Lack of insurance for mold could hold up home sales

AUSTIN (AP) – In a move that could delay thousands of home sales in Texas, insurance companies have stopped issuing new policies for the houses that have suffered water damage.

Several large insurers are scaling back coverage in response to an increase in mold-related claims in Texas.

“This would be devastating to the housing market in Texas if most insurance companies take similar action,” said Karen Wilson, a real estate agent in Round Rock who has seen house closings delayed in the last few weeks because home buyers couldn’t get insurance.

Agents fear many sales will be put off indefinitely.

Allstate Insurance Co., the third-largest property insurer in Texas, has quit selling policies for homes with a recent water damage claim. Farmers and Progressive already have stopped selling any new policies because of concerns over water and mold-related claims.

Insurance companies say mold-related claims are threatening the industry’s financial stability.
“When we talk about mold in Texas, we are talking about a crisis for the insurance industry,” Jerry Johns, president of Southwestern Insurance Information Service, an industry trade group, told The Dallas Morning News.

Johns said claims are becoming more frequent and larger, making it difficult for insurers to determine how much to charge. Some insurance officials have said premiums could increase as much as 40 percent to handle the volume of claims related to mold.

Mortgage companies almost always require that a homeowner policy be issued before they allow a home sale to close.

The Office of Public Insurance Council said Tuesday at a public hearing on mold in Corpus Christi that several insurers have stopped selling new policies for homes that have had water damage within the last five years.
A spokesman for Allstate said Tuesday that the company recently took such action, although the company will provide coverage for home buyers who had an Allstate policy on their previous home. The decision does not affect existing policies.

Allstate is restricting its most common policy, the HO-B, to homes that have not had water damage in the last three years, said Justin Schmitt, a spokesman for Allstate.

State Farm Insurance, the largest insurer in Texas, is continuing to sell homeowner coverage across the state, but officials are closely monitoring water damage claims.

At a hearing this summer, Farmers officials said they had received more than 1,000 new mold-related claims this year. They said independent actuaries have estimated that insurance companies will pay an additional $128.5 million in mold damage claims in Texas in 2001.

Farmers Insurance recently asked state Insurance Commissioner Jose Montemayor to let the company drop mold coverage from its homeowner policies in Texas. That request came after the company was hit with numerous lawsuits, including one that resulted in a $32 million jury award this year.

The insurance commissioner has the authority to change the rules. Montemayor has not ruled on the Farmers request, but he is holding hearings around the state on the issue of water and mold coverage in homeowner policies.