California SB 1763 Passed by Senate
Submitted by Franco Seif, Los Angeles Chapter Director

The California Senate has approved SB 1763 by a 21-11 vote, and it is now on its way to the Assembly. The bill would allegedly force insurers to cover mold claims, a move that trade groups said could cause an availability crisis for homeowners insurance in the state.

Insurers are apparently opposed to the bill because companies have not put mold claims into their pricing criteria. It has been reported that mold claims have completely changed in the last two years. A normal water-damage claim which used to be $3,000 is now $36,000, and this was never built into the rates.

The bill 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. 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.

One commercial writer reported having 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.

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 homeowner's rate in California could grow to $2,300, according to the federation.

Several insurers in California have asked permission 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 multi-peril 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.

What happens in California bears watching closely, as other states will be looking for models as they move toward mold legislation of their own.