The California Court of Appeal ruled in 2008 that an insurance policy provision that covers some losses resulting from water discharges but excludes mold damage did not violate the state insurance code. Policies that "plainly and precisely communicate[d]" that mold damage is not covered even when it results from a covered sudden and accidental discharge of water, do not violate the California insurance code. (§530; The efficient proximate cause doctrine). "Toxic mold" or "sick building syndrome" claims involve the contamination of the interior of structures which can severely damage the building, along with bodily injury and sickness to its occupants.
Claims involving mold can involve construction defects, negligent maintenance, civil, criminal statutory violations, fraud, bad faith, implied warranty of habitability, nuisance, constructive eviction, and emotional distress. Excess humidity, leaky roofs and pipes, foundation cracks, and condensation can contribute to mold problems.
Most mold claims arise from flooding incidents, many of which result from, or are related to, poor maintenance (not a covered cause), "concurrent cause" is a common defense for insurance companies to deny coverage.
Many homeowners are forced to pay the legal fees, time and effort in suing their insurance company over a mold claim. Homeowners may also expect their insurance company to defend them in case of lawsuits by renters, property owners, condominium associations and HOAs for damages due to alleged mold exposure coming from construction defects when there is some water damage or ongoing moisture problems.
The property damage claims from mold can include plaintiff’s move-out expenses, remediation expenses, ventilation replacement, floor, ceiling and wall covering replacement, loss or diminution of the inherent value of the home, inability to use the subject premises, loss of use of money, hotel and apartment rental expenses, and stigma damages.
Mold victims bodily injury claims often seek compensation for medical injuries, including respiratory distress, episodic vertigo, headaches, inflammation and rashes on the face, eyes and throat, acute pain in the abdomen, injury to the central nervous system, and emotional distress.
Insurance companies have filed petitions in every state trying to limit mold coverage by seeking insurance department mold exclusions for their policies or asking the insurance departments to place “caps” on coverages. So far, 28 states have approved caps on coverage ranging from $5,000. to $50,000. With the insurance industry adding more and more exclusions for mold damage and with demand for coverage increasing, a handful of specialty insurers are offering mold coverage in separate environmental insurance policies. The specialty environmental insurance market has come up with what are called “microbial matter endorsements” commonly known as mold coverage. These cover certain fungi and bacterial matter in any structure and the air within it.
The specialty environmental insurance market has come up with what are called “microbial matter endorsements” commonly known as mold coverage. These cover certain fungi and bacterial matter in any structure and the air within it.
Many such policies are separately and individually negotiated, based on such factors as the type and size of the property, the potential for wet conditions, the type of building, the type of roof, incidents of water damage, reports of allergic reactions, respiratory or other air quality complaints, and HVAC and mold inspection plans. Coverage, when available, usually does not exceed a certain amount of coverage years, and there are often dollar limits for both indemnity and defense payments.
The new coverage, however, doesn't come cheap. For multifamily housing, annual premiums for an environmental policy with mold coverage generally run about 20%-50% higher than the cost of a policy without such coverage;
Most property policies have a long laundry list of exclusions for damage caused by mold, dry or wet rot, corrosion, pollution, wear and tear, deterioration, faulty workmanship and materials, construction defect, and the like. To make matters more complicated, some policies have limited "exceptions" to the exclusions–kind of like a double negative–that may provide some very limited coverage for mold contamination. In several states, like California and Texas–in response to insurers threatening to boycott coverage for water damage, as well as mold contamination coverage–insurance regulators are developing rules to permit insurers to provide minimum mold contamination coverage, e.g., $5,000 property limits, unless the policyholder buys more expensive coverage separately. Check your policy after it has been renewed to see if mold coverage limitations have been inserted.
When mold contamination develops as a secondary problem from water damage that is covered, your insurance company may cover the additional cost to remediate the mold contamination. More often than not, the real fight with your insurance company is over identifying the most important cause or causes of the mold contamination–are they covered or excluded? The jury is still out in most states as to whether mold is a "pollutant" within the meaning of most pollution exclusions.
As a general rule, most insurers attempt to exclude coverage for mold contamination associated with long-term leakage, moisture or water intrusion from a construction defect, wear and tear, deferred maintenance or poor repairs. Most insurers will acknowledge coverage for mold contamination associated with accidental discharge of a closed plumbing system–as long as you take reasonable steps to protect and repair the property after you discover the damage. Accordingly, never speculate or guess about the cause(s) of the mold contamination or suggest to or agree with your insurance company that the mold must have been around for a long time or that there must be some hidden leak somewhere. Wait until all the investigation is completed before you acknowledge or agree as to the cause(s) of the loss with your insurance company.