A Homeowners Report On the Texas Department of Insurance Toxic Mold Hearings. Prepared by John R. Cobarruvias Oct

Transcription

1 A Homeowners Report On the Texas Department of Insurance Toxic Mold Hearings Prepared by John R. Cobarruvias Oct

2 A Homeowners Report on the Texas Department of Insurance Mold Hearings 2 A Homeowners Report On the Texas Department of Insurance Toxic Mold Hearings Prepared By John R. Cobarruvias Oct Table of Contents: EXECUTIVE SUMMARY...3 THE TOXIC MOLD HEARINGS...4 THE INTERIM STUDIES ON MOLD...5 TYPES OF MOLD...6 HEALTH AFFECTS OF MOLD CONTAMINATION...7 CAUSES OF MOLD CONTAMINATION...8 NEW HOME CONSTRUCTION DEFECTS...10 THE HIGH COST OF MOLD REMEDIATION...12 LOSS OF MOLD COVERAGE...13 LACK OF A RISK MITIGATION STRATEGY...14 MOLD TASK FORCE...15 RECOMMENDATIONS AND CONCLUSIONS...16 John R. Cobarruvias prepared this report after attending all the mold hearings, listening to hundreds of homeowners and meeting with elected officials on the topic.

3 A Homeowners Report on the Texas Department of Insurance Mold Hearings 3 Summary After months of hearings by the Texas Department of Insurance (TDI) and a special Mold Task Force appointed by the Commissioner, the homeowners in Texas are no closer to a possible solution to the mold crisis than before the TDI hearings. The results of the hearings and decision by the Commissioner have adequately protected the insurance industry by removing mold coverage from Texas insurance policies and lowering the cap on mold remediation. These actions were expected to lower our insurance rates, but instead our rates have never been higher, insurance companies are leaving Texas, and some homeowners are now unable to find coverage and others unable to afford the increase. At the final hearing in Austin, the Commissioner announced the formation of a Mold Task Force. Unfortunately, the composure of the Mold Task Force was stacked against the consumer and was without a single homeowner affected by mold contamination. This task force was highly anticipated, but the results were disappointing with the publication of a non-binding guide on the handling of water claims. To further insult the homeowners, tort reform groups were allowed to be represented, although little if any discussion on tort reform took place during the hearings. It can only be assumed there were other motives involved. Although the hearings and task force spent long hours listening to testimony from homeowners and consumer groups calling for detailed studies into mold contamination from a consumer perspective, the calls have been unanswered. It is time for the State of Texas to realize mold contamination is not just an insurance rate issue, but one that is affecting the health of Texas families, school children, state employees and elected officials. The hearings provided a one-time opportunity to gather information on the financial and health affects of mold contamination. The state must seize this opportunity and use this information to find a solution for all involved. By answering the hard questions of, how to detect toxic mold, how to prevent it, and how to cost effectively remediate it, protection will be available to all involved in home industry including homeowners, builders, and remediators. It could also provide much needed risk mitigation, which would benefit the insurance companies responsible for insuring the homes. The Texas Legislature should address these issue during the 2003-legislation session.

4 A Homeowners Report on the Texas Department of Insurance Mold Hearings 4 The Toxic Mold Hearings In early 2001 TDI Commissioner Jose Montemayor conducted public hearings on mold contamination prompted by a request by Farmers Insurance to remove mold coverage from home policies. These hearings were conducted in Austin, Houston and Corpus Christi with a final hearing in Austin to address the findings and results. During this time I attended all the hearings, and met with the Commissioner and his staff, the Governors Chief of Staff and the Texas Attorney Generals office concerning various aspects of the mold problem. The hearings were attended by thousands of homeowners, insurance agents, and professionals in the real estate field. Absent from testimony were representatives of the home building industry, builders, or members of the Builders Association. We found this disturbing since many of the complaints were from owners of newly constructed homes with mold contamination caused by a construction defect. I participated in each hearing and was invited to speak at the Houston hearing to express the concerns for the victims of mold contamination in new homes. The emphasis was that the mold is a health issue that must be addressed from the causes and prevention aspect. In order to accomplish that goal the recommendation was that there should be a comprehensive investigation as to what impact construction defects and defective materials might have on the causes of mold growth. Also the emphasis was on the importance of the continued involvement of the insurance industry to assist in ascertaining the causes and solution. In late June, the final hearing was conducted in Austin with a proposal by the TDI staff of limiting mold coverage to $ and allowing homeowners to buy back the coverage through extra insurance, which is extremely costly and limited. This included testing, treating, containing or disposing of mold beyond that necessary to repair or replace property that is physically damaged by water. This recommendation provided generous protection for the insurance industry, but the industry has continued to lobby for further relief in the form of caps on mold litigation. The hearings provided a one of a kind opportunity to hear from homeowners with contaminated homes. The information gathered from these homeowners was very clear: mold contamination is real, it affects homeowner s health and financial stability, and it must be addressed immediately.

5 A Homeowners Report on the Texas Department of Insurance Mold Hearings 5 The Interim Studies on Mold After the TDI hearings Speaker of the House Pete Laney issued an interim study charge to the Insurance Committee of the Texas House to continue to study this issue of mold contamination and insurance. As with the TDI hearings a number of homeowners testified about the contamination of their homes and the health affects. A number of suggestions on how to mitigate the risk of contamination included: Holding Insurance Companies responsible for slow response time to a covered event which causes mold contamination Regulation of the home building industry to insure better built homes less prone to mold contamination by a construction defect Further investigation in the health effects of toxic mold Removing binding arbitration clauses: from new home contracts to provide legal action against builders who cause mold contamination Modifications to Residential Construction Liability Act (RCLA) time schedule for mold contaminated homes We understand some of these suggestions are out of scope of the interim study charge and the committee, but we hope the issues and associated suggestions are forward to those that can review and set policies. Although the goal of reasonable insurance rates is important we hope the overall issues surrounding mold contamination is not ignored. We believe by mitigating the risk of mold contamination through licensing of homebuilders, more strict standards, and holding those responsible for the contamination, lower rates can be sustained. Preventing the problem of mold contamination would ultimately result in lower home insurance rates for the homeowner as well as liability insurance for the builders.

6 A Homeowners Report on the Texas Department of Insurance Mold Hearings 6 Types of Mold There are thousands of types of mold in our homes and in the environment but these should not be confused with the types of toxic mold being addressed in this report and the TDI hearings. If the remediation of these types of mold were as simple as using a bucket of Clorox and a mop, this would not be such an important issue worthy of being addressed by the TDI or the State. The TDI hearings and this report are not addressing the common molds that can be seen in your bathroom or that cover an exterior shady wall. For these, Clorox and good house cleaning should be adequate. The molds that were the focus of the TDI hearings are those that has caused considerable damage to property and the health of the occupants. In the vast majority of these cases, the mold cannot be seen or smelled, hidden behind interior and exterior walls or in the ductwork of an air conditioning system. Occupants were subjected to these conditions unknowingly and many begin to experience health problems. Some of the most common molds that have contributed to these affects and have been widely discussed at the hearings are Stachybotrys (pronounced Stack-ee-bot-ris), Aspergillus, Penicillium and others. Although this is not a complete list, the point to be made is that we are not talking about your common every day mold that can be killed with bleach, a mop and good housekeeping, but instead it is the toxic mold that can and has caused serious health problems.

7 A Homeowners Report on the Texas Department of Insurance Mold Hearings 7 Health Affects of Mold Contamination On many occasions we have heard that there are no studies which links mold to health risks, yet we heard testimony from many owners about health issues such as strange rashes, frequent nose bleeds, flu like symptoms, respiratory problems, and in extreme cases, memory loss. Owner after owner testified about their strange symptoms that were later linked to toxic mold hidden in their home. And most stated their symptoms went away after leaving the home for an extended period. In extreme cases the symptoms have never left. These cases require a case by case analysis to obtain any meaningful determinations. Many of the homeowners we have heard from had young children who had been mysteriously sick with no known answer to their symptoms requiring constant visits to the doctor. Many of these symptoms would persist for weeks and months at a time. The similar affects on adults were also well documented. Many of these owners incorrectly believed it was due to allergies, a virus, or a weakened immune system. Most never thought it could be due to toxic mold contamination. One clearly frustrated homeowner at the Houston hearings went so far as to pull up her blouse to expose a strange rash on her back cause by mold contamination in her house. Whether there are studies on the affects of mold contamination or not, the shear number of homeowners and sick children with similar horror stories and symptoms should sound a clear alarm. The State of Texas has already acknowledged the health hazards of mold contamination. In 2001 the Texas Attorney General's field office in Lubbock was contaminated with mold and his staff evacuated. 1 The owner of the building was required to remediate the building at their cost. And in 1997 Governor Bush and Laura Bush had the Governors mansion remediated of mold at taxpayer expense. 2 And many state buildings and public schools across Texas have been documented with mold contamination causing heath concerns and costing millions of dollars in remediation, lost productivity, and taxes. There is no doubt mold contamination is a serious health issue and it must be addressed as such. The preponderance of evidence of the affects of mold based upon the testimony and media coverage is staggering and calls for a detailed study to learn why mold is becoming toxic, how to prevent it, how to detect it, and how to cost effectively destroy it. We should strive to provide the same coverage and concern as we did for the Governor of Texas and the Texas Attorney General for these homeowners who took their time to address our State officials at the hearings. Not only should we be protecting our elected officials, state employees, but our Texas families also. 1 Texas Ags office 2 Texas Governors Mansion

8 A Homeowners Report on the Texas Department of Insurance Mold Hearings 8 Causes of Mold Contamination The TDI hearings and the Mold Task Force seemed to be narrowly focused on mold contamination caused by a sudden water leak such as a broken water pipe or water heater. These are covered events, and if not addressed in a timely manner could lead to mold contamination. Many homeowners complained the contamination was caused by the lack of a quick response by their insurance company, some up to week s delays. These homeowners were told not to remove or repair the damage until the adjuster could inspect. This delay in many cases caused the very mold contamination the insurance industry has asked to be relieved of. A sudden water leak coupled with the lack of immediate response by the insurance agency, is only one of the causes of mold contamination identified by testimony at the TDI hearings. Homeowners attributed mold contamination to other events such as: Slow water leaks such as a pin hole leak into a wall cavity. These types of leaks will go unnoticed for months causing rot to the inner walls and eventually mold growth. Many of these leaks are caused by a construction defect such as a nail driven next to a copper pipe or a failure of a shower pan that cannot be seen until months after the damage is done. Other examples include water condensation by the Air Conditioning unit dripping into a wall or attic, a roof leak, a dryer venting into a wall cavity or a dripping dish washer hose hidden from the view of the owner. EIFS (Exterior Insulation Finish Systems) or synthetic stucco has been reported to contribute to mold contamination due to water intrusion into the wall cavity, unknown to the homeowner for years in some cases. Homeowners from The Woodlands Texas testified about the contamination of their 7-year-old homes due to this product. In one instance, there are up to 70 homeowners with legal action against a builder due to high moisture content in their EIFS homes. 3 Synthetic Stucco has been the focus of a number of class action suits across the county, and an investigation by NBC Dateline. In response to Dateline the National Association of Homebuilders issued this statement: "The National Association of Home Builders (NAHB), representing over 60,000 home builders nation wide, told Dateline that synthetic stucco, even if it meticulously applied and maintained, "Isn't compatible with the existing wood frame construction methods in the United States." They went on to say 3 Brounson vs Lifeforms

9 A Homeowners Report on the Texas Department of Insurance Mold Hearings 9 that homes with synthetic stucco "develops moisture intrusion problems even when properly constructed according to industry standards." 4 Also in various subdivisions in Houston, a number of builders are voluntarily removing and replacing the synthetic stucco they used on their homes. Some of these homes are 6-7 years old, way past their warranty and the cost of the repairs are very high. It is good to see these builders taking these steps to insure the homes and the homeowners are protected. Because of the failure rate of this product has requested the Texas Attorney General to immediately begin an investigation of this product and question its continued use in new home construction. We have also requested assistance from the Insurance Commissioner. In Ohio the insurance industry is threatening to not cover builders who continue to use the product due to the risk in litigation. 5 It seems unreasonable for an insurance company to provide liability insurance to a builder who continues to use this product. Construction products prone to mold growth have also been identified as a possible cause of mold contamination. This could include lumber used in framing of the house, drywall, hardboard siding, composite materials, and types of decking such as OSB. Hardboard siding such as Masonite has been known to take on water, swell, and could provide a home for mold growth. This product was found to be defective by a jury in 1997 affects approximately 4 million homes in the United States. 6 Other hardboard siding products have been found to also be prone to premature deterioration. These account for another 4 million homes or structures. New home construction defects. Although it is hard to determine what the percentage of new homes vs. all mold homes, it is clear new homes are not immune from mold contamination due to a construction defect. Our experience has shown an alarming number of new homes contaminated. 4 Realty Times. Crumbling Walls Creating A Stir 5 Ohio article 6 Vaef vs Masonite

10 A Homeowners Report on the Texas Department of Insurance Mold Hearings 10 New Home Construction Defects has from the start, been concerned about new home construction defects with toxic mold contamination. Our focus at the hearings was how mold contamination affects homeowners of new homes, how to prevent this from happening, and how to resolve the mold problem. Although many of the owners we have worked with have new homes with mold contamination, we do not know what the ratio of contaminated new homes vs. older homes. This information was not conclusive at the hearings either. We also do not have any data on whether a particular builder in Texas is more responsible than others for mold growth in their new homes. These statistics might be kept with the insurance companies, or an independent study should be conducted. We doubt seriously if the builders would share this data on their specific experiences. Examples of construction defects causing mold contamination include missing flashing around windows, incorrect roof designs causing water penetration into the walls, foundations without moisture barriers, unprotected water pipes in the foundation, foundation failure causing water leaks, incorrect sewer drain installation, water intrusion through windows, synthetic stucco, hardboard siding, water condensation on A/C coils. Many of the homeowners are forced to take legal action against their builders. Unfortunately they have found this to be very difficult considering the lack of consumer protection for our new home purchase. The 10-year new home warranties specifically exclude mold contamination and do not cover consequential damage from water leaks. 7 The implied warranty of habitability and good workmanship could cover this type of defect, but the Texas Supreme Court will be ruling on whether the builder can be relieved of this warranty. 8 Many of the new homes are so severely contaminated that the home is uninhabitable, yet the laws in Texas limit any suit to the original cost of the home leaving the homeowners with a loss in closing costs, moving expenses, and upgrades to their homes. And if the contents are contaminated, they usually will lose in remediation of these. Many of the water intrusion problems are usually blamed on the homeowner's lack of maintenance even those, which are hidden behind the walls or in an attic. This is a very 7 David Weekley s New Home Warranty, The Home of Texas 8 Supreme Court Case Centex vs. Buescher No CV

11 A Homeowners Report on the Texas Department of Insurance Mold Hearings 11 common tactic used by the builders in all defects, blame it on the homeowner. Regardless of the reason, mold contamination has resulted in lost investments, lawsuits, and loss in tax revenue. It is our belief that current building techniques for new homes and building products prone to mold growth have significantly contributed to this mold crisis. Our suggestions to the Interim Study on Mold included methods and ideas that would mitigate the risk of new home contamination such as modified building standards and licensing of builders. Make no mistake about this, mold contamination has caught the attention of the Texas homebuilding industry and maybe these ideas should be seriously considered. We believe, and many homeowners who have testified agree the lack of regulation and the inability to hold the builders accountable has contributed to this mold crisis and has resulted in homes susceptible to mold growth. And these homes are now being insured, or were being insured, by the insurance industry. According to reports from the Atlanta Homebuilder convention held this year: "We've found that 28 percent of the builders reported that they had mold at least one house under construction in the past year," said Tom Kenney with the National Association of Home Builders' research center. "Eighteen have reported at least one occupied house with a mold problem." 9 The Texas homebuilder association understands how serious a problem mold contamination in new homes can be. will continue to recommend measures that would mitigate the risk of mold contamination in new home construction. 9 Mold on their minds Home builders grapple with moisture matters Monday, February 11, 2002 Inman News Features

12 A Homeowners Report on the Texas Department of Insurance Mold Hearings 12 The High Cost of Mold Remediation Many homeowners as well as the insurance industry complained of the high cost of mold remediation, sometimes overwhelming the entire cost of the home. At the last hearing it was announced that the Attorney General would be investigating allegations of price gouging by mold remediation companies. As a side issue it was disclosed that the remediators were not licensed, regulated, or monitored by the state and no known standards of remediation had been established. The insurance industry also alleged the 3 rd party appraisers, which assist a homeowner in handling an insurance claim, were contributing to the high cost of remediation. Whether these claims are true or not, the cost of remediation is historically very expensive running into the tens of thousands of dollars if not more. There is now a call for these remediators to become licensed by the state. This seems odd since the homebuilders responsible for the building of the homes are not licensed. Maybe a better approach is to look at every profession responsible for the construction and repair of your investment and determine if licensing is appropriate and would benefit the consumer. If licensing of the builders and remediators will reduce the risk of mold contamination, then it should be seriously considered. We hope the Attorney General would continue to investigate any price gouging by anyone affiliated with the mold issue. We also have asked that this investigation be expanded to include products prone to mold growth such as synthetic stucco.

13 A Homeowners Report on the Texas Department of Insurance Mold Hearings 13 Loss of Mold Coverage Prior to the TDI hearings mold contamination for many of the causes was being covered. Whether this was justified or the intent of the insurance policies is now a non issue since mold contamination is no longer covered as a result of the hearings. The TDI has decided to cap the mold contamination coverage at just $ , which is only for covered perils such as a sudden water leak. The extra mold insurance that can be purchased for extreme prices only covers mold contamination from a covered peril, not due to the other causes outlined above. This extra insurance can be purchased to provide % coverage of the mold remediation cost. If a covered peril is attended to quickly and correctly, there should be no need for this extra insurance. It is as if this insurance is to protect the homeowner in case the insurance company fails to act quickly, or in good faith for a covered peril. To add insult to injury, the results of the mold hearings were to bring our rates down. Unfortunately we have seen outrageous increases in our premiums even without the mold coverage. would welcomed lower rates, but not at the expense of risking loss of your home to mold contamination. We believe if the risk of mold contamination is addressed the need for mold insurance would be reduced. We also believe the coverage should have never been removed without first determining and detailing a mold risk mitigation strategy. We are especially concerned about the advertised extra mold insurance that could be purchased. This extra insurance will not cover homeowners from the unknown catastrophic damage caused by hidden mold contamination cause by such events as slow water leaks. Insurance is suppose to protect us from these unknown costly events which we have little if any control over. As with a tornado, the damage is usually devastating, and unpredictable. But unlike a tornado, the risk of mold damage could be mitigated.

14 A Homeowners Report on the Texas Department of Insurance Mold Hearings 14 Lack of a Risk Mitigation Strategy At the Corpus Christi hearings, Senator Truan asked some of the most important questions such as: How has the insurance industry mitigated the risk of mold contamination? What has the industry done to ensure the homes they protect are built with less risk to mold contamination? What have they done to influence building codes that would prevent mold contamination? What have they done to prevent mold contamination instead of just running away from insuring it? These questions were not answered at the hearings and have yet to be answered. And given the results of the TDI hearings, the industry have no reason to answer them now. These questions should also be asked of the building industry that has built the homes as well as every profession that is associated with the building of homes in this State. These are hard questions, but they must be answered. Without mold coverage and a risk mitigation plan, homeowners are left playing Russian Roulette with their investments and their health. This has been a very difficult topic since it crosses so many different areas with no overall organization responsible for an answer. The Department of Insurance does not have control over building codes or products used in new home construction. And there is no oversight State agency responsible for new home construction.

15 A Homeowners Report on the Texas Department of Insurance Mold Hearings 15 Mold Task Force During the last hearings in Austin, the Commissioner announced the formation of a Mold Task Force. We were encouraged by this announcement and volunteered our services as did many of the homeowners who have been affected by toxic mold. It was encouraging to see so many homeowners who have been through mold contamination willing to step forward and help with the situation. Unfortunately the task force was stacked with members of the building and insurance industry and even a known tort reform group alleged to have ties to the insurance industry. Absent was any participation by those affected most by this situation, a homeowner. At the conclusion of this task force a guide was published titled "Effectively Handling Water Damage and Mold Claims: A Consumer Guide" which is not much more than a guide to good housekeeping and an non-binding recommendation to the insurance agencies on response times to a water claim. How a tort reform group or the building industry contributed to the narrow focus of this guide is not quite understood, but it does raise suspicions. We are concerned this exercise was used as a means to sneak in more unneeded tort reform to further protect the insurance industry and possibly the home industry. It was hoped this task force would not only address the sudden leak of water that could lead to mold contamination, but also acknowledge that other causes of mold contamination exist. Then the task force could either address these issues with recommendations to the Governor, or at the very least, declare them out of scope with a recommendation to the Governor to call for continued studies. The task force did neither and the other causes of mold contamination have been left unresolved. We had high hopes for this task force but were extremely disappointed in the results. We understand the participants worked hard on the publication of the guide, yet we had expected a much more in depth study and report.

16 A Homeowners Report on the Texas Department of Insurance Mold Hearings 16 Recommendations and Conclusions It is hard to believe that after months of hearings and a Mold Task Force, that absolutely nothing was done to help the consumer address the hard questions of mold contamination. We are no closer to understanding what makes mold toxic, how to detect it, how to prevent it, and how to cost effectively kill it. But one thing is for sure; the insurance industry has been well protected by the recommendations and results of the hearings. Mold coverage has been removed, yet our rates have increased. The mold coverage that can be purchased is outrageously priced and covers only one of many causes of mold contamination. And this one cause can be avoided if the insurance industry would simply handle a water claim in a quick fashion and in good faith. is disappointed in the results of the TDI hearings. At the very least our elected officials should have been notified that this is a serious health issue affecting many of their constituents, and many of the causes of mold contamination cannot be addressed by the Department of Insurance. We hope that this report will bring attention to the real problem of mold contamination and that it will be addressed in the next legislation session. Below are recommendations we believe would help in resolving the mold crisis: Further investigation in the health affects of toxic mold Holding Insurance Companies responsible for slow response time to a covered event which causes mold contamination Regulation of the home building industry and contractors to insure better built homes less prone to mold contamination by a construction defect Modifications to Residential Construction Liability Act (RCLA) time schedule for mold contaminated homes Identifying and removing building materials prone to mold growth