Toxic Mold: Managing The Risk in the Post Insurance Exclusion Era

By: David J. Dybdahl, CPCU, ARM, Senior Consultant, American Risk Management Resources Network

A summary of the presentation by David Dybdahl to the Society of Chartered Property and Casualty Underwriters annual meeting on October 13, 2003 in New Orleans. For the entire html slide show presentation click here.

The presentation details the impact of various mold related damages exclusions in traditional insurance policies and then details what kinds of insurance policies should be purchased to insure mold loss exposures on a prospective basis. The presentation contains new research comparing and contrasting the relative magnitude of mold claims to asbestos, superfund and fire damage claims in the United States. Surprisingly mold claims mirrored insured fire damage in 2002! Mr. Dybdahl predicts which business sectors will be most affected by mold damages and presents some of the state based hazard rankings generated by the new Madison Mold Relative Hazard Ranking Model. Some of the results in Mr. Dybdahl's research are surprising. If you thought insurance companies were going to be the big losers from mold damage claims they are number seven on the list. Insurance agents are ranked number two on the list! If you thought mold was a Texas homeowners insurance problem, you will surprised by the state relative hazard rankings for mold damage claims.

Introduction
A rapid increase in mold claims, followed by universal insurance exclusion for mold related claims will create hundreds of thousands of uninsured mold related losses. An army of specialized plaintiffs lawyers will gravitate towards liability lawsuits to seek recovery when the property policies deny the mold loss. Insurance to cover mold is available in the environmental insurance market, but risk management advisors historically ignore environmental insurance. The result is unprecedented E&O exposure for insurance advisors, which will trigger separate mold related claims exclusions in the advisors own E&O policies. In anticipation of the claims morass, adjusters professional E&O policies also have mold related claims exclusions.

Where did all these claims come from?
Prior to the new science linking mold to adverse health affects in humans, prior to the lawyers and prior to the media attention, mold claims were water damage claims without Bodily Injury and Defense Costs

Why are mold related losses difficult to insure and adjust?

No recognized standards for exposure
Poor medical cause and effect relationship
Losses are expensive – multi-million dollar claims are common
Insurance coverage is being eliminated nobody knows to what extent.

Is this just a Texas homeowners insurance problem?
Wrong

There are mold claims in every state
Mold grows well in places humans find comfortable
This is an indoor air quality issue
Mold claims can be ‘company busters.’

Top Ten States With The Most Risk To Mold Damage
1. Texas
2. Florida
3. Oklahoma
4. South Carolina
5. Nevada
6. Arizona
7. California
8. South Dakota
9. Tennessee
10. Kansas

What Type Of Mold Exclusions Are Used Today?

Hundreds of variations, no standards
Basically three categories
Total exclusion for all ‘mold related’ damages
Partial exclusion for resulting loss from mold
Full coverage if caused by a covered loss

How to find appropriate coverage for mold damages?

Buy backs on homeowner’s policies
Environmental insurance on commercial accounts
The biggest constraint in the market for consumers will be the number of educated insurance advisors

For more information contact David Dybdahl at 608-798-2904 or dybdahl@armr.net

Environmental Risk Resources Association

Toxic Mold: Managing The Risk in the Post Insurance Exclusion Era