom in offering mold coverage and consumers more choice in deciding how much protection they want.
Experts are divided on why there has been a surge in mold claims, but they note increased public concern over toxic molds.