'Mold refugees' Insurance claims are multiplying; health effects remain unclear.

Sunday, June 24, 2001
By Laura Elder and Neal Falgoust
Caller-Times David Pellerin/Caller-Times

Dwight and Linda Mercer's home on Samoa Drive in Flour Bluff looks like any other. But no
one dares enter without first donning protective suits, facemasks and goggles. Toxic mold has
eaten away at the home's wooden floor beams, and a fuzzy fungus covers furniture the family
left behind when it fled nine months ago. "I don't know when we'll be able to have a home,"
said Linda Mercer, whose family now lives in a rented duplex on Padre Island. The Mercers
face a bill of nearly $400,000 to have the home cleaned and rebuilt. A contractor working for
the Mercers says the walls, the carpets, the furniture, the ceilings, vents and insulation must
be thrown away. They have sued their insurance company. Realtors, attorneys and contractors
working on mold cases estimate that hundreds of local residents have been forced out of their
homes because of mold. But the issue of mold contamination is so new that no agency tracks it.
While mold has always been around, increasing media attention and high-profile lawsuits about
some potentially toxic strains and their possible links to health problems have some homeowners
worried.

Not all are dangerous

But the Centers for Disease Control and Prevention say there is no reason for hysteria. Not all
molds are dangerous. The centers said reports that toxic molds caused adverse health conditions
- pulmonary disorders and memory loss - are rare. It has not established a causal link between
mold and serious illnesses. But the center warns that anyone who suspects they have an illness
caused by mold should see a doctor and decide what action to take, because mold toxins are not
visible to the naked eye. Mold is a simple organism, but it's creating some complicated issues:

Farmers Insurance Group estimates this year it will pay out $85 million in mold claims. In Texas,
State Farm Insurance has seen its mold claims rise 650 percent since January. The company
didn't track mold claims last year. Insurers estimate that losses resulting from mold could drive
a 30 percent increase in the cost of homeowners insurance in Texas.

Hundreds of local families, dubbed mold refugees, have moved out of homes they suspect are
contaminated, Realtors, attorneys and contractors have said. Most now live in rental property,
but about a dozen families are living in Marriott's Residence Inn. For the past nine months, mold
refugees have accounted for 40 percent of the Inn's occupants. Another six families have lived in
Embassy Suites Hotel. The Texas Association of Realtors last month included mold as a
problem area it asks sellers to disclose. Some local real estate brokers say potential buyers
have balked at closing deals for homes after sellers disclosed mold problems.

Because of increasing claims, insurers have asked the Texas Department of Insurance for
permission to exclude mold coverage from homeowner policies. If the department approves
the request, the exclusion will not affect existing policies until they are renewed. Such a move
would leave homeowners holding the bill.

The cost to remove mold and rebuild structures varies, depending upon the size of the problem.
A few square inches could be cleaned with household bleach and water. But a minor contamination
could cost a few thousand dollars to fix. Contamination of the entire house could cost several
hundred thousand dollars. Meanwhile, families must continue to pay mortgages on their fungus-filled
homes and in some cases foot relocation costs until the insurance companies agree to reimburse
expenses.

Lawyers have begun to tap into a rich, new vein of mold litigation. Just this month, an Austin jury
ruled against Farmers Insurance Group by awarding a Dripping Springs family $32.1 million in a
case claiming extensive mold damage. While mold claims are cropping up across the nation,
Texas is a hotbed of litigation because judges and juries interpret insurance policies more broadly
than other states, say insurance trade groups.

Conflicting costs

Corpus Christi City Councilman and local attorney Brent Chesney represents more than a
dozen local families who have taken on their insurance companies, hoping to force insurers
to pay mold damage claims.

"If the insurance companies draw a line in the sand and say, 'We don't think we need to cover
this,' they are going to get hit with a lot of verdicts," Chesney said. Families say their policies
should cover the bill, but insurance representatives say the cost of covering mold is too high.
While some molds are known to cause illness, no one knows enough about how it spreads
and the long-term effects, said Felipe Farias, a spokesman for State Farm Insurance in South
Texas. And because there's not enough information about mold and its health effects, it's
causing some undue panic, he said. Some insurers continue to pay their clients' relocation
costs, even as they wait for the insurance department to decide whether companies can
exclude mold coverage, Farias said. "No one is taking chances," Farias said. "We're not
doctors or scientists and we have to be careful."

Increased claims

Insurance companies didn't expect such an influx of mold claims this year, he said. The
sudden increase in claims has left insurers clamoring for a way to cover all the costs.
"The mold is a totally new issue and all of a sudden you have hundreds of millions of dollars
worth of claims you didn't expect to pay," Farias said. "How are we going to handle the large
influx of mold claims and have a reasonable product as far as pricing? We're concerned about
the policyholder. You and I are going to pay for it." Already, Texans pay the highest insurance
rates in the nation, averaging $879 a year for standard coverage, according to the National
Association of Insurance Commissioners' most recent data. The national average is $481.
Texas' triple threat - hurricanes, tornadoes and hail - make the state a high-risk place to do
business, say insurers. Nelda Martinez, president of the Holly Road division of Stewart Title,
said she feared that abuse of mold claims could cause insurance rates to rise. "Legitimate
claims should certainly be addressed. However, there is a strong concern for potential abuse
in this area," Martinez said. "Replacement costs for real estate and claims for individual's
health need to be reasonable. Otherwise, there is a possibility that our insurance premiums
could become cost prohibitive."

Living in limbo

Awful.
That's how Frank and Rafaela Sanchez describe the past year of their lives. The Corpus
Christi couple, their 16-year-old son, Erik, and Rafaela's brother, Pedro Bosman,moved
out of their home last year because they suspected mold was making them sick.
Rafaela Sanchez had made more than four dozen doctor visits during the four years she
lived in her Greenway Drive home. Upper respiratory problems, allergies and headaches
plagued her. "Nobody could figure out what was making me sick," she said. The family
moved out of the home in April of last year, after Rafaela Sanchez's doctor suggested her
symptoms were caused by mold found in her garage and bathroom. Since then, her family
has lived a nomadic life between hotel rooms and rented apartments. The Sanchezes'
insurance company has been less than accommodating, Frank Sanchez said. The company
has paid the family's relocation costs, but neither side has reached an agreement about who
should pay to have the home fixed. The family has sued the company, but the two sides still
sit in legal limbo. The fight has the entire household upset. Erik Sanchez wants to move back
home, closer to friends. Rafaela Sanchez wants to go back to the home where she entertained
her family every Christmas. Frank Sanchez wants his sanity back. "It's like a bad nightmare,
and we're trying to wake up," he said.

Health care websites

A search of National Institutes of Health's Wed site can turn up dozens of pages about mold
and its effects on health. http://www.nih.gov/

A search of American Lung Association site can turn up dozens of pages about mold and its
effects on reparatory health. http://www.lungusa.org/

A search of Centers for Disease Control and Prevention Wed site can turn up dozens of pages
about mold and its effects on health. http://www.cdc.gov/

A search of the U.S. Environmental Protection Agency's Web site can turn up news and advice
for families who may have mold in their homes. http://www.epa.gov/iaq/pubs/moldresources.html

The Texas Department of Health's Division of Indoor Air Quality maintains explains how mold
can affect school buildings. http://www.tdh.state.tx.us/beh/IAQ/

The New York City Department of Health has issued guidelines for handling mold. Its report was
issued in 1993. http://www.ci.nyc.ny.us/html/doh/home.html

Slippery slope

While mold isn't new, awareness and fear about the damage it can do to health and home is
growing as fast as the fungus. David Weinberg, chairman of Dallas-based BioSafety Institute,
said the way we live partly is to blame for the current mold crisis.

"Thirty years ago, during the energy crisis, we began sealing up buildings to be more energy
efficient, which was fine, but we sealed ourselves up with a bunch of substances that aren't
dangerous if they can move in and out of the environment freely, but they're trapped with us."
Homebuilders agree. They said the increased use of paper products - like drywall boards -
combined with building techniques that restrict air flow makes homes prime breeding grounds
for mold.

When paper products get wet, they provide a rich source of food for mold colonies. The spores
produced by the mold then spread through the home via air conditioning ducts. By that time,
the entire home could be contaminated, and the only remedy is to start ripping out walls.
Mold has begun to attract more media attention, and more information about its effect on health
also has caused the fungus fervor, said state officials.

"It's mushroomed," said Mark Hanna, a Texas Department of Insurance spokesman. During the
past decade, the department received only three complaints from consumers angry about their
insurance providers' refusal to cover mold damage. In the past year, the department has received
20 complaints, and Hanna expects more. The department does not track actual claims on
insurance policies.

But insurers are bracing for litigation as they see the number of claims rising and their profits
plummeting. Hanna said his department, which regulates the state's insurance industry, must
protect homeowners and insurers.

"The onus is pretty much on the backs of insurance companies, and that's why they've turned
to us and said, 'We need help. If you want us to stay afloat, we need you to address the issue,' "
Hanna said.

Texas homeowner policies now include coverage for losses caused by mold or other fungi only
if the loss is the direct result of a covered peril, such as an accidental water leak. Farmers
Insurance Group has asked the Texas Department of Insurance for permission to exclude all
coverage of mold and fungi from the homeowner policies. The department is calling several
hearings on the issue - including one in Corpus Christi this summer - to get opinions from
everyone who would be affected by the insurer's proposal. It has not issued a ruling. "We want
to see the insurance companies make a profit, but at the same time we don't want there to be
any detriment to consumers as far as raising rates or taking away coverage that has been there,"
Hanna said.

The idea that insurance companies want to exclude mold coverage has incensed some
politicians. Because mold thrives in humid and moist climates, Corpus Christi-area homes
are particularly vulnerable to contamination and any decision about insurance coverage by
state officials.

"The filing by an insurance company requesting permission to exclude mold and fungus
damage from coverage should be seen as an obvious power play against homeowners in
humid climates," state Sen. Carlos Truan, D-Corpus Christi, wrote in a June 4 letter to
Commissioner of Insurance Josè Montemayor.

Peace of mind

Costs of cleaning up mold aren't covered by existing premiums, said Robert Hartwig,
vice president and chief economist at New York-based Insurance Information Institute,
a trade group. "If they (insurance companies) are unable to exclude it, that means that
necessarily the cost of providing homeowners insurance in Texas will rise," Hartwig said.
"There's a need to remain stable and not do anything that contributes to a rise in homeowners
insurance."

Another option for homeowners is to buy a separate policy for mold insurance, Hanna said.
Frank Sanchez, whose family has lived in temporary quarters for the past year, said his family
bought homeowners insurance for the peace of mind it offered. He wanted financial support for
his growing family in the event something tragic happened. Now, the company he and his family
depended on isn't stepping forward, Frank Sanchez said.

"This is our lives we're talking about," he said. "We have this frustration toward the insurance
company that we didn't know existed." Families like the Mercers and the Sanchezes are caught
in the middle of the fight. They can't sell their homes because no one will buy them. They can't
get a new home because they can't afford one. All they can do is wait for the insurance companies,
mold removal contractors and lawyers to reach an agreement. "This is our home," said Linda
Mercer. "I just can't see doing anything else."

Contact Neal Falgoust at 886-4334 or falgoustn@caller.com
and Laura Elder at 886-3678 or elderl@caller.com

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