Commissioner announces new rules for homeowners insurance and mold coverage

Texans concerned about whether their homeowners insurance will cover any future problems related to water damage and mold have a new set of rules to learn.

Texas Department of Insurance Commissioner Jose Montemayor has restructured the state’s residential homeowner’s policies to help resolve the controversial mold-claims issue.

Last June, a Travis County jury awarded $32 million to a family that claimed its insurance company’s failure to fix a water leak allowed the toxic mold stachybotrys to fester in their home, causing serious health problems.

The high-profile case worried consumers and insurance companies alike. By late August, several large carriers – citing an unexpected surge in mold-related claims – announced they would stop selling comprehensive HO-B policies in Texas, which cover accidental water damage and cleanup of mold resulting from water leaks. The vast majority of Texas homeowners purchase this type of coverage.

Throughout the summer and into the fall, Montemayor conducted hearings across the state to solicit public input. Key provisions of the commissioner’s plan, unveiled Nov. 28:

•Retains coverage for removal of mold related to “sudden and accidental discharge, leakage or overflow of water” if the water damage is otherwise covered by the policy, including HO-Bs. There’s no dollar limit, other than the policy limit, on the amount of covered loss.

•“Sudden and accidental” includes a physical loss that is hidden or concealed until detectable. A hidden loss must be reported to the insurance company within 30 days of discovery.

•Eliminates coverage for testing, treating, containing or disposing of mold beyond what’s necessary to repair or replace property damaged by water.

•Policyholders have the option of purchasing more coverage in increments of 25 percent, 50 percent and 100 percent of policy limits.

Insurers can offer the new coverage as early as Jan. 1, 2002 but must offer it no later than Jan. 1, 2003. After a company begins offering the new coverage, policyholders won’t see a change until their policies come up for renewal.

Homeowners who choose the new, less expensive HO-B policy before their renewal dates may be entitled to refunds on the unused portion of old policies.

Because there are presently no licensing or inspection standards for mold in properties, you may want to discuss mold inspections with more than one expert – if you are considering buying a home. Most experts will discuss limitations of the inspections.

The cost for such inspections varies depending on the size of the property, the extent of mold present, the type of expert conducting the inspection, etc.

For more information on this and other consumer issues, visit the Texas Association of Realtors’ Web site at