Mike Menath, owner of Mike Menath Insurance, has encountered the following scenario almost on a daily basis in the past 12 months in the greater Reno area: After wading through the lengthy process of house-hunting, a family from California has found a Reno home on which to make an offer.
They still have a few more steps to go, including securing a mortgage.
A mortgage requires homeowners insurance.
The family contacts an insurance agent.
The agent, as is standard practice, runs a report on an insurance industry database known as CLUE for Comprehensive Loss Underwriting Exchange to find any previous claims made on the house.
The agent discovers the home's history includes a settlement for water damage.
Whether the damage was caused by surface runoff from a drainage ditch on the street, or a broken pipe in the house, the result can be costly to the prospective homebuyers: a policy three times as expensive as a standard homeowner's policy, purchased not from a major, standard insurance provider, but a smaller "substandard" provider.
The underlying problem is mold or, more specifically, the fear in the insurance industry of costly settlements for damage from toxic mold.
"A number of carriers have said if there are water losses, they won't have anything to do with it," says the Incline Villagebased Maneth, who has sold insurance in Nevada for 22 years.
Since a multimillion-dollar judgment against an insurance company in favor of a Texas homeowner in 1991, standard insurance providers have been reluctant to underwrite homeowner's policies for homes with even minor histories of leaky pipes or flooding.
That often leads Menath to call substandard carriers, whose prices can be three times the cost of a standard premium.
When he informs the prospective homebuyers that the policy could be much more costly if a standard underwriter can't be found, usually they aren't surprised.
"Most people have heard of the insurance problems with water losses," Menath says.
"They're appreciative we can find something for them."
Concerns about toxic mold and its consequences have spread, spore-like, throughout the nation's insurance industry, and consequently to the real estate industry.
Mortgage companies require borrowers to have homeowners insurance.
But the mushrooming of mold claims have caused insurance companies to hike rates and limit damages due, and even in some states to exclude mold coverage in homeowners insurance.
Some companies have quit issuing homeowners insurance altogether.
Harvey Fennell, chief financial officer of Reno-based Dickson Realty, says the mold issue has complicated residential transactions in the past year yet ruined only a few deals.
"To a large degree it's a scare thing that's running around right now," Fennell says.
"There are a number of instances where you have minor amounts of mold that can easily be taken care of.Typically in a crawl space where you have water underneath the house for a number of reasons, there may be small mold spots on a foundation wall or wood truss that are relatively minor, and (home) inspectors will have to note it as mold in their reports, and the buyers will become concerned."
Agents representing buyers now often make their offers contingent on the buyers' ability to secure homeowner's insurance, Fennell says.
But fewer than 10 house transactions out of 3,000 at Dickson Realty have been canceled in the past year because mold was discovered, he estimates.
The problem may emerge larger in scope now that most Realtors in the Truckee Meadows have added a contingency clause in purchase agreements specifying that a buyer must, within so many days, obtain homeowners insurance.
"It's a new phenomenon," Penny Mayer, past president of the Reno-Sparks Association of Realtors and owner/broker of Mayer & Associates, says of water-damage concerns of homebuyers.
The RSAR decided, informally, to insert the clause in its standard purchase-agreement form, which most local Realtors use,Mayer says.
The clause was added in January.
"We determined the best thing we can do for our buyers and sellers is to educate them, so we don't get down to the wire and then are unable to get insurance on the property or have to pay exorbitant rates," Mayer says.
"In the past, all of us have kind of waited until our buyers were in escrow, then said, 'You need homeowners insurance.' Now we're putting it right up in front in the purchase agreement, because some people don't know that their house has been stigmatized."
Mayer prefers the word "stigmatized," saying that houses that have had insurance claims for water damage may be perfectly free of toxic mold, yet still are flagged by insurance companies as poor risks.
Last year, the RSAR's political affairs committee solicited anecdotes from agents about lost sales due to water-damage claims homes, intending to use these anecdotes during testimony at the 2003 Legislature.
But only a few calls came in.
"Realtors, like everyone else, are busy," Mayer says.
But now that the contingency clause has been added into the RSAR form, with the potential for more consumer reaction, more anecdotes may be forthcoming, says Mayer, who also chairs the Nevada Association of Realtors' legislative committee.
The majority of molds routinely found in homes such as the black scum around bathtub tiles are not hazardous to healthy people.
But overexposure to certain of these fungi including species growing out of sight behind walls, due to plumbing leaks can trigger rashes, allergic reactions, asthma and other respiratory ailments, nosebleeds and other unusual hemorrhaging, chronic fatigue, seizures, memory loss and other brain damage, and even death, according to the U.S.
Environmental Protection Agency and other official sources.
Of the 100,000-plus mold species, only a few dozen can cause health woes.
These molds produce mycotoxins.
Some experts theorize that modern home construction, with walls containing cellulose (where mold can thrive) and more airtight walls and windows, can increase the risk of exposure to poisonous molds.
Across the nation, toxic mold has been the culprit in cases of buildings and schools forced to close due to health hazards.
And protecting the public from poisonous fungi growing indoors has become an issue on Capitol Hill.
Last year, U.S.
Rep.
John Conyers (D-Michigan) introduced HR 5040 The United States Toxic Mold Safety Protection Act which includes a section requiring a mold inspection at the time a residential property is rented or sold.
Conyers, in introducing the bill, said exposure to toxic molds in homes and buildings is believed to have caused dire medical conditions from bleeding lungs to digestive problems, hair loss, nausea, memory loss, reduced cognitive skills and death.
Poisonous molds also have destroyed millions of dollars of real estate.
The bill would establish federal regulations that likely would increase the cost and time of a home sale or lease.
Those regulations include establishing standards for certifying mold inspectors, and creation of a national insurance program, administered by the Federal Emergency Management Agency, to protect homeowners from catastrophic losses.
Another provision requires mold inspections for all property purchased with funds guaranteed by the federal government, which many first-time and lowincome buyers use to secure mortgages.
The bill remains in the House Judiciary Committee, and Conyers intends to reintroduce it this year.
In Nevada, state Sen.
Bob Coffin (DLas Vegas) in February introduced SB 131, which would require companies offering property insurance to disclose mold coverage included in policies, and to offer certain levels of coverage for mold control.
A companion bill, SB 132, would require the state's Division of Industrial Relations to license and regulate mold controllers.
The bills are in the Committee on Commerce and Labor.
With toxic mold grabbing headlines, insurance companies have reacted.
The trigger was a court's awarding of $32 million from Farmers Insurance to Texas homeowner Melinda Ballard, who claimed the insurance company had acted fraudulently and in bad faith when fixing water damage from a small leak at Ballard's mansion in the town of Dripping Springs.
Even though Ballard's was a fraud claim, not a mold claim, after the award (which Farmers appealed), the number of mold claims in Texas skyrocketed in 2001 to 37,000, from 7,000 the year before.
The Texas Department of Insurance reported that the five largest insurance carriers in the state paid more than $1 billion in mold settlements in 2001 and 2002.
California trails only the Lone Star State with the highest number of mold claims in the nation making it difficult for many buyers in the Golden State to secure homeowners insurance.
Insurers are being pre-emptive in their reaction to the mold issue, says Tom Burns, chairman of the state legislative committee of Nevada Independent Insurance Agents.
"The industry was hit pretty hard by claims such as for asbestos-related illnesses, which have long-lasting effects on people's health.
Certainly there are molds out there that are harmful.
For those, the effects are pretty long-lasting.When things become catastrophic and difficult to underwrite, insurance companies stop offering coverage on them.When insurance companies see an issue that they can't underwrite meaning they can't quantify how many times per thousand houses this mold will occur and, when it occurs, how much it will cost then they walk away from it."
Fearing lawsuits and massive settlements, the majority of major providers have put on exclusion regarding mold coverage on their homeowners policies, Burns says.
"I've heard of attorneys holding seminars in California titled, 'Mold is gold.' Unfortunately, anything that happens over there tends to flow over here."
Burns applauds the intention of Nevada's Senate bill that would require insurers to provide mold coverage, but warns there could be an unanticipated consequence.
"If you legislate that you have to write mold, then insurance companies could leave the state." They would stop providing homeowners insurance in Nevada.
Any bill that finally gets signed into Nevada law could include a limit on the amount of money due in an insurance settlement for mold damage, Menath says.
Without such a provision, large insurance carriers could simply stop selling homeowners insurance in the Silver State, he says.
"Insurance companies are in business to make money.
Nevada is a very small market for most of them."
