High Risk
Mold coverage
will be rare and costly
By
Sean Ryan
With
experts predicting that mold litigation will skyrocket in 2003,
insurance companies are cutting mold liability coverage, leaving
contractors to go into the field unprotected.
"The
contractor assumes for free a risk that insurance underwriters
won't cover for any amount of money," said David Dybdahl,
a chartered property casualty underwriter and senior consultant
for Middleton-based American Risk Management Resource Network.
"The key is that insurance underwriters saw mold as an issue
about a year ago and started working on their risk-management
strategy by excluding it."
The
majority of insurance providers this year are putting specific
mold exclusions in their pollution legal-liability policies, said
Cynthia Smith, partner with Michael Best & Friedrich LLP,
Milwaukee. Even before the exclusions, the pollution policies
didn't automatically cover mold claims, and courts have determined
liability on a case-by-case basis.
"It's
unclear whether or not mold falls in as a pollutant, a contaminant
or an irritant," Smith said. "Every time there's some
sort of a new risk, the insurance industry, once they understand
that risk, will insure that risk for a price."
The
insurance industry's new understanding appears to be that it's
too risky to include mold in pollution policies or homeowners'
insurance, so it's offering coverage in a separate, and more costly,
package, Dybdahl said.
"Mold
is a bigger cost issue for the insurance company than all other
perils combined, including hurricanes," Dybdahl said. "This
is the fastest growing risk-management problem in the states."
Pay up
Considering
the threat mold litigation poses to builders — 2001 saw $760
million worth of claims paid — Dybdahl said it would be foolhardy
for contractors not to pay for coverage. However, he estimated
that only 1 percent of builders in Wisconsin had gotten the coverage
so far.
"You
better get the right stuff because you can't rely on any fallback
decision once you decide to go bare," Dybdahl said. "The
key thing for the contractor is they're uninsured, and mold claims
bring down a firm fast. It multiplies if every building you build
under this design has mold in it. It's one mistake made many times."
In
2003, contractors could spend between $20,000 and $40,000 for
a microbial-matter endorsement to cover mold liability, and some
providers that charge $1,000 on homeowners' insurance will charge
$1,500 extra to cover mold.
Claims
against residential contractors are likely to increase because
homeowners without mold coverage will go after their builder to
reclaim costs. For 2003, the deck is stacked to have cases brought
against uninsured contractors since there are less than 10 Wisconsin
mold-insurance specialists, and both local media and plaintiffs'
lawyers are feeding the outbreak.
"There
are lawyers like that," Smith said. "But I think there
are other culprits. One is medicine: We really don't know a lot
about mold. The media has done a heck of a job whipping people
up about mold."
Joining
together
While
Dybdahl said the construction industry would be dramatically underprotected
in 2003, Smith said some contractors were teaming up to get affordable
mold coverage. Some smaller contractors have united under one
broker to get cheaper mold insurance through a package deal.
"What
the smaller people are doing is they're just sort of banding together,"
Smith said. "They would work with a broker. If a broker has
a number of smaller clients they may organize it."
The
five or six largest state contractors are getting discounts on
their mold insurance by creating mold prevention plans, Smith
said. Contractors can decrease mold payments with prevention programs
in the same way they receive cheaper workers' compensation rates
if they have safety plans in action.
"Insurance
companies are responding and giving breaks on premiums for companies
that have written plans in place," Smith said.
"It's
just common sense. It's talking to the guys in the field and getting
them to incorporate one or two more things into their daily plans."
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