Cal. Bill Mandating Mold Coverage Killed in Assembly Committee After Passage in the Senate
January, 2002
On June 26, 2002, the California insurance industry was given a reprieve when a bill that would have prevented both property and liability insurers from excluding mold losses that resulted from a covered peril failed to get out of the California Assembly’s Insurance Committee. The bill, SB 1763, had passed the State Senate on May 23, 2002 by a vote of 21-11.
Although the bill would have allowed insurers to continue to exclude mold as a covered peril, most if not all mold losses are the result of some other event, such as water damage from a burst pipe, that sets the stage for the development of mold. As a practical matter, then, the bill would have effectively mandated coverage for mold claims so long as the mold damage ensued from a covered cause of loss.
The legislation, which was opposed by the insurance industry, would have been another nail in the coffin of affordable homeowner’s insurance in California and undoubtedly caused more insurers to flee what has been reported to be an unprofitable market. Until recently, homeowners insurers have for the most part been paying to remediate mold that is the result of fire or water damage, for instance. According to an article in the Insurance Journal, however, the sharp increase in mold claims and the public “frenzy” over the purported health risks of mold exposure has caused more and more insurers to file exclusions for mold damage that ensues from an insured peril. Currently, insurers in California are permitted to exclude mold if they are unable to assess the risk posed by potential mold damage and, as noted above, more and more are taking that action.
The bill would have also forced insurance claims personnel to “disclose” the potential for mold damage to a claimant whenever mold was “likely to be present.” Opponents of the bill argued that such a requirement imposed an unreasonable burden on the claim handler to speculate whether a particular claim posed a mold threat and, thus, had the practical effect of requiring “disclosure” in virtually all instances where a claim has been made.
While it is unclear whether some other version of SB1763 will be proposed in the future, it is fair to say that now, at least, insurers are breathing a collective sigh of relief over the bill’s demise.
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