By Norman E. Adams

The Texas Department of Insurance predicts that homeowners’ insurance rates will “jump” because of the mold scare. That is an understatement. Comprehensive homeowners policies may not be available at all.

The state’s three largest insurers have announced they will stop selling new comprehensive homeowners policies, citing rising mold cases. One of them, Farmers Insurance, has just announced it no longer will renew comprehensive policies for its existing customers. The company points to mold claim losses as the major reason for its decision. Farmers processed 12 mold claims in 1999; it has had nearly 8,000 this year (2001).

So, what madness has brought us to this point?

Mold is nothing new. We are exposed to it on a daily basis, both inside and outside of our homes, offices, and even schools. The mold hasn’t changed. The way we are responding has changed.

It is no longer good enough just to rip out the drywall, tile, and insulation, bleach the surfaces, and replace the shower pan. Folks in hazardous materials suits now treat mold-infested homes like nuclear contamination sites.

Most homeowners never will make a mold claim. Yet most Texas homeowners pay for mold coverage because they have been offered only the comprehensive homeowners policy.

So, what is the answer?

In short, it is consumer choice. The logical solution is to let policyholders decide if and how much coverage they want to buy.

If they don’t wish to buy mold coverage and pay ever-increasing premiums, let that be their choice. Why not exempt mold coverage, just as separate policies are available for flood or wind damage along the Gulf Coast? Presumably, consumers would pay less if they were getting less.

Texas always had three basic forms of homeowners coverage—Forms A, B, and C. Forms B and C often are referred to as “comprehensive”—they include mildew and mold coverage. If Insurance Commissioner Jose Montemayor will allow the “market forces” to set the price, many consumers will opt to buy the cheaper Form A policy.

Form A covers fire, wind, hail, vandalism, theft, and liability, but it doesn’t cover slow rot from leaky plumbing, nor does it cover mold. The basic Form A has no “replacement cost” or “water damage” coverage, but it can be enhanced by special endorsements to cover depreciation and the sudden and accidental discharge of water or sewers.

The bottom line is that Mr. Montemayor simply needs to allow insurance companies to file special endorsements enhancing the limited Form A homeowners policy and to allow insurers to set their own rates; then, consumers can have a choice if they want to buy mold coverage. Homeowners can pay a big price for comprehensive coverage, or they can buy Form A and save money—big time!

Norman E. Adams is a trustee of Citizens Against Lawsuit Abuse and an independent insurance agent in Houston