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| | 1/5/2009 11:09:37 PM |
May 23, 2002 - The California Senate has approved a bill that would force insurers to cover mold claims, a move that trade groups said could cause an availability crisis for homeowners insurance in the state.
The Senate approved SB. 1763 by a 21-11 vote, said Nicole Mahrt, a spokeswoman for the American Insurance Association. The bill is now on its way to the Assembly.
Insurers are opposed to the bill, Mahrt said, because companies have not put mold claims into their underwriting and pricing criteria.
"Mold has completely changed in the last two years. A normal water damage claim used to be $3,000. Now it's $36,000. This was never built into the rates," Mahrt said.
The bill, sponsored by Sen. Deborah Ortiz, D-Sacramento, would prohibit both commercial and personal insurers from seeking exclusions on mold coverage as an ensuing loss--a loss that followed a covered peril, such as a fire or a broken water pipe (BestWire, May 9, 2002). The bill also would follow the direction that Texas took and require insurers to cover all mold losses, even those stemming from routine maintenance issues, according to the National Association of Independent Insurers.
"No one wants California to end up like Texas," Mahrt said.
One AIA member commercial writer said it has had 300 mold claims amounting to $26 million in liability costs alone in nine months. California has the second-highest number of mold-related claims in the United States, behind Texas, according to the Personal Insurance Federation of California, a trade group that represents personal lines writers. Texas now has the most expensive homeowners rates in the nation, and California's rates could rise to Texas' levels if similar legislation is adopted, the federation warned (BestWire, April 5, 2002).
One federation member company said the average home it insures in Texas is valued at $131,000 and is charged $1,400 a year in premiums. The same company's average home in California is valued at $213,000 and is charged just $625 a year in premiums. If California mandates mold coverage as Texas did, then the average homeowners rate in California could grow to $2,300, the federation said.
Several insurers in California have asked to raise their homeowners rates--saying they are seeing a higher number of water-damage claims. Allstate recently won approval for an 18.5% increase, due in part to higher loss costs from water claims (BestWire, May 6, 2002). State Farm, the state's largest homeowners' writer, recently said it would stop writing new business in the market.
State Farm had a 22.1% share of homeowners multiperil coverage in California, according to A.M. Best Co. State/Line product information for 2000. Zurich/Farmers held a 19.6% market share, while Allstate had a 15.4% market share.
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