Mold - Texas Department of Insurance Amends Homeowners Policy Coverage for Mold

12/13/2001

On November 28, 2001, the Texas Department of Insurance issued an order addressing coverage for mold under standard Texas homeowners insurance policy forms. The order included mandatory endorsements, mandatory offer endorsements and an amendment to Endorsement No. HO-170 for HO-A form policies.  The new coverage amendments will take effect as early as January 1, 2002.  The specific homeowners policy forms affected are HO-A, HO-B, HO-C, HO-BT, HO-B-CON, HO-CT, HO-C-CON, TDP-1, TDP-2, and TDP-3.
 
Mandatory Endorsements

  • Insurance Commissioner Jose Montemayor has rejected the portion of the Insurance Department staff proposal for a $5,000 coverage cap for losses associated with mold.
     
  • The order provides for a general exclusion to be added to policies for loss caused by “mold, fungi, or other microbes.”  The effect of the “other microbes” language, other than avoiding mold being defined as bacteria, is not addressed by the order.
     
  • The order allows homeowners coverage for the removal of mold related to certain water damage that is covered by a residential policy.
     
    • Coverage is provided for mold that is related to sudden and accidental discharge, leakage or overflow of water if that discharge, leakage or overflow is otherwise covered by the policy.  This coverage includes loss relating to mold when the sudden and accidental discharge is hidden or concealed, so long as the loss is reported within 30 days of detection.
       
    • Covered losses include only reasonable and necessary repair or replacement of property.
       
    • Costs of remediation, including testing of ensuing mold, increased expenses for loss of use, residential decontamination and debris removal, are excluded from coverage.  It is unclear where “mold removal” stops and “remediation” begins.

Mandatory Offer Endorsements

  • The insured is allowed to purchase, as a policy endorsement, additional coverage in increments of 25%, 50% and 100% of policy limits.  The additional coverage applies to mold-related losses and remedial costs excluded by the above endorsements.
     
  • The order prohibits insureds from stacking claims (or making multiple claims in one coverage year), which had previously enabled insureds to obtain coverage in excess of policy limits.
     
  • While the order makes the offering of these endorsements mandatory, the Policy Writing section of the Manual Rules is amended to allow insurers to decline a request to purchase these endorsements if the declination is based on “sound underwriting principles related to an actual or anticipated mold loss exposure.”

Additional Provisions of The Order

  • Endorsement No. HO-170, which provides extended coverage to HO-A form policies, is amended to include coverage for accidental discharge, leakage or overflow of water.  However, this extended coverage contains an exclusion for mold-related losses identical to the mandatory endorsements addressed above.
     
  • Commissioner Montemayor declined to adopt any rate requirements relating to these new endorsements.
     
  • There is no current indication whether the insurance companies that have left the HO-B policy market will return based on this order.  HO-B is the form of homeowners policy which has been determined to cover water damage and mold.  It is also the most frequently issued policy form and has generated the rash of mold litigation that prompted the coverage amendments which are the subject of the order.

The order is available online at http://www.tdi.state.tx.us/commish/multi/co-01-1105.html.  The endorsements can be found at http://www.tdi.state.tx.us/commish/multi/mendorse.html.
 
Haynes and Boone has formed an interdisciplinary task force of lawyers from its real estate, environmental, insurance, construction and litigation groups to provide a multi-dimensional approach to solving mold, mildew, and sick building problems. For further information, contact one of the authors list at the top of this page.

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