THE MOLD LIMITATION ENDORSEMENTS

By:       Matthew R. Danahy, Esquire

Danahy & Murray, P.A.

and

Robert I. Besserman

Consumer Protection

There can be little doubt that the Florida insurance industry’s reaction to a few Texas mold verdicts has had an adverse impact on Florida consumers.  Certainly, the mold limitation endorsements are working – to deny needed benefits to Florida insureds and to curtail their rights under their insurance policies.  The mold endorsements have done nothing but to limit coverage for mold and further erode an insured’s policy coverages.  At the same time, insureds are paying as much or greater premiums for less coverage.

Following the media attention of the Texas cases, in 2002 Florida insurers began to seek permission from the Florida Department of Insurance to allow mold limitation or exclusion endorsements on their policies.  Most will recall the public hearings on the issue which took place in various locations around the State in the summer of 2002.  At that time, the Department of Insurance took testimony regarding the proposed mold endorsements at public hearings in Tampa, Orlando and Plantation during July and August 2002. 

As anyone who will recall the public hearings can attest, they appeared designed to permit the Department of Insurance to rubber stamp a foregone conclusion – to permit the proposed mold endorsements.  It was readily apparent that the format (designed to let consumers speak first without any organization or unified argument) was designed to promote the idea that mold was a serious threat to the insurance industry.  Many of the speakers were emotionally distraught over problems caused by mold (real or imagined) and few could present a coherent argument or provide scientific facts to back up their testimony.  The insurance industry’s presentation which followed the public testimony was unified in its themes, appeared well rehearsed and included a power point presentation.  It focused on the threat to the public posed by enormous verdicts related to mold and played up the imagined threat to the insurance industry in Florida presented by such verdicts. 

The end result, as we all know, are the mold endorsements ultimately permitted by the Department of Insurance.  These endorsements are claimed to extend coverage, but in fact do the opposite.[1]  The new mold limitation endorsements are working quite well if the following benchmarks are used to evaluate those endorsements:

1.         They limit the number of claims.

2.         They put a ceiling on the amount of claim payments related to mold.

3.         The endorsements result in an increase of premium dollars with a corresponding reduction of coverage.

4.         They permit an artificial distinction that mold which develops from a covered water is not covered, when the damage from the water loss (including resulting mold) is covered. 

5.         They ignore the fact that if mold did not result from a covered water loss previously, mold was not covered.

As the Department of Insurance has permitted such mold endorsements, it is now imperative for attorneys and insurance adjusters to assist in the proper interpretation of the language of these endorsements.  To this extent, consumer attorneys and public insurance adjusters have the same goal as insurance company and independent adjusters – to interpret coverages as broadly as and exclusions as narrowly as possible in order to find coverage whenever possible for the benefit of the insured. 

To consider mold as a separate  peril, with its limitations and exclusions would be paramount to excluding smoke damage from a fire loss, or fire damage from an electrical lightning strike.  This may lead to an inevitable question: “What happened to proximate causation?” 

As most know, when there is a fire, and the smoke from that fire damages the property, it would be covered even though “smoke” is a pollutant and is excluded from coverage.  If the insured has a covered water loss, and the ensuing damages from that water loss included microbial growth, then that should be included in coverage as a proximate cause of the water. 

To place a limit on proximate causation is unfair to the insured and only benefits the insurer and their shareholders.  No one is immune to these limitations.  Would you like your family, parents or grandparents to be subject to the “risk shifting” created by these endorsements? 

It is hard not to agree that the cost of mold remediation had become increasingly expensive prior to the limitations.  Since the limitations were installed, those costs have lowered considerably.  But this fact does not justify the removal of an entire policy coverage as occurred.  What is next?  Will the insurance industry decide it will cover fire damage, but not smoke damage?  Or that it will cover a broken pipe, but not the water that escapes from it?

The best practice from a consumer standpoint is to limit the use of the “M” word in the adjustment or presentation of a claim.  Everything that gets wet or damp or moist from the water loss should be considered water damage.  If there is mold growing on water damaged material, that fact is irrelevant.  The water damaged material must be discarded along with anything attached to it.  There should be no distinction between staining from the water, or from resulting mold which may develop from water damage.

There is no doubt that the mold limitation was a tremendous victory for the insurance carriers.  It will save them billions of dollars.  But when someone wins, usually someone loses.  In this case, it was the citizens and the public in the State of Florida.