By Rochelle Sharpe, USA TODAY
When Beverly Hammond discovered black and green mold growing in her
hall closet last fall, she wanted her family to evacuate the house
immediately.
She suspected the gooey fungus was causing her husband's frequent
nosebleeds and her 16-year-old daughter's sudden memory loss. Toxic
mold can cause such symptoms, she knew, but she had no idea where her
family of four could move.
So, Hammond set up six tents in her backyard in Seabrook, east of
Houston. Her family has been living in this encampment for six months.
And the first insurance adjuster showed up only six weeks ago, Hammond
says. She fears it will take months before her house problems are
resolved.
"The whole game of insurance is not to pay," she says.
Like thousands of other distraught homeowners, she feels betrayed by
the insurance company she had paid to help in a catastrophe.
All over the nation, the American dream of homeownership is being
hampered as insurance companies become inundated with costly mold
claims stemming from water damage.
In Texas alone, the top five insurance carriers saw their mold claims
quintuple in a year.
The carriers paid more than $1 billion on mold settlements the past two
years, according to the Texas Department of Insurance.
Texas and California have had the highest number of claims for mold. As
a result, many people there are finding it nearly impossible to get
insurance when trying to buy a house.
Toxic mold is not the dark scum often found around the bathtub.
Instead, it can grow unseen behind walls and on wood as a result of a
water leak. Some scientists link respiratory problems, rashes,
infections and possibly even brain damage to toxic mold.
"People don't believe mold hurts you, but it really is something that
causes harm to the body," says Diane Ashley, an elementary school
principal in Katy, west of Houston, who spent months figuring out why
she was sick. Her school was closed because of mold.
The insurance bind
Insurance companies say they have no choice but to restrict coverage
and raise rates of homeowner policies.
In Texas, real estate agents warn buyers to start shopping for
homeowners insurance as soon as they sign a contract to buy a house
because getting coverage could be difficult.
Deb Bryan, who sells real estate in Austin, says she had to contact
nearly 150 insurance agents in Texas to find coverage for one house.
She says the sellers lost eight offers because of insurance problems.
The house didn't have toxic mold, but there had been recent leaks. The
insurers feared the house could develop more water problems — and mold.
In the end, the homeowners replaced the air conditioner and roof and
upgraded the wiring to get insurance. The house sold for $75,000 less
than the $275,000 asking price.
In California, consumer crusader Erin Brockovich — the subject of a
movie that starred Julia Roberts — sued her construction company for
causing mold to grow in her new Los Angeles-area house. Many builders
in the state are finding it difficult to get insurance to construct
condominiums.
Homeowners plagued with toxic mold are suffering the most. Some people
run out of insurance benefits and are forced to pay for their
unsellable moldy house and a new dwelling. Those who can't afford two
homes are sometimes forced into bankruptcy.
"People have a right to know that mold can make you homeless," says Pam
Walker of Southfield, a suburb of Detroit. Her family moved out of
their house because of health problems 24 days after buying it. Her
insurance company didn't cover the mold-related water damage that
environmental scientists discovered.
Walker, an office manager, is letting her house go into foreclosure.
She has also worked with her boss, Rep. John Conyers, D-Mich., to draft
legislation that would create a federal insurance fund for families
whose insurers won't cover mold-related losses.
Old mold, new problem
Mold has been around forever, but only in the past 15 years has it
emerged as a financial and health problem for homeowners. Many office
buildings and schools with mold have been forced to close because
workers and students got sick.
Entertainer Ed McMahon sued his insurance company for $20 million in
April. He claims toxic mold at his Los Angeles home killed his dog.
The new Residences at the Ritz-Carlton in Washington, D.C., where
basketball star Michael Jordan has a condo, is undergoing extensive
renovations because of mold.
There are 100,000 types of mold, but only a few dozen are toxic and can
cause health problems. These molds produce chemicals called mycotoxins
that can cause rashes, seizures, unusual bleeding, respiratory problems
and severe fatigue in some people.
No one knows for sure why mold problems are on the rise. Scientists say
it could be due to modern construction methods. Newer houses have walls
that contain cellulose, where mold can thrive. Because houses today are
more airtight, indoor air quality is more likely to affect people's
health.
"We are building houses that are going to be deadly," says Kaye
Kilburn, a professor of medicine at the University of Southern
California who has studied toxic mold.
Insurance companies didn't worry about mold until last year, when a
homeowner won $32 million in a lawsuit against Farmers Insurance. A
jury declared that Farmers had acted fraudulently and in bad faith when
fixing water damage in Melinda Ballard's 22-room mansion in Dripping
Springs, in central Texas.
Ballard, who founded Policyholders of America in January to help
homeowners with similar mold claims, says the company delayed fixing a
relatively small water leak, which turned into a giant mold problem.
The case, under appeal, spawned an insurance crisis in Texas as
mold-related water claims began to proliferate. The state's top
insurance carriers saw their mold claims skyrocket to more than 37,000
last year from 7,000 in 2000, according to the latest figures from the
Texas insurance department. Settlements paid on those claims climbed to
$854.3 million last year from $152.7 million in 2000.
As a result, State Farm Insurance stopped writing new homeowner
policies in Texas last fall. Farmers and Allstate Insurance restricted
mold claims related to water damage. Insurance rates started going up,
tripling in some cases.
"It doesn't make any sense for us to bring in new business until we get
control of this trend," says Keith Androff, a State Farm spokesman in
Texas.
Today, Texas homeowners who want coverage for mold resulting from water
damage need to buy an add-on to their policies. State Farm's add-on is
so expensive that only 16% of its clients have mold coverage that was
standard a year ago, Androff says.
"I feel incredibly lucky to get reduced coverage at increased rates,"
quips MaryAnn Selva of Dickinson, south of Houston. Her insurance
coverage with CNA Lloyds of Texas was canceled in April because she
filed two claims for water damage totaling $30,000 — neither involving
mold.
Most insurance companies wanted her to pay an annual premium of $3,000,
which is more than double her previous payment of $1,400. "The only
thing it covered was if an airplane hit the house," she says.
Eventually, she found coverage at a relative bargain: $2,100 a year.
Limiting settlements
Insurance companies in every state are trying to reduce mold coverage,
which typically pays for mold cleanup only if it results from sudden
water damage, such as a burst pipe. Insurance companies filed petitions
in all 50 states last year to limit settlements. So far, 28 states have
approved coverage caps ranging from $10,000 to $50,000.
The companies say they had to make drastic policy changes.
"Unfortunately, if you've had a water claim, it could signal you'll
have more water problems down the road," says Candysse Miller of the
Insurance Information Institute, a non-profit group in New York.
Insurance companies, meanwhile, are suspicious about the proliferation
of claims and lawsuits. "This has become the pot of gold at the end of
the rainbow for trial lawyers who think this is the new asbestos of the
world," says Jerry Davies, a spokesman for the Personal Insurance
Federation in California, a lobbying group.
California insurance companies, which have the second highest number of
mold claims in the country, have watched settlements jump in the past
six months. The average claim increased to more than $36,000 from
$3,000, Davies says. The companies also are fearful of proposed state
legislation that would mandate insurers to cover mold claims.
Some consumer advocates say this insurance crisis has been largely
manufactured by the insurers to cover other financial problems. All
insurance companies suffered economically because of Sept. 11 and the
declining stock market.
In addition, State Farm, which stopped writing new policies in
California and Louisiana as well as Texas, lost $5 billion last year,
in part because it had been selling policies below cost to keep its
market share, says Robert Hunter of the Consumer Federation of America.
As for the mold problems, consumer advocates say insurers take so long
to fix homeowners' minor water problems that they become costly mold
disasters. But the Texas insurance department says some delays, which
on occasion exceed one year, are due to the huge increase in the number
of claims and the need to wait for test results to confirm whether
toxic mold is in someone's home.
The department says consumer complaints about mold claims jumped to 321
last year from five in 2000.
"All the industry wants to talk about is Melinda Ballard's $32 million
verdict," says Dale Washington, a California attorney who has handled
many mold cases. But, he says, Ballard's case wasn't really a mold
claim. "It was a $32 million fraud claim."
Washington says he has seen insurance companies repeatedly withhold
information from customers about the possible health effects of toxic
mold.
Nancy Gerding of The Woodlands, near Houston, says State Farm stopped
paying for alternative housing and insisted her home was habitable
though her contractor kept finding mold.
She's borrowing against her 401(k) to rent a townhouse.
State Farm declined to comment on the Gerding case because she is suing
the company.
"This is not right. It's un-American," Gerding says. "It's taking away
the American dream."
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