commercial insurance_Mold

							   ISO Mold Filings
CAS Special Interest Seminar
                Agenda
 Claims Situation
 Goal of Filings
 Present Coverage, Proposed Changes
 Personal Lines, Commercial Property, CGL
 Current Approvals
    Property Problems Associated
             with Mold
 Costs of remediation and clean up are
  considerable
 Proper precautionary and disposal
  procedures must be followed to avoid
  further exposure and additional losses
 The longer the delay in inspecting a loss,
  the more difficult it is to prove the mold
  was caused by a covered loss
              Property Claims
   Generally, property damage claims for mold
    arise from two types of incidents:
     Exposure to water following the sudden
      intrusion of water such as from fire-fighting or
      the breaking apart of a water system component
      within the premises
     Accumulation of moisture over a prolonged
      period such as would occur because of faulty,
      inadequate or defective materials, construction,
      maintenance or repair
              CGL Claims
 A products-completed operations exposure
  for contractors and subcontractors
 A premises/operations exposure for owners
  or lessees of premises
 Claimants may allege bodily injury,
  property damage, and personal and
  advertising injury
 Multiple plaintiffs mean potential for class
  action lawsuits
      CGL Claims (Cont’d)
 Third  party actions may be filed for
  contribution regarding damages
 Bodily injury claims similar to pollution
  claims because they allege future
  damages
 A key problem is the lack of scientific
  evidence demonstrating a causal
  relationship between mold and serious
  health effects
        CGL Claims (Cont’d)

 No standard guidelines for cleanup and
  disposal, therefore, further contamination
  and additional claims may result
 A small number of court decisions have
  addressed mold
 Insufficient number of cases to date to be
  able to identify a trend in court decisions
  with respect to the application of the
  pollution exclusion to mold
             ISO Research
 We have held a number of panel meetings
  and done extensive research
 Lack of consumer education, and of federal
  and state guidelines for evaluating the
  potential health risks of mold or its
  remediation
 Inconclusive reports from the medical and
  scientific communities
 Paranoia from public due to media coverage
           Goal of ISO Filings
 Well-reasoned, balanced solution that restores
  predictability
 Decreases financial incentives for trial lawyers
  and mold remediation “experts”
 Limited coverage options intended to put property
  owner on the road to recovery
 Caps the catastrophic potential for insurers
 Supports insurance availability
 Addresses the mold problem before it spreads
         Fungi Endorsements
 Developed to offer insurers and insureds
  options regarding mold-related exposures
 Provide a means for the industry,
  particularly in those areas of the country
  where this type of exposure occurs more
  often, to place a limit on the amount of
  coverage offered
 Insurers can continue to write water damage
  coverage
 Bacteria included
     Homeowners 2000 Program
        Property Coverage
   Damage caused by mold, fungus and wet
    rot, resulting from a covered peril:
     water to fight fire
     wind-driven rain
     accidental discharge
     storm drain back-up off the residence premises

   Mold-related claims may trigger coverages
    under Building, Contents, Additional Living
    Expense, Liability, and Medical Payments
      Personal Lines Changes
 Optional endorsement
 Sub-limits provide limited first ($10,000)
  and third ($50,000) party mold coverage,
  both on an annual aggregate basis
 Options to purchase additional limits
 The current mold, fungus or wet rot
  preclusion is deleted and a Fungus, Wet or
  Dry Rot Section I Exclusion is introduced
 The limited mold coverage will address
  mold losses including testing that result
  from any covered peril
    Personal Lines Changes (Cont’d)
 A constant or repeated seepage or leakage
  preclusion has been added but limited
  coverage exists if the seepage or leakage
  and resultant damage is hidden from view
  and not known
 For fire and lightning, if there is water
  damage and mold following a fire, the total
  of all damages is subject to the full policy
  limit
 A definition of "Fungi" has been added
       Definition of Fungi
"Fungi" means any type or form of fungus,
including mold or mildew, and any
mycotoxins, spores or scents or byproducts
produced or released by fungi, but does not
include any fungi that is, is on, or is
contained in any goods or products intended
for consumption. (Exception for liability
only.)
    Personal Lines Changes (Cont’d)
 Underlying base loss costs do not reflect the
  increased cost to provide remediation of
  mold losses as we now understand them
 Loss costs being calculated for various limit
  options
    Personal Lines Data Collection
   We are introducing a new Mold Damage
    Coverage Code to capture the extent of coverage
    for losses due to mold or bacteria.
   We are introducing new Cause of Loss Codes to
    segregate loss assessment expenses from
    remediation expenses, and to identify the peril
    causing the damage.
   We are introducing new Cause of Loss Codes to
    identify these losses as either Bodily Injury-related
    or Property Damage-related.
    Commercial Property Coverage
 Policy intent and practice is to cover fungus
  only in the immediate aftermath of a
  covered cause of loss
 Like Debris Removal, mold claims are
  changing in size and character to the point
  where the cost of mold remediation may
  exceed other damages
 Commercial Property policies cover a mold
  loss that results from a covered peril
    Commercial Property Coverage
             (Cont’d)
   Not all mold losses are covered. Exclusions
    in the Special Form:
     Loss resulting from fungus, rust, corrosion,
      decay, hidden or latent defect that causes
      property to damage or destroy itself
     Damage due to continuous or repeated seepage
      of water over a period of 14 days or more
     Loss arising from faulty design, construction
      and materials
    Undermining Coverage Intent
 An overly broad interpretation of water
  damage coverage in the Broad and Special
  Forms has been used to undermine the mold
  exclusion
 An overly broad interpretation of water
  damage coverage has been used to defeat
  the exclusion for construction error. An
  exception to the exclusion provides
  coverage where the faulty design,
  construction or maintenance results in a
  covered peril
 Commercial Property Revisions
 Modify the present wear and tear exclusion to
  eliminate reference to fungus and retain reference
  to the remaining conditions
 Introduce a separate exclusion addressing fungus
  (a newly defined term), and wet and dry rot with
  an exception for loss from specified perils, to the
  extent provided in an "Additional Coverage”
 Require that, to be covered, the insured use all
  reasonable means to preserve the property from
  further loss
Commercial Property Revisions (Cont’d)
 The new Additional Coverage:
      is subject to a sub-limit of $15,000 per premises,
      runs to specified causes of loss (includes windstorm,
       sudden/accidental on-premises water damage, leakage
       from fire extinguishing equipment) and
      includes post-remediation testing for the presence of
       mold
 The sub-limit includes all expenses related to
  mold, including tearing out and replacing parts of
  the building to allow access; does not increase the
  limit of insurance; and applies on an aggregate
  limit basis
 Commercial Property Revisions
          (Cont’d)
 Reinforces the 14-day continuous and repeated
  water leakage exclusion by adding “discharge”
  and explicitly referring to the presence or
  condensation of humidity, moisture or vapor
 Ensuing loss covered, if mold results in a specified
  cause of loss
 For fire and lightning, if there is water damage and
  mold following a fire, the total of all damages is
  subject to the full policy limit
Commercial Property Revisions
         (Cont’d)
 These changes also impact Time Element
  coverage. If mold is the only loss, a 30-day limit
  applies. If in combination with other damage, if
  mold is not remediated by the time the other
  property is restored, an additional period of
  restoration of 30 days for mold only is provided
 No change in base loss costs; recent mold data not
  included in current loss costs
    Commercial General Liability
   Possible legal liabilities (covered or not):
     negligence,
     strict liability,
     breach of warranty,
     constructive eviction,
     failure to disclose,
     breach of contract,
     fraud,
     workers compensation, and
     violation of air quality laws.
              CGL Exclusions
   Pollution:
     Is mold an irritant or contaminant? Some
      courts hesitant to consider common natural
      organisms a pollutant
     Does a discharge, dispersal, release or escape
      take place as the exclusion specifies? Mold
      does emit toxins during its reproductive cycle
 Your Product
 Your Work (exception for sub-contractor)
                  CGL Changes
 Two optional fungi endorsements in addition to
  the current coverage:
      A Fungi Exclusion endorsement that totally excludes
       coverage for injury or damage caused by fungi
      A Limited Fungi Coverage endorsement that puts a
       limit of liability on coverage for bodily injury and
       property damage caused by fungi, and excludes
       coverage for fungi under Personal and Advertising
       Injury
      Both use the identical definition of fungi
      Endorsements will be a-rated
              Fungi Exclusion
   Excludes all:
     bodily injury or property damage arising out of
      mold
     related clean-up costs and associated expenses

   States that the Personal and Advertising
    Injury coverage does not apply to mold
      Limited Fungi Exclusion
 Provides a BI and PD Fungi Liability Limit
  that applies regardless of whether any other
  cause, event, material or product
  contributed concurrently or in any sequence
  to the injury or damage
 States that the Personal and Advertising
  Injury Coverage does not apply to mold
  claims
    Commercial Lines Data Collection
   We are introducing a new Mold Damage
    Coverage Code to capture the extent of coverage
    for losses due to mold or bacteria.
   For commercial property coverage we are
    introducing new Type of Loss Codes to identify
    mold damage, including the antecedent peril
    causing the consequential mold damage
   For commercial liability coverage we are
    introducing new Type of Loss Codes to identify
    mold as the cause of either a bodily injury or
    property damage
             Current Approvals
   April - June effective dates
     Commercial Property = 23 (Forms)
     General Liability/Umbrella = 28
     Homeowners = 25

   July effective date
     BOP
     Farm
 Current Approvals (Cont’d)
The Commercial Property filing was
supplemented to provide rating
information for mold increased limit
options. The effective date has been
revised to August 1, 2002.
  ISO Mold Filings
CAS Special Interest Seminar