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Mold coverage to stay in Texas insurance policies; won’t cover treating and disposal

Coverage for removing mold caused by water damage will remain in Texas home insurance policies, the state’s top insurance regulator ruled last Wednesday.

However, state Insurance Commissioner Jose Montemayor also decided that the policies will not cover the more expensive costs for testing, treating and disposing of mold beyond immediate damage.

Montemayor issued the ruling to try to solve a developing insurance crisis for Texas homeowners. Some of the state’s largest providers have stopped writing new comprehensive insurance policies.

Most consumer and industry groups who had waited several weeks for the decision expressed disappointment.

Farmers Insurance Group, Allstate, and State Farm – the three biggest insurers in Texas – have quit selling comprehensive policies to new customers because of rising mold claims. Farmers also has said it will not renew comprehensive homeowners insurance policies for any of its 600,000 customers next year because of mold claims.

In approving the order, Montemayor decided against a proposal unpopular with both homeowners and the industry to cap mold damage coverage at $5,000 with the option to purchase more. Wednesday’s ruling will allow homeowners to buy additional coverage to handle the more expensive procedures that will be eliminated.

The order provides coverage for removal of mold that results from water discharge, leak or overflow that is sudden and accidental. Insurance companies may begin offering the coverage starting Jan. 1.
Current comprehensive homeowners insurance policies cover mold removal only if the mold results from another covered event, such as a leaking water pipe.

“This decision is a common sense, middle-ground approach,” Montemayor said. “It gives Texas homeowners basic protection plus the stability to purchase additional coverage if they so choose.”
Gov. Rick Perry said the decision gives Texas homeowners more power to determine their insurance costs, makes insurance more available and helps stabilize insurance rates.

But Jerry Johns at the Southwestern Insurance Information Service said the order could raise homeowners insurance rates as much as 60 percent to 80 percent for those who choose to purchase mold coverage.

“We commend the Texas Department of Insurance for its diligence and perseverance but the decision today will do nothing to solve the lingering problem of how insurers will address water-related mold claims in the future,” Johns said.
Johns said Montemayor instead should allow companies to offer various types of coverage and not force the consumer to buy the maximum type of coverage.

The three largest insurance companies in Texas agreed, but said they were still reviewing the order. They announced no immediate changes in coverage plans.

Montemayor also said he will consider individual companies’ filings for alternate levels of mold coverage. The American Insurance Association, which said Montemayor is taking a “step in the right direction” to allow insurance companies to more freely compete on product and price, said many of its members will take him up on the offer.

Rob Schneider, a staff attorney for Consumers Union Southwest Regional Office, was critical of the order because he said it removes “testing and remediation” from the policy altogether, but gives consumers the option of buying it back.
“Taking away coverage you have now and charging more if you want to buy it back essentially terminates the coverage,” Schneider said.

Schneider said he was concerned that homeowners may have to fight insurance adjusters to get legitimate water claims completely addressed.
The consumer group Texas Watch said the order does not do anything to help address the root of the toxic mold problem.

“The decision from the Department of Insurance is filled with loopholes and wiggle room for insurance companies to avoid being forced to properly handle water damage claims for Texas homeowners,” said Texas Watch Executive Director Dan Lambe.