THE ADVOCATE IS A MONTHLY NEWSLETTER FROM POLICYHOLDERS OF AMERICA
THE ADVOCATE (September, 2004)
INSIDE THIS ISSUE:
Save Big Bucks on 1
New Consumer-Friendly Insurance Products Hit Market. Insurance
GREAT Prices on GREAT Coverage for POA Members.
FEMA warns of mold 1
ourselves on the same page thorough medical screenings
as nearly all Democratic for artery/stroke, aortic aneu- Neuro-damage 2
candidates, legislators and rysm, osteoporosis and pe-
regulators. Frankly, our ripheral arterial disease (all
Linked to Mold
members are sick and tired the things that are above and
of being abused with high beyond normal screenings) Double Whammy on 2
rates, slashed coverage, we are introducing dis- Repair/Replacement
lowballing, and wrongful counted medical screenings
denials of claims, not to men- that could potentially save
tion CLUE reporting , espe- your life while saving you Opinion: Political 2-3
Pigs have flown!!!!! cially reporting of non- hundreds of dollars. (see Round-up
There’s now actually quality covered claims. page 4 for details)
insurance that pays. Plus, by teaming up with POA will also be sponsor- Claims Form That 3
another group that offers ing, in the near future, long Gets Claims Paid!
POA, along with various nearly 55 million potential term care. That is insurance
State Democratic Parties, policyholders, we are able to for folks who may one day
have teamed up to sponsor negotiate juicy deals on pre- need long term care and How to Pick an 4
quality insurance and health mium insurance products. don’t want to burden their Agent
related products for our children with the expense.
We’re going to get out of
members. We are gaining The product is very well A Special Health 4
the gate with some health
access to these products priced and we recommend it Alert
insurance and related prod-
through Marsh, the world's for those members who are
ucts. We will be sponsoring
largest insurance broker. 40+ or those who have family
an affordable health care Status on Bad Faith 5
plan that potentially could members who may need
Why did POA team up with care.
the Democratic Parties? It’s save you thousands of dol-
really quite simple. The De- lars. Individual premiums And, last but not least, we
Chronic Illness in 6
mocrats have, historically, range from $93—$157 per are moving forward with
month while full families pay superior homeowners and Water Damaged
supported consumer issues Buildings
while the Republicans seem between $193—$343 per auto coverage as well. We
to always support the insur- month. The price varies de- are in the process of negoti-
Pediatric Update: 7
ance industry and dislike pending on the package of ating a deal for members that
coverage desired. Business offers great coverage for the Water Damaged
levying penalties on insurers Buildings
for their wrong-doing. That owners who want to provide best price. Stay tuned for
may be a generalization but, benefits to employees while more on that soon. Water Damage 8-9
sadly it is true. trimming costs can enjoy
super deals with these health Causes = Cancella-
Since POA is a consumer plans too. tion
advocate and not an advo-
cate for the industry, we find For those interested in Homeowners Come 10-11
Up Short on Insur-
FEMA WARNS FL HURRICANE VICTIMS ABOUT MOLD local6.com ance
Lung Development 11
ORLANDO, Fla. -- The Fed- alert and is asking people "We have nobody to help
eral Emergency Management suffering from mold-related us," Mallard said. "We just and Pollution
Agency is reporting a sharp problems to call the Environ- need a general contractor
increase in the number of mental Protection Agency out here so we can get The Case that Can 12
mold cases in Central Florida mold hotline at (800) 438- started on fixing our house Change YOUR Life
in the last several days, 4318. before she (mother) has to
according to Local 6 News. evacuate from the mold."
Local 6 News featured
The lack of power and Allstate Insurance said Double-Dipping 13-16
one family in Seminole
recent thunderstorm flooding they can't send anyone out
County whose home is filled Deductibles
are preventing many proper- to the Mallard house until
with mold. Pam Mallard said
ties from drying out, which is September, Local 6 News
she cannot find help to clean
causing dangerous mold to reported. And FEMA said its
the mold and her elderly When to Test Your Back
grow indoors. paperwork is in the mail.
mother's life is in danger Cover
FEMA has issued a mold because of it.
Indoor mold exposure associated with neurobehavioral and pulmonary impairment.
Kilburn KH . University of Southern California, Keck School of Medicine. MedicineScLaboratory, Alhambra, California
Recently, patients who have been ex- was used to measure various pulmonary
posed indoors to mixed molds, spores, exposures were associated with neuro-
volumes and flows. Neurobehavioral
and mycotoxins have reported asthma, behavioral and pulmonary impairments
comparisons were made after individual
airway irritation and bleeding, dizziness, that likely resulted from the presence of
measurements were adjusted for age,
and impaired memory and concentra- mycotoxins, such as trichothecenes.
educational attainment, and sex. Signifi-
tion, all of which suggest the presence of cant differences between groups were
pulmonary and neurobehavioral prob- Publication Types:
assessed by analysis of variance; a p
lems. value of less than 0.05 was used for all
• Clinical Trial
The author evaluated whether such pa-
tients had measurable pulmonary and
neurobehavioral impairments by com-
The mold-exposed group exhibited de-
creased function for balance, reaction
• Controlled Clinical Trial
paring consecutive cases in a series vs. a
referent group. Sixty-five consecutive
time, blink-reflex latency, color discrimi-
nation, visual fields, and grip, compared
• Randomized Controlled Trial
outpatients exposed to mold in their with referents. The exposed group's
respective homes in Arizona, California, scores were reduced for the following PMID: 15143851
and Texas were compared with 202 tests: digit-symbol substitution, peg
community subjects who had no known placement, trail making, verbal recall,
mold or chemical exposures. Balance, and picture completion. Twenty-one of
choice reaction time, color discrimina- 26 functions tested were abnormal. Air-
tion, blink reflex, visual fields, grip, way obstructions were found, and vital
hearing, problem-solving, verbal recall, capacities were reduced. Mood state
perceptual motor speed, and memory scores and symptom frequencies were
were measured. Medical histories, mood elevated.
states, and symptom frequencies were
recorded with checklists, and spirometry The author concluded that indoor mold
Double Whammy on Lowball Pricing for Repairs and Replacement
Most insurers use a pricing program already woefully low Xactimate pricing. distributed these memos in an attempt to
called Xactimate to arrive at their repair In super secret memos obtained by “educate” adjusters about the new pric-
and/or replacement estimates. These POA, one “independent” adjusting com- ing policies. The instructions to the
estimates are used as the basis from pany, per the instructions from clients adjusters: Use these new prices not
which payments are issued to policy- like Travelers, reduced the estimates other Xactimate prices.
holders. For example, if Xactimate pegs even further by lowballing the already That’s a double-whammy if there ever
plywood at $5 per sheet, and 5 sheets of lowballed Xactimate prices. was one. And, who does this impact the
plywood are needed, then repairs are The memos were distributed by Travel- most? Hurricane victims in Florida.
pegged at $25. ers when the insurance giant was at- For more go to:
Insurance companies have found new tempting to hire adjusters to handle http://www.policyholdersofamerica.com/insurance_clai
and creative (slimy) ways around the hurricane claims in Florida. Travelers ms_adjusters_on_xactimate_pricing.pdf
POLITICAL ROUND-UP: The Republican Insurance Scam
If an insurance company promises to cover a make it less likely that an insurance company This is what the entire debate is about. The
loss or claim, why do the Republicans want will have to pay money. The arbitrators will be Democrats say that insurance companies
them to be able to break their promise? This is hired by the insurance company....and even if should not be able to break their promises to
the heart of the debate on the rights of patients they are instead hired by the state, they will be those they insure. The Republicans say they
to sue their HMOs. Presently, virtually every- courted by the insurance companies much like should be able to break their promises. Let us
one knows that insurance companies will, as a the judges are nowadays. The insurance com- examine the common Republican response to
matter of policy, deny claims or delay pay- panies are HAPPY to pay massive sums for this fact:
ments of claims which are valid. For the insur- political campaigns... heck, if they give say $1
ance company, it makes all the sense in the million to a governor, and he pushes through 1. "Well, if insurance companies have to
world. They get to keep the money, and earn tort "reform" (which actually just means insur- actually meet their obligations, they will
interest on it, and write policies against the ance companies don't have to cover some have to raise rates and millions of chil-
reserve. Maybe the claimant will die or just go claims they did before) then they make out like dren will be without health insurance"
away. The claims adjuster is pressured to not bandits. Hmmm... insurance companies...
pay claims easily. bandits... yeah, I can see the connection.
So the right to sue an insurance company is of But I digress. If patients can sue the insurance
paramount importance. Without the right to companies, the insurance companies will lose
sue, you will literally be at the mercy of the some money because they will have to pay
insurance company to cover whatever it claims they would otherwise refuse to pay. Continued on page 3………………………………..
pleases. The idea of arbitration is of course to
Political Round-up continued…. This is an opinion piece and does not necessarily reflect the
opinion of POA. POA publishes many opinions that we find thought-provoking and give readers something to think about.
to maximize their profit (and the salaries whom are Republican).
This is the most common argument. It is of their executives).
also utterly ridiculous. Insurance is valu- 3. "Well, if we have a patient's bill of
The multimillion dollar verdicts you read rights, why not cap damages at
able only to the extent that it can be relied
about are news because they are so $500,000 to keep the juries from going
upon to cover a claim or a loss. If you have
rare! For every big verdict, there are hog wild?"
a health insurance policy that refuses to
pay for medical treatment, you are worse literally thousands of smaller claims Simple. In every case where the verdict
off than if you had no health insurance. which will be thrown out or settled for a is excessive, the insurance company has
See, you rely on the insurance in making small sum. You do not hear about these
the right to seek a decrease in the ver-
claims because they are not news. Yes,
many decisions (how much cash to keep dict. The insurance company also has
some lawyers will make money off of
on hand, whether or not to buy another the right of appeal to a higher court in the
cases brought to force insurance compa-
policy that would cover the claim, and so event the verdict is not decreased. The
on). If you lose health insurance that does nies to meet their obligations. Guess caps then become relevant only in those
not cover claims, you are better off be- what? The insurance companies will most egregious cases where insurance
cause the insurance only provides an illu- companies have acted so horribly that a
sion of protection. multimillion dollar verdict will be allowed
Also, if the premiums do in fact go up, then A patient's bill of rights to stand. Why should horrible conduct be
the "spreading of the risk," which is the protected?
philosophical basis for insurance, is merely will cost our big campaign Another point to ponder: say insurance
meeting market demands. Those Republi- company liability will be capped at
can rascals do so love a free market... donating insurance $500,000. Let's say you get into a severe
except when it might make some of their companies and their accident and after surgeries, physical
donors lose money. therapy, speech therapy, job retraining,
executives lots of money, and so on the bill will be in excess of $1
million. Do you think your insurance
2. "The trial lawyers will make tons of and they won't have as company will pay $1 million if its liability
money and the Democrats are in their is capped at $500,000? Especially when
pocket." much to give to the the $500,000 would have to be paid say
This argument is real fun! See, a lawyer two years from now, after a lengthy court
never awards a single dime in damages. A
Republicans' next battle? Trust me, they would not pay a
lawyer cannot award anything! The jury dime.
campaign if that happens."
awards money, and juries are made up of Finally, there is the REAL reason Repub-
American citizens. The Republicans and licans oppose a patient's bill of rights:
the insurance companies fear the citizen
jury, though, because in court, a multimil- have their own lawyers too who will usu- "A patient's bill of rights will cost our big
ally make much more money than the campaign donating insurance companies
lionaire is supposed to have the same
plaintiffs lawyers. and their executives lots of money, and
rights as the poor person. The Republicans
they won't have as much to give to the
thrive on being the ruling class; they do not The jury system is a basic part of our
like the prospect of being subject to the Republicans' next campaign if that hap-
system of government. Insurance com-
same rules as everyone else. The insur- pens."
panies and Republicans hate it, because
ance companies accept trials as a part of they do not want the average citizen to Well at least it is the truth. You won't
doing business, but just as they are not have any power over their conduct. That ever hear a Republican admit it though!
subject to antitrust provisions, they like to is why it is necessary for the Republi-
limit their liability wherever possible so as cans to demonize lawyers (many of
Policyholder Claims Form Now Available
Adjusters have forms to fill out
when a claim is filed so, as always, useful to you because it documents what
POA evens the score and levels the the insurance company knew and when
playing field by creating our own they knew it.
claims form which should be filled Do unto others as you
The “Policyholder Claim Form” is
out by the policyholder. It’s a sim- would have them do available on our website at:
ple, helpful form that enables you, http://www.policyholdersofamerica.org/claims_form.pdf
the policyholder, to better organize
your claim, track it, log in informa- All-rightly-then.
tion and provide all such info back If you or a family member have a claim, be
to the insurance company. certain to print this form off the site. It will
If and when the claim goes
south, this form will be extremely
HOW TO PICK AN AGENT: Get someone who will go to the mat for you
So you are in the market for insurance Why is that important? Because if a ble.
and you comb through the phone book problem occurs and you are at odds The independent agents, on the other
or consult with your with the insurance company, hand, seem far less fearful of reprisals.
neighbor who happens you want your agent to be If one carrier gets mad at them for advo-
to be an agent. your advocate. If his or her cating for the policyholder, the agent
Not so fast! income stream is contingent can take on a competing line.
on one company, he or she is
POA recommends far less likely to go toe-to- POA has asked a number of captive
independent agents, toe with the carrier for you agents associations to step up to the
not “captive agents”. or anyone else. plate and serve as advocates. Thus far,
Don’t know the differ- they have refused and cite the potential
ence? Don’t feel left We see it daily. POA re- loss of income as the reason.
ceives thousands of calls
out; few do. Remember that when you’re shopping
each year from agents —
A captive agent can both captive and independent for insurance. In the end, picking the
only sell one “brand” agents. The captive agents “right” agent may be more important
of insurance like State typically tell us that their than picking the right insurance com-
Farm, Allstate or company is not following the pany.
Farmers. Independent agents sell a vari- laws governing claims handling but
ety of competing insurance products cannot take on the insurance company
and are not beholding to any one com- for fear of reprisal. These agents must,
pany. after all, put food on their family’s ta-
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involvement in POA.
Bad Faith in First Party Property Claims By: Everette Lee Herndon, Jr.
i.e. you can sue an insurance company
The insurance industry has recognized for Bad Faith in some states but not in
the concept of “Bad Faith” for many others. However, each lawsuit that goes
years and has acknowledged that an to trial could change the state’s view on
insurance policy carries with it a cove- Bad Faith.
nant of good faith and fair dealing.
The Fire, Casualty & Surety Bulletins, At heart, bad faith is the
an insurance industry publication recog- intentional failure by an insurer
nized nationwide by insurance compa- to perform the duty of good
nies, says that: faith and fair dealing implied at
law. Generally, an insurer may
be acting in bad faith when it
At heart, bad faith is the intentional
refuses to pay a claim and (1)
failure by an insurer to perform the duty
has no reasonable basis for Find out where your state
of good faith and fair dealing implied at
refusing to pay and has actual stands on bad faith:
law. Generally, an insurer may be act- http://www.zreclaim.com/badfaith/
knowledge of that fact, or (2)
ing in bad faith when it refuses to pay a newchart.asp
has intentionally failed to
claim and (1) has no reasonable basis
determine whether it had a
for refusing to pay and has actual
reasonable basis for so
knowledge of that fact, or (2) has inten-
tionally failed to determine whether it refusing.
In Texas, the case of Universal Life
had a reasonable basis for so refusing. Ins. Co v Giles, A.W. 2nd 48 (1997)
refined the Texas standard to say that an
insurer acts in Bad Faith when it denies
The courts in various states have rec-
For a quick summary of where your or delays payment of a claim after it
ognized the concept of a covenant of
state may stand on Bad Faith as a cause should have become reasonably clear
good faith and fair dealing between the
of action, either tort or contract, check that the claim was covered.
insurance company and the insured. A
breach of this implied covenant or duty out the Zurich Reinsurance (now Con-
is a violation of the insurance policy verium) web - s i t e a t
http://www.zreclaim.com/badfaith/newc Recovery of damages for Bad Faith
itself and of good claims handling prac- lawsuits also varies from state to state.
tices. This breach may (or may not) be hart.asp for a chart covering the 50
states. For definite information on your Some states allow punitive damages
recognized by a state as a cause of ac- (above and beyond the policy limits),
tion entitling the insured to sue the in- state, consult a local attorney as laws
while other states restrict damages to
surance company for Bad Faith. change frequently.
actual policy coverage or contract dam-
Bad Faith is more than ordinary negli- One of the earlier cases allowing a
gence or breach of contract. Bad Faith claim against an insurer was
Check with your local attorney to
the California case of Gruenberg v.
determine what causes of action (if any)
Aetna Ins. Co., 510 P.2d 1032 (1973).
In Gruenberg, the court allowed the are allowed in your state and what types
Mike Johnston, a trial lawyer from
insured to pursue a first party Bad Faith of damages are recoverable.
Oklahoma, has developed a list of his
"Top 40" types of acts of Bad Faith by action when the insurer failed to deal
insurance companies. Recognition of fairly and in good faith by refusing,
these acts or types of acts as Bad Faith without proper cause, to compensate its
will depend on your local state court. insured for a covered loss.
Mr. Johnston’s list can be found at:
htm An Arizona court, in the case of Haw-
kins v. Allstate Ins. Co., 733 P.2d 1073 Everette Lee Herndon, Jr. is a bad
(1987), stated that first party Bad Faith faith expert and authors articles in legal
The actual implementation of the actions are allowed if insurer intention- and claims publications. His website is:
concept of Bad Faith varies from state ally denied a claim without a reasonable http://www.leeherndon.com/
to state. Some states recognize Bad basis.
Faith as either a tort or contract cause of
action (or both); others states do not -
Abstract: Changes in VEGF, MMP9 and leptin correlate with acute and chronic illness symptoms and visual contrast
sensitivity in patients from water damaged buildings: Indicators of complex physiologic disturbances in Sick Building
Syndrome Authors: Ritchie C. Shoemaker¹, Dennis House¹ ¹Center for Research on Biotoxin Associated Illnesses, Pocomoke, Md
A 5-step repetitive exposure protocol formed consent. Exposure to tobacco DISCUSSION:
provides a mechanism to document smoke, IgE, pulmonary function testing
causation of illness in symptomatic results before and after interventions
patients exposed to in door environ- and HLA DR genotypes were recorded. Use of symptoms, VCS, leptin, VEGF
ments of water-damaged buildings and MMP9 gives the treating physician
(WDB). By demonstrating benefits of biomarkers useful in case identification
treatment with cholestyramine (CSM) and assessment of efficacy of therapy.
of affected patients, with stability off Changes in biomarkers suggest patho-
medication away from exposure and physiologic abnormalities acquired
then documenting changes in symptoms following exposure to water damaged
and biomarkers prospectively with re- buildings. These biomarkers change
exposure, followed by correction with hyperacutely in each step, with clinical
re-treatment, we have previously shown stability in chronic conditions. The di-
that the physiologic disturbances under- “Changes in biomarkers rect physiologic effects of toxic ele-
lying illness in Sick Building Syndrome ments from indoor buildings can be
are identical to those of a chronic bio-
assessed clinically and used in prospec-
toxin associated illness. We present abnormalities acquired tive studies that can assign causation. A
data here to support use of leptin, vascu- double blinded, placebo controlled
lar endothelial growth factor (VEGF) following exposure to water clinical trial designed to further define
and matrix metalloproteinase-9 these results is underway.
(MMP9) as biochemical markers for damaged buildings.”
both acute and chronic illness adjunc-
tive to recording of symptoms and vis-
ual contrast sensitivity (VCS). We again
present data on unique genotypes of
HLA DR, analyzed by PCR, previously
reported to be associated with a genetic
basis of susceptibility to neurotoxic “Each affected
illness caused by exposure to resident
indoor toxigenic fungi. The unique
grouping of symptoms found in these RESULTS:
patients, including fatigue, neurologic,
respiratory and rheumatologic symp- clinical improvement
toms match changes of biomarkers with Each affected patient showed clinical
treatment and re-exposure. improvement following treatment with
CSM and was stable off drug, away
from exposure to the known affected
METHODS: building. Each patient relapsed within 3 with CSM and was
days of re-exposure to the contaminated
26 consecutive patients exposed to
building off CSM, with improvement stable off drug, away
following re-treatment. Change in clini-
buildings with growth of identified cal course was paralleled by symptoms,
toxigenic fungi attending a private VCS, leptin, MMP9 and VEGF. Im-
from exposure to the
clinic for diagnosis and treatment of provement in PFT testing was noted.
chronic fatiguing illness refractory to all HLA DR genotypes previously noted to known affected
prior modalities of therapy agreed to confer susceptibility were again demon-
participate in an IRB approved, multiple strated. Tobacco smoke was not a rele- building.”
intervention, longitudinal clinical treat- vant clinical parameter. Symptom ros-
ment trial using CSM to assess the ef- ters showed multiple organ system ill-
fect of exposure, treatment, re-exposure ness, with fatigue, chronic pain and
and re-treatment on multiple simultane- cognitive problems most commonly
ously measured clinical and laboratory identified.
parameters. Each patient provided in-
Identifying markers for chronic illness in pediatric patients exposed to water damaged buildings:
Linkage disequilibrium of HLA DR, MSH, MMP9 and autoantibodies Authors: Ritchie C. Shoemaker¹, Courtney Holt¹, Dennis House¹, HK
Hudnell² ¹Center for Research on Biotoxin Associated Illnesses, Pocomoke, Md; ²US EPA NHEERL, Research Triangle Park, NC
We have seen an increased inci- Control populations have mark-
No studies have previously iden- edly different HLA DR genotype
tified biomarkers adequate to dence of antibodies to gliadin,
cardiolipin and myelin basic pro- distributions from cases, with
create a case definition of illness relative risks for illness identi-
associated with exposure to wa- tein in adults with chronic illness
following exposure to WDB. fied for the same genotypes as
ter damaged buildings (WDB) in reported previously in adults.
pediatric patients. Previous Here we present data supporting
a pediatric case definition using Affected patients had lower lev-
work from this facility has pre- els of MSH and MMP9 than
sented a case definition of illness multiple biomarkers from 66
patients with illness following controls. Marked increase in
in adults that includes exposure, incidence of antibodies to an-
symptoms and absence of con- exposure to WDB.
tigliadin IgG, anticardiolipin
IgM and myelin basic protein
Specific genetic, Methods: antibodies was found in affected
patients compared to controls.
physiologic and Taken together, the combination
Patients under age 19 coming for of potential for exposure, ab-
neurotoxicologic treatment of chronic illness at a sence of confounding diagnoses,
specialized medical clinic pro- presence of distinctive groupings
factors can be
vided informed consent for of symptoms, including fatigue
identified in pediatric evaluation and blood testing and cognitive problems identi-
prior to initiation of definitive fied over 85% of cases. Adding
patients that identify therapy for presumptive chronic, HLA DR, MSH deficiency,
biotoxin associated illness. AGA-IgG and ACLA-IgM in-
cases of chronic illness Symptoms were recorded and creased the case detection rate to
blood was sent to national high 100%. For patients with MMP9
due to exposure to complexity labs for analysis of over 400, HLA DR and MSH
water damaged HLA DR genotype, MSH, deficiency alone identified all
MMP9, anticardiolipins cases.
buildings. (ACLA), antigliadins (AGA)
and myelin basic protein (MBP)
antibodies. Lab parameters were Conclusion: Specific genetic,
founders, together with bio- compared to in-house registries physiologic and neurotoxi-
markers HLA DR genotypes of of control patients and published cologic factors can be identified
the immune response genes; de- registries. Following treatment in pediatric patients that identify
ficiency of the hypothalamic and confirmation of diagnosis, cases of chronic illness due to
immunomodulatory hormone, cases were then analyzed by bio- exposure to WDB. Physiologic
alpha melanocyte stimulating marker to identify unique diag- mechanisms associated with in-
hormone (MSH); excess pro- nostic features. creased production of particular
inflammatory cytokine re- autoantibodies will require fur-
sponses, represented by matrix ther study.
deficits in visual contrast and
pituitary hormone dysregulation.
Water-damage claims cause a flood of canceled coverage By: Carol Lloyd, Inman
upper unit, which seemed to have quired three mold inspections, the cou-
" ome see what an uninsurable prop- leaked water into the bedroom of their ple found a furnished apartment for
erty looks like," Mark Christiansen daughter, Chloe, below. But when water $4,000, to be paid for by the insurance
laughed. The 37-year-old graphic artist was sheeting down the walls again after company.
and his wife, Amy Lodato, were in a a storm, the couple filed a claim with Again, Christiansen and Lodato didn't
mad scramble to get insurance for their their insurance company and called the fully understand how this kind of expen-
1940 Russo-style duplex in San Fran- roofing company to return to redo the
diture might damage their ability to get
cisco's Lone Mountain neighborhood. work, which carried a five-year war-
insurance in the future. But, looking
ranty. back, Christiansen now realizes the
Uninsurable? Images run rampant
through my mind: A mildewed shack, Soon after, their upstairs tenant fell insurance company must have been
teeming with rats, perched atop a cliff. asleep with the shower running, flood- racking up the bills. The construction
A burned-out hovel inhabited by squat- ing the bathroom and saturating some company had turned the apartment into
ters on the edge of a brush-fire zone. A of the walls downstairs. The next day, a a hazmat site, sealing the back of the
straw-bale house in a flood zone. claims adjuster came to check on the house in plastic, creating a "clean room"
work that was already being done on for workers to change in and out of
What I don't imagine is the property I the initial leak and ended up writing up "contaminated" clothes, running nega-
saw upon arriving at Christiansen and a second claim for the new damage. He tive air machines 24 hours a day. In
Lodato's home one blustery afternoon: also asked Christiansen and Lodato to retrospect, the couple seem to think
well-maintained old construction and have part of a wall removed to see how many of the precautions were overkill,
finely crafted remodeled details, gleam- extensive the damage was; the owners to protect the insurer's liability. "It was
ing hardwood floors, new paint and a found little dots of mildew on the wood. insane," Lodato said. "They were all
pristine backyard. As carefully groomed wearing hazmat suits and using [high-
as a Pacific Heights poodle, this house Had Christiansen and Lodato known
efficiency particulate-air vacuum clean-
embodied that old real estate bromide anything about the current workings of
homeowner's insurance, they would ers] to clean all of our belongings that
"pride in ownership." didn't have to be discarded. We had to
have known that their house was al-
It may seem strange, but this is exactly throw everything away that was soft –
ready marked by bad insurance karma.
what uninsurable property looks like in Because leaks can lead to mold and Chloe's toys, mattresses, everything."
2004, when homeowner's insurance in mold can lead to multimillion-dollar While their daughter's room was being
California is fast becoming a nightmare claims and lawsuits, some insurance "fixed," heavy rains led to more leaks
of Kafka-esque proportions. Since the companies now simply drop any clients and the contractor discovered that wa-
rise of exorbitant mold claims, Sept. who make a water claim of any kind. ter was coming in through nail holes
11's blow to the insurance industry, the But making two water claims within a behind the metal siding; the adjuster
recent erosion of the stock market, and month and finding mold – well, this wrote this up as a third claim. Still wor-
the fact that homeowner's insurance policy was fast becoming an insurer's rying about an additional $1,000 de-
has been a relatively unprofitable busi- black hole. ductible, Christiansen and Lodato ar-
ness for some time, insurance compa- gued that it was really the same claim,
nies are busy tightening their belts – "At first, they'd told us it would be
about an $1,800 job to sand down the which had been mishandled.
generally around the throats of unsus-
pecting consumers. wet beams and put in new drywall," "Up until then, [the adjuster] had been
said Christiansen. "But it seemed like a very friendly – and, suddenly, he ex-
Like so many stories of first-time home- switch flipped when they saw the ploded, 'How would you like to lose
owners in San Francisco, Christiansen mold." your insurance?'" said Christiansen.
and Lodato's started with a feeling of "Basically, he threatened us with exactly
good fortune. They bought the building At that time, the couple were still hop-
ing to recover their $1,000 deductible what happened to us."
in 1999, when anyone who could still
afford to live in San Francisco at all felt from one or both of the guilty parties Nine months later, after putting the
lucky. Their plan was to buy the duplex, (their tenant and the roofing company), upper unit on the market, the couple
condo-ize it and sell the upper unit to so they were disappointed to learn from accepted an offer from a buyer, but she
help subsidize their occupancy of the the adjuster that, as landlords, they soon discovered she couldn't get insur-
lower one, a two-bedroom, one-bath were responsible for keeping the drains ance to satisfy her loan. When
apartment on a busy street. Eager to clear enough that a bathtub or shower Christiansen called the couple's USAA
protect themselves from any unpredict- could run in perpetuity. At that time, agent, he was told he and his wife were
able catastrophes, the couple bought a however, the adjuster still gave the being blacklisted and that their claims
complete insurance package from USAA couple reason to believe they had a history was so egregious that no
Casualty Insurance Co. with water- case against the roofers.
damage and liability insurance, as well The insurance company aggressively
as basic fire coverage. went about remediating the small patch
Two and a half years later, on the verge of mold Christiansen and Lodato had
of condo-izing, they hired a roofing discovered. Learning that the construc-
company to resurface the deck on the tion would continue for at least six to
eight weeks to accommodate the re- continued on page 9….
WATER DAMAGE CLAIMS continued……. effectively mechanized the insuring process, epitome of high-risk roulette: investing in
leading some homeowners to lose their insur- WorldCom, Enron, Adelphia, Global Crossing
ance over trifling or even nonexistent claims. and Tyco.
"regular" insurance company would work with
Kramer recalls one first-time homeowner who Industry representatives tend to downplay the
them or their building. When Christiansen asked
was turned down by 45 insurance companies stock market "crime wave" losses, pointing to
why no one had ever told him and his wife they
before calling the Department of Insurance for the pernicious growth of mold claims instead.
were jeopardizing coverage by making too
many claims, another USAA employee told him help. Perkins, however, said that so far, his office
it's considered a "conflict of interest" to caution "We asked him if he'd gotten a copy of his hasn't been able to isolate mold as a primary
CLUE report, and he'd never heard of it," cause. "Despite what the insurance companies
clients about their claims.
say, we still don't have any evidence that mold
"It was like trying to get health insurance if you Kramer said. "How are you supposed to inquire
is a significant loss factor in California," he said.
have a really serious illness," said Christiansen. about something that you don't know exists?"
Whatever the causes, the facts for ordinary
"No one would consider us." When the man got his report, he discovered he
homeowners remain formidable. Last month,
The couple applied to the California Fair Access had a record as having made a water claim
Speier's office introduced a "homeowner's bill of
to Insurance Requirements (FAIR) program, a because there had been a claim on the building
rights," a Senate bill that would penalize insur-
federally funded, industry-financed plan origi- where he'd previously lived as a renter.
ers for recording inquiries as claims and force
nally created for certain homes deemed unin- Similarly absurd mistakes have occurred when them to offer all homeowner's insurance except
surable after the Watts riots. They also tried to people have simply called their agent to inquire in extreme circumstances. Also, the California
get a temporary policy with a "high risk" com- about a claim and the agent records the inquiry Department of Insurance's Web site offers sim-
pany called Admiral, which would cost $3,000 as a claim in the CLUE database. This practice ple advice in shopping for a new policy: Shop
for a single month of basic fire insurance. When came under fire at hearings spearheaded by around, and get your CLUE report.
neither policy came through in time, they ended state Sen. Jackie Speier, (D-Hillsborough), who
chairs the California state Senate's Committee In the meantime, for those with insurance, we
up releasing their buyer from escrow.
on Insurance. During the hearing, representa- are left contemplating the mysteries of this
Eventually they finally got basic fire insurance absurd industry. Since we don't know what
from FAIR. (Other homeowners in similar pre- tives of the insurance industry claimed – much
making a claim might mean for our coverage,
dicaments have bought liability insurance from to the frustration of industry watchdogs – that
and because inquiring about the coverage may
California law requires them to record any in-
Lloyds of London, a company that typically end up being as damaging as actually filing a
insures high-risk properties such as oil tankers.) quiry as if it is a claim.
claim, it's tempting to imagine getting a friend
In retrospect, Christiansen says had he known "Many carriers are changing the standard that to call your insurance company and ask a lot of
then what he knows now, he would never have they apply to the customer, and it's catching hypothetical questions.
made a claim in the first place. "We could have people unaware," said Brian Perkins, the com-
Unfortunately, insurance companies have
dealt with it on our own," he said. "We just mittee's staff director. "The most outraged
assumed that that was why we were paying for people we see are people who have been pay- armed themselves against this bit of trickery.
ing their premiums for 10, 15 years, and they Because of a fact that makes the workings of
Kafka's castle seem rational and transparent,
"It's frustrating," added Lodato. "You have to suddenly find themselves unwanted."
there's no way to do hypothetical research
buy it, but you're not supposed to use it." To illustrate the problem, Perkins told me about about an insurance company's underwriting
a man who lost his insurance after simply in- policies.
Does their experience seem like an anomaly?
Not if the reaction of Nanci Kramer, a spokes- quiring whether the loss of a wedding ring
"The rules are secret for underwriting guide-
woman for the California Department of Insur- would be covered under the clause about
lines," explained Brian Perkins of the state Sen-
ance, gives any indication. When I begin to tell "mysterious disappearances" on his personal-
ate's Committee on Insurance. "They're consid-
property coverage. "He never filed a claim and
her about this couple who have been deemed ered a trade secret. If an agent tells you any-
never thought about it again, until he heard
uninsurable, she finishes my sentence: "Don't thing about his company's policies that don't
tell me – they had water coverage and dared to that he'd been dropped."
pertain to your own policy, he's breaking the
use it. The nerve, huh?" Perkins said the insurance industry's trend to- law."
ward "cherry picking" only low-risk clients has
Kramer has been ringing the alarm bell about Christensen and Lodato may have been naive
trends in homeowner's insurance for some time, come about from a number of causes.
about the damage wrought by fully using their
adding that the industry is now "trending to- "The cost of reinsurance for homeowners is coverage but in the end, they would have
ward a crisis." The state Department of Insur- higher, and so companies are passing along
ance has been receiving complaints from out- costs to consumers," he said. "Construction
Get a CLUE! Find out what your
raged consumers, as well as reports from real costs are also higher. Some companies lost a lot
estate agents about homes falling out of es- of money in last few years in the stock market. insurance company is secretly
crow. In the past year, according to Kramer, Some companies were using [their profits in] reporting about you and your
applications for the FAIR plan have soared from the stock market to cross-subsidize home- property. They may have deval-
an average of 100 a week to 300 a day. owner's insurance, which in general hasn't been ued your biggest asset without
"Water claims are the scarlet letter of insur- a very profitable business." your knowledge.
ance," she said. But though water claims are No one is disputing the fact that business has
the most common route by which people turn been lousy for homeowner's insurance. In
See if you or your property has
themselves into modern-day Hester Prynnes of Texas, where there was a $32 million mold- been deemed “uninsurable” by
homeowner's insurance, the practice of black- related lawsuit, Farmers, State Farm and calling the very people who re-
listing homes and homeowners can happen in Allstate, three of the state's biggest insurers, cord the data for your insurance
many ways. have stopped writing new policies. State Farm company, ChoicePoint. Their
has now widened its moratorium to include
In part, it's because of the growing use of a number is: 866-527-2600. Your
database called CLUE (Claims Loss Underwriting California as well.
report will cost you about $13.
Exchange), originally used as an antifraud tool In 2002, The Wall Street Journal reported that
to help insurance companies spot people who the insurance industry had losses of $9 billion
file identical claims with multiple companies. on homeowner's insurance in 2001, and, ac- bumped up against this idiotic paradox anyway.
Now, however, it's commonly used to gauge cording to the Foundation for Taxpayer and So, how do you know when to use your insur-
potential risk. Owned by ChoicePoint, a publicly Consumer Rights in Santa Monica, Calif., the ance and when to stay quiet and pay up?
traded credit-history-reporting company, CLUE state's top 10 property-insurance and casualty-
compiles information about the insurance his- insurance companies collectively lost a quarter "There's no one in the world that can answer
tory of buildings and their owners. CLUE has of a billion dollars in what turned out to be the that question," answered Perkins in a low voice.
Homeowners Come Up Short on Insurance By JOSEPH B. TREASTER, NY Times
their house replaced. They get money up them were underinsured.
to the set limits plus the extended 20
L CAJON, Calif. - Karla and Bruce Car- Consumer advocates and industry ex-
percent or 25 percent." ecutives expect similar problems for the
roll remember the sheriff on his bullhorn
ordering residents to evacuate and, min- Marshall & Swift/Boeckh, a Los Angeles victims of Hurricane Charley in Florida as
utes later, hearing the roar of monstrous company that most insurers rely on for they begin working through their claims.
flames arcing toward their modest home help in calculating the value of houses, "The problem is everywhere,'' Mr. Hart-
here in the hills above San Diego. estimates that 64 percent of American wig said. "The disasters simply expose
homes are underinsured by an average
Mrs. Carroll grabbed a family photo al- it.''
of 27 percent, with some homes underin-
bum as they ran to safety; Mr. Carroll George Kehrer, a lawyer and building
sured by 60 percent or more.
started to gather his fishing rods. But she contractor who founded Community
hustled him along. "Don't worry about Another insurance industry company,
Assisting Recovery in Los Angeles more
those things,'' she recalls saying at the AIR Worldwide in Boston, estimates that
than a decade ago to help people with
time. "We've got insurance." many upper-income homes in New Eng-
insurance claims after disasters, said he
land are underinsured by 30 percent to had spoken to 1,200 people who lost
But, the Carrolls say, the insurance they
40 percent. homes in the California fires.
bought from State Farm, the nation's
largest property insurer, has left them at "The underinsurance problem lies just "About a dozen of them,'' he said, "were
least $100,000 short of the cost of re- beneath the surface all across the coun-
building their home. Today, nearly a year try,'' said Robert P. Hartwig, the chief
later, they are still wrangling with their economist for the Insurance Information No single factor is entirely to blame for
insurer and living in a 29-foot-long house Institute, a trade group in New York. the underinsurance, consumer advo-
trailer on the land where their three- cates and industry executives say.
The insurance gap has been worsened
bedroom home once stood, overlooking Homeowners, they say, need to recog-
by the nationwide housing boom that has
a spectacular sweep of nize their own responsibility.
been rapidly driving
ridges and canyons. up the cost of lum- But under pressure to make sales, Mr.
Their woeful shortfall in ber, bricks, cement Garamendi and consumer advocates
insurance coverage, and other construc- explain, insurance companies and their
experts say, is a plight tion materials, in- agents often aim low in valuing houses.
shared unknowingly by dustry executives The goal, they say, is to keep premiums
millions of American say. And in South- down to keep customers from going to
homeowners. It has "If they quote a realistic ern California, re- competitors, and sometimes even a few
been fed largely by a replacement cost, the price building costs dollars can make a difference.
shift in the way property of the policy goes up, so soared even higher "If they quote a realistic replacement
insurance has been sold as the demand for cost, the price of the policy goes up," Mr.
in recent years.
they are motivated to keep contractors and Garamendi said, "so they are motivated
the replacement cost building supplies to keep the replacement cost down."
In a move to cut costs suddenly jumped
from claims, insurance down."
after the Carrolls' Insurance industry executives argue that
companies began in the home and several it would make no sense to undervalue
late 1990's to phase out thousand others homes intentionally. The higher the in-
coverage that guaran- were destroyed in surance coverage, the higher the pre-
teed the replacement of mium, they point out.
wildfires over a few
a destroyed home, re-
days last October. But Mr. Garamendi disagrees. "You want
gardless of the expense
to the insurer. In place of that unlimited But such explana- the sale first," he said. "O.K., you can get
coverage, which had become nearly tions do not satisfy the industry's critics, a little more premium if you give full cov-
universal, insurers substituted a similar- who say insurers have shifted the burden erage. But you lose the sale."
sounding policy with a crucial difference: of such mistakes onto homeowners. Mr. Hunter, the consumer advocate, said
it pays only the amount stated on the "Most people go to their insurance agent agents often lacked the training to as-
policy plus, typically, an additional 20 to buy coverage and figure they're fully sess accurately the value of a home,
percent to 25 percent. covered," said J. Robert Hunter, the usually done these days with the help of
For their part, insurers insist that it is the director for insurance at the Consumer a computer program. Rarely do the
consumer's responsibility to acquire Federation of America. "But often they're agents leave their offices to assess a
adequate coverage. not." house personally, agents and industry
The old policy was called a guaranteed The issue of underinsurance has not
replacement policy. The new one, which attracted much attention because, of the
most Americans now have, is called an millions of insurance claims every year,
extended replacement policy. fewer than 2 percent are for the total loss
of a house. But the wildfires here last fall continued on page 11…….
"People look at this and it says came as a jolt. They quickly incinerated
'replacement' and they think, 'That's more than 3,700 homes and, Mr. Gara-
good, I get my house replaced,' " said mendi said, "a very large proportion" of
John Garamendi, the insurance commis-
sioner in California. "But they don't get
HOMEOWNERS COME UP SHORT Two years later, she said, she checked the Carrolls estimate their policy will pay
continued… back with the agent to make sure she them about $222,000. But Mrs. Carroll
had enough coverage and increased the said a contractor hired by State Farm
coverage for possible additional costs as estimated that replacing their losses, not
Mr. Garamendi said some agents inad- a result of changes in building codes. including their clothing and other per-
vertently undervalued homes by using a sonal things, would cost nearly
"I said, 'Are you sure this is enough to
computer shortcut to obtain what is replace the house?' and she said, 'Oh, $400,000.
known as a "quick quote." Then, when a that's plenty of coverage,' " Mrs. Carroll Bill Sirola, a spokesman for State Farm,
customer decides to buy coverage, the recalled. "She had me convinced my said it was not clear whether the Carrolls
agent fails to add details like designer house could burn or fall down in the were underinsured. "We are working with
cabinets and fixtures that tend to in- canyon under heavy rains and, yeah, it's that family," Mr. Sirola said. "We are
crease the replacement estimate and the covered." working with other builders on their be-
cost of the insurance. half to get other estimates of their re-
While most insurance policies include a Many homeowners burned building costs."
built-in escalator to keep pace with gen- out by last year's fires say As the insurance companies see it, if
eral inflation, the costs of building sup- people are underinsured it is primarily
plies and paying for construction crews
they made clear they wanted
their own fault.
have been rising at a faster pace, in to be able to replace their
many cases widening the gap between homes. In interviews, they "It's the homeowner's responsibility to
the amount a house is insured for and see that his home is properly insured,"
said they had no way of said Mr. Hartwig of the Insurance Infor-
what it will cost to rebuild it.
knowing how much insurance mation Institute.
Another factor in the insurance gap has they needed and relied on the
been a failure by some homeowners to Insurers say the terms of coverage are
increase coverage after the spurt in
agent to set the proper value clearly spelled out in their policies. In
home improvements, from new kitchens and charge the appropriate California, insurers are also required to
to extra bedrooms, as millions of Ameri- price. Many say they would mail a statement annually specifying the
cans have used cheap money from mort- terms of coverage along with renewal
have been willing to pay more notices.
gage refinancings in recent years to
upgrade their homes.
to assure themselves that But many homeowners burned out by
their losses would be fully last year's fires say they made clear they
Still, in dozens of interviews over several
days this month, owners of the homes in covered. wanted to be able to replace their
Southern California that were destroyed homes. In interviews, they said they had
said repeatedly that they had been led to no way of knowing how much insurance
At the time of the fire, the Carrolls' house they needed and relied on the agent to
believe they had bought enough cover- was insured by State Farm for $126,000,
age to rebuild their homes and were set the proper value and charge the
which, following standard practice, did appropriate price. Many say they would
stunned to find out they were wrong. not reflect the value of the land. Their have been willing to pay more to assure
Mrs. Carroll said she first bought her annual premium was $730. themselves that their losses would be
insurance from State Farm in 1998 With 20 percent in extended replacement fully covered.
shortly after she and her husband ac- coverage and other standard features
quired their home for $172,500. "They're the experts," said Donald
including a built-in adjustment for infla- McCormick, a high school math teacher,
"I told them I wanted full coverage for my tion and coverage on their two-car ga- who lost his home in the Scripps Ranch
house," she said. "I've lived in this area rage, fences and driveway as well as an section of San Diego. "I don't go to the
most of my life, and I knew there was a additional 25 percent for anticipated doctor and tell him how to do surgery."
huge fire risk here. I had been evacuated building code changes - upgraded by
for fires three times as a child." Mrs. Carroll from the usual 10 percent -
ABSTRACT: The Effect of Air Pollution on Lung Development from 10 to 18 Years of Age
W. James Gauderman, Ph.D., Edward Avol, M.S., Frank Gilliland, M.D., Ph.D., Hita Vora, M.S., Duncan Thomas, Ph.D., Kiros Berhane, Ph.D., Rob McConnell, M.D., Nino Kuenzli,
M.D., Fred Lurmann, M.S., Edward Rappaport, M.S., Helene Margolis, Ph.D., David Bates, M.D., and John Peters, M.D.
Background Whether exposure to air pollution adversely af-
and elemental carbon (P=0.007), even after adjustment for
fects the growth of lung function during the period of rapid lung
several potential confounders and effect modifiers. Associa-
development that occurs between the ages of 10 and 18 years
tions were also observed for other spirometric measures.
Exposure to pollutants was associated with clinically and
Methods In this prospective study, we recruited 1759 chil- statistically significant deficits in the FEV1 attained at the age
dren (average age, 10 years) from schools in 12 southern of 18 years. For example, the estimated proportion of 18-
California communities and measured lung function annually year-old subjects with a low FEV1 (defined as a ratio of ob-
for eight years. The rate of attrition was approximately 10 served to expected FEV1 of less percent) was 4.9 times as
percent per year. The communities represented a wide range great at the highest level of exposure to PM2.5 as at the low-
of ambient exposures to ozone, acid vapor, nitrogen dioxide, est level of exposure (7.9 percent vs. 1.6 percent, P=0.002).
and particulate matter. Linear regression was used to examine
Conclusions The results of this study indicate that current
the relationship of air pollution to the forced expiratory volume
levels of air pollution have chronic, adverse effects on lung
in one second (FEV1) and other spirometric measures.
development in children from the age of 10 to 18 years,
Results Over the eight-year period, deficits in the growth of leading to clinically significant deficits in attained FEV1 as
FEV1 were associated with exposure to nitrogen dioxide children reach adulthood.
(P=0.005), acid vapor (P=0.004), particulate matter with an
aerodynamic diameter of less than 2.5 µm (PM2.5) (P=0.04),
case, known as Fiess v. State Farm, has policy and paid on claims, albeit, they
A Case That Can major consequences that few appreciate. rarely paid sufficient sums for proper
The Reader’s Digest version of the case is: repairs.
Decide Your Future The Fiess family submitted a water damage Just weeks before oral arguments before
claim and that water damage turned into a the 5th Circuit occurred, Amicus Briefs
mold problem costing thousands to cure.
In 2000 and 2001, the major insurance
Their policy specifically allowed coverage
were submitted. The Texas Department of
companies claimed they had billions of Insurance and POA took the side of the
for mold if it was an ensuing loss (the Fiess family and asked the 5th Circuit to
dollars in “mold claims”. Not surprisingly,
result of a covered peril). The Fiess uphold the language of the policy (a
regulators and legislators didn’t read the
attorney was young and inexperienced and contract) and apply coverage as stated in
footnotes on all of the insurer-submitted did not properly argue the ensuing loss
loss calculations. The footnotes clearly the policy. The Texas Department of
aspect of mold and a lower court magistrate Insurance even threw in a few juicy lines
stated that amounts paid were for ALL
water damage claims, not just “mold about State Farm’s own testimony before
related” claims. the regulatory agency.
Insurance rates, by law, must be set in a True to form, other insurers weighed in
forward-looking fashion. Insurance with Amicus Briefs supporting State
actuaries make predictions about Farm’s position that mold is NOT covered.
hurricanes, tornados, vandalism, freezes, This is ironic given that the same insurers
and other occurrences and carefully provided their boring testimony before
calculate anticipated losses. If actuaries are state insurance departments about how
dead wrong and underestimate the losses, mold was going to put them into the poor
the insurance companies, by law, cannot house because of their liability on such
seek rate hikes to make up for their own claims.
stupidity. For the layman, an Amicus Brief is also
In late 2001 and early 2002, insurers called a “Friend of the Court” brief and is
cried to their legislative and regulatory usually submitted by those with an interest
buddies and produced endless (and boring) in the outcome of a case. Rarely is POA on
sworn testimony about how these “mold ruled that mold was not covered under the the same team as the Texas Department of
claims”, which they acknowledged were homeowner’s policy issued to the Fiess Insurance but on this case, we actually saw
covered, were “gonna break ‘em”. The family by State Farm. The insurance eye-to-eye on an issue. Perhaps hell has
boo-hoos got them hefty rate hike industry celebrated the ruling but they frozen over.
approvals AND the approval to slash the needed holy water thrown on it by a higher
court so that they could use the decision to The “justices” have not yet made up their
coverage allowed in previously issued minds on the matter but their decision will
policies. That explains why, today you pay deny claims that had been languishing for
years. impact hundreds of thousands of
far more for far less. But, keep in the back homeowners whose claims have been
of your mind that the rates you pay today Enter the 5 Circuit where most of the wrongly delayed by insurers for years
were SUPPOSED to be set based on what justices (I use the term loosely) should hoping the 5th Circuit will deliver like
the insurance companies EXPECT to pay have the State Farm logo sewn on their the mailman. And they might. The case, it
out in claims made in the future, not set to robes. This was just the spot where State should be noted, has national implications
make up for unforeseen losses. Farm stood a good shot of getting its wish since it is in a Federal court.
An intelligent person would question this. list granted. Believe it or not, for as anti-
consumer the 5th Circuit is, it’s better than No matter which direction the “justices”
After all, if rates are set in a forward-
looking manner and the industry no longer the Texas Supreme Court where all justices rule, the fall out will be intense. If they rule
has the liability it had in the past, then it (term again used loosely) are slaves to the in favor of Fiess, claims that have been
industry. delayed by the carriers will finally be
would reasonably follow that rates would resolved however, the cost of repairs have
DECREASE, not increase. In fact, our Now, it’s important to remember that grown because mold does not stop growing
analysis shows that you should be paying SWORN TESTIMONY was presented to just because a claim is tied up in the legal
40-50% of what you paid for homeowner’s state officials by insurers a few years ago system. If the court rules in favor of State
coverage in 2001. when they used “mold” as the reason for Farm, hundreds of thousands of families
Also keep in mind that many rate hikes. (Hey, just in case you missed it, will never be paid for claims covered by
policyholders are actually owners of their health insurers and HMOs used AIDS as a the policies and worst of all, such a ruling
insurance company. In “mutual way to rape and pillage in the mid-1980s so would say to insurers that they can deny
companies”, the policyholders are the this is not a new strategy!) Insurers selling any type of claim and never look back.
company owners. Only a handful of homeowner’s policies stated, in their
testimony, that they needed rate hikes Of course, shareholders and mutual
insurance companies (such as Allstate, St.
Paul/Travelers, etc…) are publicly-traded because of their liability on COVERED company owners should take management
entities. PERILS that included mold related damage out to the shed to beat them silly for all the
that was caused as a result of water claims that were paid but never should
Now that we have that out of the way, damage. (It seems obvious but mold have been. Can you say “Class Action”?
let’s get to the issue at hand. There is a problems can only happen when water All of the Amicus Briefs submitted in
very meaningful case currently before the damage occurs.) this case are available on POA’s website.
5th Circuit (an important Federal Appeals State Farm, just like the other insurers,
Court based in New Orleans, LA). The KNEW they had the liability under the old
T H E AD V O C A T E
F L O R I D A W A K E S U P T O A N E W I N S U R A N C E R E A L T Y
Post- Andrew Rule Changes Shifted More of the Burden to
I n d i v i d u a l H o m e o w n e r s . P a y i n g 2 % D e d u c t i b l e T w i c e.
B y C H R I S T O P H E R O S T E R , C A R R I C K M O L L E N K A M P a n d C H A D
T E R H U N E — W A L L S T R E E T J O U R N A L S T A F F
As a result, hundreds of thou- Big insurance companies say the
As Floridians begin picking up the sands of Florida homeowners -- changes in deductibles and the
pieces from the second devastating including many who have paid decision to set up separate units
hurricane in less than a month, many for what they believed was "full" in Florida were necessary to pre-
are also discovering the full effects of property insurance -- now find serve the availability of adequate
a decade of maneuvering by insur- themselves holding the bag for a insurance across the state -- for
ance companies and state officials much bigger portion of the esti- situations just like the past
that has dramatically reduced the obli- mated $10 billion to $15 billion in month's storms. "This is all hap-
gations of private insurers to pay for
insured damage from Frances pening without any market tur-
the impact of catastrophic storms.
and Charley than they would moil," says Robert Hartwig, chief
have a decade ago. economist for the Insurance Infor-
Charley and Frances are two of the
biggest hurricanes to hit the U.S. since
mation Institute, a trade group.
Andrew slammed into southeastern Florida regulators and legislators
Florida in 1992, wreaking $15.5 billion allowed private insurance com- After dumping more than 13
in insured damage and wiping out panies to add hefty new deducti- inches of rain along Florida's cen-
every cent of profit insurance compa- bles to homeowners' policies and tral east coast on Sunday and
nies had ever generated on property to raise premium rates in some knocking out power to about six
policies in the state. The losses forced cases by as much as fourfold. million people, Frances entered
11 insurers out of business and trig-
Thousands of property owners the Gulf of Mexico.
gered a wholesale revamping of Flor-
ida's insurance market in a desperate now hold policies with small local
attempt to prevent other carriers from companies, whose financial sta- It then made a second landfall
fleeing the state. bility is severely strained by the Monday near Apalachicola, a ma-
back-to-back storms of the past jor oyster-harvesting area in the
Big players such as Allstate Corp. month and concerns that others Florida panhandle. The storm has
agreed not to abandon a combined 1.2 may soon follow. Already, an- been blamed for at least four
million policyholders in Florida only other major hurricane, Ivan, is deaths. Even after being down-
after state officials began cooperating gathering force in the Atlantic graded to a tropical storm, Fran-
in a legislative and regulatory effort to and could threaten Florida by the ces roared into Alabama and
shift from insurance companies to end of the week. Georgia still packing fierce winds
consumers the burden for paying hun-
and sheets of rain. Continued on page 13...
dreds of millions of future storm-
related losses. Charley claims: commercial and residential
Nationwide $381 million
Allstate $276 million
Swiss Re Less than $200 mil-
State Farm Less than $200 mil-
St. Paul Travelers $140 million
XL Capital $125 million
The Hartford $91 million
AIG $80 million-$100
AXIS Capital $60 million-$80 mil-
CNA $40 million-$60 mil-
T H E AD V O C A T E
Florida Wakes Up (continued)
Gasoline retailers and Florida the past would have fallen vate reinsurance sold by com-
state officials were scrambling directly to them. State Farm panies including Berkshire
Monday to replenish fuel sup- and Allstate paid a combined Hathaway Inc., large Euro- “Now, about
plies at depleted service sta- $6.2 billion in claims after An- pean insurers and Bermuda-
tions, as about 2.5 million resi- drew 12 years ago. After based companies including XL
dents who evacuated from the Charley, which ripped through Capital and Ace Ltd. Home- homes that private
storm zone began heading Central Florida on Aug. 13, owners insurers didn't heavily
back home. Frances also causing considerably less rely on such reinsurance prior insurers refuse to
threw another wild card into damage than Andrew overall, to Andrew and the coverage fully cover are
the unpredictable political State Farm and Allstate -- still was hard to come by in the
equation in Florida -- a critical Florida's two largest private years following that storm. currently insured
battleground in the November insurers -- estimated their Even so, the state-sponsored
relief mechanisms shouldered
presidential election. The well- combined losses at just $625
organized relief effort after million, after collections from nearly $3 billion of Charley's Property. Its capital
Hurricane Charley, directed by the state catastrophe fund and $7.4 billion in insured damage. base, already
Gov. Jeb Bush, appeared to private reinsurers. A State
blunt the risk of political fallout Farm spokesman said some After Andrew in 1992, state rocked by Charley,
from that storm for President of its Florida unit's reinsurance officials agreed to set up a could be depleted
Bush. But tempers were grow- was provided by State Farm backstop fund called the Flor-
ing strained in the wake of itself, but he declined to say ida Hurricane Catastrophe by Frances .”
Frances as relief agencies how much. Fund guaranteed by the gov-
struggled to get essential sup- ernment that will pick up the
plies, electricity and emer- Big Shift bulk of the insurance compa-
gency services into hard-hit nies' tabs from Charley, Fran-
areas, and victims of Charley ces and other massive storms.
What has happened in Florida
took a second round of torren- Claims from Charley are ex-
is partly the result of a big shift
tial rains. in the way U.S. insurance pected to consume about $2
companies have operated billion of the $6 billion in cash
When Hurricane Andrew over the past decade. The held by the hurricane catastro-
slammed into Florida in 1992, industry has adopted increas- phe fund, which has about an
private insurance companies, ingly sophisticated underwrit- additional $9 billion of non-
primarily Allstate and State ing tools to avoid insuring cash assets. Frances will take
Farm Mutual Automobile In- higher-risk homes and has another so-far-unknown bite.
surance Co., picked up the taken steps to lay more of the Once the fund's cash is gone,
lion's share of the damage burden to pay claims on poli- it can sell bonds to raise more
tab. The companies were sent cyholders themselves. Califor- and impose an assessment,
reeling by the scale of the nia residents who face the or surcharge, of up to 2.27%
devastation, and in the after- threat of storms or wildfires, on each policy written in the
math, there was little debate for example, must choose state.
that changes had to be made between sometimes bare-
in the state insurance system. bones coverage offered by In 2002, Florida lawmakers
It will take weeks or months to insurance pools organized by combined another insurer of
tabulate the precise losses the state and high-cost poli- last resort, the Florida Wind-
from Frances and Charley, cies from niche insurers such storm Underwriters Associa-
and how much of that insurers as Lloyd's of London. But the tion, with the other big state-
will absorb. But consumer shift of responsibility for prop- organized insurer, the Joint
advocates say the increased erty losses in Florida -- in Underwriting Association, to
liabilities shouldered by home- terms of the number of policy- form the Citizens Property
owners during the two recent holders pushed into state- Insurance Corp. Now, about
storms raise the question of backed insurance funds and 800,000 coastal homes that
whether the changes have the hefty increases in premi- private insurers refuse to fully
been too generous to the in- ums and deductibles -- far cover are currently insured by
surers. exceeds what has happened Citizens Property. Its capital
in most other states. base, already rocked by
Already, it is clear that the Charley, could be depleted
steps taken by big insurance Insurers in Florida also have by Frances.
companies are successfully shielded themselves from
shielding them from responsi- losses through the use of pri-
bility for huge losses that in
T H E AD V O C A T E
Citizens Property Insurance damage has been exacer- ripping me off," Mr. Jones said
expects to pay about $950 bated in some areas by flood- as the rains and wind of Fran-
million for 37,000 claims re- ing, which isn't covered by ces rolled through his
lated to Charley -- nearly two- most private insurance under neighborhood over the week-
thirds of the $1.5 billion sur- a decades-long practice. end.
plus it reported at the end of
June. It also could levy a sur- Charley did about $15,000 of He said he realized his de-
charge on homeowners' poli- damage to Don Boyle's roof in ductible had increased only
cies if it runs out of money. Orlando, Fla. Then Frances after calling State Farm to
shredded the blue tarps cover- report that a massive laurel
Many of the largest insurers in ing his two-story house Sun- oak tree in his front yard had
Florida also have established day and caused eight new fallen on his house during
separate corporate entities to leaks in his kitchen, garage Charley.
operate in the state. Rather and elsewhere. He got up on Some local insurance agents
than distributing the cost of his roof during Frances and in Florida said homeowners
Forecasters predicted this Florida losses across all poli- tried to put the tarp back shouldn't be surprised by the
hurricane season would be cyholders of the insurance down, but the winds were too
one of the worst ever.
level of their hurricane de-
company, as is traditional in strong. ductibles, given that numerous
the insurance business, the notices were sent to policy-
new Florida units pay losses He called his insurer, USAA, holders after a separate wind-
only from the assets of the to ask whether he risked get- storm deductible was intro-
single-state units. If massive ting charged a second 2% duced in Florida in 1996.
storms wipe out those funds, deductible -- about $4,000 on The decision on charging poli-
the Florida companies can damage from the second cyholders one or two deducti-
dissolve without affecting the storm. The company told him bles could be open to interpre-
parent company's operations a claims adjuster would make tation. Damage in the same
elsewhere in the U.S. area of the house could be
deemed a continuation by an
For homeowners, the biggest Florida residents insurer, agents say, but a tree
change came through dra- falling on a separate part of
matically higher premiums and may have to pay the house could be treated as
new deductibles that require a new claim from Frances. In
policyholders to absorb thou- another 1996 insurers were allowed by
sand of dollars in costs from the state to charge double
wind damage. deductible every deductibles for separate
storms under a "named
A total of 2.5 million Florida
time a hurricane storms" provision. Charley
homeowners have policies and Frances are the first ma-
with windstorm deductibles of
hits this season. jor hurricanes under the wind-
2% of their home's policy storm deductible.
value. A further 177,000
homeowners have 5% de- that decision after he sur- Florida officials say the state's
ductibles, meaning a home- veyed the new damage. "Now onerous deductibles are sim-
owner with a policy value of Ivan is lurking out there," said ply part of the price residents
$300,000 would pay $15,000 Mr. Boyle, a 32-year-old engi- had to pay to keep private
to repair hurricane damage neer at Lockheed Martin. insurers in the state. Insur-
before the insurer would pay "Paying a $4,000 deductible ance generally is regulated on
any part of the claim. again wouldn't be my first a state level, typically by pow-
choice." erful commissioners who have
Many homeowners hit by Hur- the authority to block rate in-
ricane Charley three weeks Mac Jones, a 53-year-old creases proposed by compa-
ago were already smarting mailman living in Belle Isle, nies and to set voluminous
from having to pay higher de- south of Orlando, has a 5% rules under which insurers
ductibles for storm damage. deductible totaling $6,200 on operate. But after Andrew hit,
They're livid that they may be his house. He was incensed at many insurance companies
forced to pay a second de- the prospect of having to pay said they would abandon Flor-
ductible for Frances-related double that if Frances inflicts ida unless the state made
damage when their homes more damage. "This is legal- radical changes in its regu-
have yet to be repaired. The ized price-gouging. They are lations and rate structures.
T H E A DVOCATE
sioner, Bill Nelson, now a U.S. obligated to back it up in the Insurers in the mid-1990s also
radical changes in its regulations event of another hurricane. began adding "windstorm
and rate structures. senator from Florida, proposed deductibles" to their policies.
offering private insurers $100 for But after Mr. Nelson took office, Typically homeowners-policy
Just months after that hurricane, every policyholder they took out he approved Allstate's request. deductibles are expressed in dollar
more than a dozen insurers of the JUA. Insurance regulators Allstate capitalized the company terms -- $500 is common. But in
threatened to dump policyhold- also promised some insurers they with $450 million, and it cur- Florida and other coastal locations,
ers, potentially leaving more than wouldn't have to pay assessments rently has total assets of more insurers required 2% and higher
one million homeowners without that other carriers would if a than $1 billion. It's not clear how deductibles to shift the cost of
coverage. In April 1993, Allstate hurricane drained the underwrit- much of Allstate's $425 million claims to policyholders. In 1996,
alone proposed dropping 300,000 ing association's assets. In re- in Charley losses will be taken the legislature approved
policyholders. sponse, a handful of small insur- out of that capital, as the Florid- deductibles as high as 5%.
ers, including Florida Select and ian company doesn't include
The following month, then- Sunshine State, were formed with Allstate's auto business, or non- Insurers also have been able to
Florida Insurance Commissioner the specific purpose of taking Florida losses from the recent dramatically raise their premiums
Tom Gallagher issued a morato- policies out of the state JUA hurricanes. But rating agency through an unusual three-person
rium preventing insurers from pool. A.M. Best last week placed the private arbitration panel set up by
refusing to renew policyholders. company on watch for a possible the Florida legislature in 1996 to
Almost simultaneously, he urged Dropping 90,000 Policyholders downgrade of its rating for finan- settle price-increase disputes
Florida's governor and legislature cial strength. between insurance firms and the
to form the insurer-funded hurri- state insurance regulator.
Big insurers continued dumping
cane catastrophe fund that would Until last month, the company Previously, the state insurance
policies. After the state-imposed
help shield insurers from future had been a money-maker for commissioner held most of the
moratorium against dropping
hurricane losses. The fund was Allstate. Over the past three cal- power in approving rate increases.
insurance policies, the Florida
formed later in 1993, and insurers endar years, Allstate Corp. has The panel is composed of one
legislature passed a law that said
began paying premiums into it. taken about $300 million in prof- person nominated by the insurer,
insurers could refuse to renew no
The costs were passed along to its out of the Florida subsidiary, one person chosen by the
more than 10% of their policy-
policyholders in the form of according to A.M. Best. insurance commissioner and a
holders in any one year. Allstate
higher premiums. third person chosen by the two
took advantage of that provision
and refused to renew 90,000 Michael Trevino, a spokesman
Just weeks after Andrew hit, the policyholders between 1994 and for Allstate, said forming the
state also created the Florida mid-1996. separate "well capitalized" unit in Mr. Nelson decried the use of the
Residential Property and Casu- Florida was a sensible business panel as "an arbitration system that
alty Joint Underwriting Associa- decision. He said that if a storm allows companies to go around the
In July 1996, Allstate said it
tion, an insurer of last resort for strained Allstate Floridian's capi- people's elected commissioner." In
would stop sending nonrenewal
thousands of property owners tal, the decision of whether the summer of 1997, Mr. Nelson
notices to policyholders, sparing
that private companies were no Allstate Corp. would pump shot down a request by State Farm
another 37,000 homeowners who
longer willing to cover. By early money into the firm would be Fire & Casualty Co. to raise rates
already had been told they would
1994, it had 300,000 customers, difficult, given the damage such a by about 20%. State Farm
be dropped after Sept. 16 of that
despite offering only limited decision might have on Allstate's appealed to the panel, and in its
year. But the company agreed to
coverage on property and some reputation nationwide and poten- first hearing, in Miami, the panel
do so only after the state ap-
contents of homes. tially costing the company auto- voted 2-1 to approve State Farm's
proved its fifth rate increase since
insurance business in Florida. request. It was the first of several
Andrew, a 22% jump. More im-
defeats the panel handed Mr.
Even with the state and the new portantly, Florida officials gave
association taking up a signifi- Allstate the green light to form Insurers in the mid-1990s also
cant portion of hurricane risks, the Allstate Floridian Insurance began adding "windstorm de-
insurers in Florida also asked for Group, a subsidiary that would ductibles" to their policies. Typi-
huge increases in premiums. In issue policies only in Florida and cally homeowners-policy de-
October 1993, the state approved potentially shield the parent com- ductibles are expressed in dollar
increases for State Farm and pany from any losses in the state terms -- $500 is common. But in
Allstate of 24% and 30%, respec- that exceeded the unit's financial Florida and other coastal loca-
tively. Still, private insurers re- resources. tions, insurers required 2% and
mained lukewarm about doing higher deductibles to shift the
business in the state. The Joint Allstate had been pushing to cost of claims to policyholders.
Underwriting Association had form the Florida-only company In 1996, the legislature approved
more than doubled to 760,000 since shortly after Andrew, but deductibles as high as 5%.
policyholders by mid-1995. Mr. Gallagher had turned down Insurers also have been able to
the request. "I didn't think it was dramatically raise their premiums
To induce insurance companies a good idea," Mr. Gallagher says, through an unusual three-person
to compete for more of those adding that he didn't want the big private arbitration panel set up by
homeowners, Mr. Gallagher's insurer to set up a thinly capital- the Florida legislature in 1996 to
successor as insurance commis- ized subsidiary without being settle price-increase disputes
The ADVOCATE is a monthly newsletter from
Policyholders of America
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Charleston, SC 29401
501c4 status with the IRS. We help policyholders receive the benefits for which
CALL US TODAY. IT’S TOLL-FREE they’ve paid. We also expose legislators and regulators who have helped the
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When to Test A Home For MOLD.
When a homeowner suspects their home is what’s could face serious legal problems if the house
causing mysterious symptoms, they often pick up sells and the buyer was never told of the testing
the phone and call an air quality professional to test results.
A homeowner does not have to disclose
Suddenly, their suspicions are confirmed. The what is suspected; disclosure is only re-
results come in and it’s bad news – the home has a quired if a homeowner KNOWS (i.e. had test-
severe toxic mold problem that requires extensive ing done) of a problem.
and expensive repairs.
POA does suggest that buyers test and we even
The news also does something few contemplate provide an inexpensive way to accomplish this
before making the call: their home value has just goal. Frankly, a new home buyer can use the
taken a huge hit. This is because a homeowner results to negotiate a better price.
must disclose any and all KNOWN environmental
conditions if it is listed for sale.
So, in plain English, give serious thought and
consideration to testing BEFORE you proceed. If
POA neither advocates for or against testing. We you are convinced that you should test, here’s a
certainly do not suggest that homeowners should link for an inexpensive and accurate test that
commit fraud and not disclose a KNOWN problem. can be done through one of the leading universi-
But, it is also fair to warn those who consider test- ties involved in air quality issues:
ing that what they find out is a written record that,
by law, must be disclosed if the owner decides to
sell the property. If not disclosed, the homeowner