Water-Damage Payments in State Have Doubled Since ‘97, Survey Says

Insurance payments to homeowners for water damage have doubled in California since 1997, according to an industry survey that’s sure to intensify the debate over rising premiums and insurers’ increasing reluctance to pay claims related to mold.

The survey, to be released today by the Insurance Information Network of California, showed 24% of property insurance claims filed by the state’s homeowners in 1997 involved water damage, the category that includes mold claims. By last year, the figure had climbed to 32%.

The amount insurers paid in water claims to homeowners rose even more sharply, from $206.1million, or 20% of all property insurance payments, in 1997, to $430.5 million, 31% of such payments, in 2001.

The survey included insurers representing 63% of the state homeowners’ market, but no commercial lines, and the figures aren’t inflation-adjusted. Nonetheless, the industry says it’s enough data to explain why insurers are seeking to raise homeowners’ premiums and to be exempt from covering mold claims, or--in the case of State Farm Insurance Cos.--to stop writing new homeowner policies in California altogether.

“There are concerns that we’re heading for a crisis,” said Insurance Information Network spokeswoman Candysse Miller. “Think back a few years to the period after the Northridge earthquake, when any homeowner insurance was nearly unavailable.”

The state Department of Insurance last month granted Allstate Corp., California’s third-largest insurer, an 18.5% increase in premiums for home insurance policies, the latest in a series of approved rate increases.

State Farm’s California home insurance subsidiary, the state’s largest home insurer, recently won two hikes totaling 14%, and Farmers Insurance Group and the Automobile Club of Southern California have rate-increase requests pending.

With insurance claims rising nationwide after a relatively quiet period during much of the 1990s, the industry also has been seeking to limit its coverage of events including terrorism, dog bites and mold-related health claims.

As of May 1, the state Insurance Department had received 287 filings from insurers seeking to exclude or limit water-damage claims--mostly for commercial lines, but also on homeowners and even auto policies.

During recent hearings, though, some state legislators questioned whether the industry had proved the mold risks were extreme enough to warrant the exclusions. According to the Department of Insurance, the companies were only willing to reduce premiums by 1% to 3% after excluding mold claims.

“The average person would conclude this just doesn’t smell right,” said state Sen. Deborah Ortiz (D-Sacramento). “It’s the equivalent of saying, ‘If there’s a fire, we won’t cover smoke damage.’”

Ortiz has sponsored legislation requiring insurers to cover mold claims that result from a “covered peril” such as a burst water pipe. The bill, which also would require more disclosures about policy exclusions, passed the Senate last month and will be taken up by an Assembly insurance committee.

The issue snowballed nationally after claims for mold-abatement work and mold-related health claims mushroomed in Texas, which requires insurers to provide mold-related coverage. Farmers Insurance Group is appealing a $32-million judgment last year for its handling of one such claim. As lawmakers across the country consider legislation such as that sponsored by Ortiz, the industry is arguing that new laws should be delayed until more studies are completed of the health hazards presented by mold.

“There is no scientific consensus on what the mold problem is or how to deal with it. If insurers pay for mold remediation, they have no certainty that what is being done is effective or even necessary,” Eric Goldberg, assistant general counsel for the American Insurance Assn., told a New York state Senate health committee last month.

Miller said water damage--and consequent mold claims--can be significantly reduced by better maintenance, quick repairs and ensuring bathrooms and laundries are well-ventilated. She said the industry will undertake a major campaign to educate policyholders.