As the ribbing goes, temperate California has but two seasons -- the Fire Season and the Earthquake Season, but the Golden State may be about to weather a particularly nasty mold spell as well.

Just as insurance companies are beginning to pull coverage on homes and other structures threatened by mold, El Nino is back, possibly with weather to make matters worse.

Home and property buyers and owners in affected areas could face the dual task of fighting to obtain and keep homeowners insurance while sandbagging against moisture intrusion.

They had better start now, because you couldn't ask for a more unfortunate convergence of events -- insurers hate mold claims, mold loves moisture and El Nino indiscriminately spreads moisture -- sometimes in torrents.

First in Texas, now in California and what's likely to spread elsewhere, insurance companies have paid out tens of millions of dollars for mold claims and, to cover their financial assets, they are backing away from coverage of properties with prior water damage claims or if inspections turn up a mold potential.

Meanwhile, El Nino, a weather system of warmer Pacific Ocean water temperatures is growing and can trigger bizarre weather conditions including heightened moisture levels.

What's more, California's "Toxic Mold Protection Act", effective Jan. 1, 2001, mandates landlords and residential and commercial property sellers to disclose to potential tenants or buyers, the presence or prior existence of mold.

"Problems in obtaining homeowner insurance could delay thousands of home sales in California," says Jenny Jones, president and CEO of Elkins/Jones, a leading property insurance brokerage firm in Los Angeles.

Home sales have helped save California and the nation from a deeper recession, largely triggered by the implosion of the dot com industry in California's Silicon Valley and exacerbated by the events of September 11.

Threat to home sales

Lenders mandate that a home must be covered by insurance before signing off on the deal and sometimes it's not just the lack of insurance, but what causes the insurance problem.

"Last year, I worked with a client buying a home with mold in the Central Valley. The appraisers were unable to do their work because they were not licensed in environmental hazards. I tried four appraisers. No appraisal. No loan," said Michael Ryan, CEO of San Jose, CA-based Flat Fee Funding.

"I was unable to obtain any conventional financing for the property. My client had to purchase the property for cash and do the eradication work. The end result was that insurance was not an issue because we never got that far," Ryan added.

California suffered a similar disruption years ago when losses from the Northridge earthquake sent insurers fleeing for less risky locales. Those events culminated in the California Earthquake Authority, a privately funded, publicly managed entity that now provides most of the earthquake insurance in California.

"If current trends continue, and a mold exclusion is not passed by the Department of Insurance, major insurance companies may consider not selling new homeowner policies in California as they already have in Texas," Jones said.

Some of the blame for the increased incidents of mold has been laid at the door step of home builders for doing their job too well -- or not well enough. Homes built to be more energy efficient may not also provide enough ventilation to remove mold-nurturing moisture. Bad plumbing and improperly installed EIFS (Exterior Insulation and Finish Systems) also create moisture problems. Mold litigation and mold mitigation construction techniques were hot topics at the early February International Builders Show in Atlanta.

Rather than cause the creation of a California Mold Authority, El Nino is more likely to add to higher insurance costs as insurers who continue to offer coverage in mold-prone areas raise premiums to offset their risk.

During the potent 1997-1998 El Nino, it snowed in the Las Vegas desert and brought torrential rains, floods and mud slides in California.

The combined effect of the insurance industry's actions and El Nino won't be an isolated problem.

The U.S. National Oceanic and Atmospheric Administration, or NOAA, says signs are evident for this El Nino to fester for more than a year spreading warmer weather than normal over a wide swath of the West and Midwest and wetter than normal conditions over much of the South.

Obtaining insurance, mitigating mold

Experts are advising consumers to take a two-pronged approach to the problem -- seek homeowners insurance early in the home buying or refinancing process and mitigate the effects of moisture intrusion.

Independent insurance brokers can help home owners seek out insurance company alternatives if their current providers drop coverage, but the new coverage could be more expensive.

"Mold is the new insurance nightmare for homeowners and property owners," said Chris Grammar, an independent insurance broker and co-owner of Insurance by Allied Brokers in Palo Alto.

"We are starting to see insurance companies worrying about mold. Two companies, Travelers and California Insurance Group, are not going to accept insurance coverage for property with flood, water or fire damage because of the potential for mold. At some point, every company will copy each other and put an exclusion in for mold," said Grammar. The Los Altos, CA-based Silicon Valley Association of Realtors tapped Grammar to obtain information that would help association members better alert and assist property owners and buyers coping with the problem.

Grammar said home buyers should have an prospective home inspected for mold and call in an insurance agent to run a claims report to determine if any claims have been paid out on the property.

It may be possible to get mold cleaned up to satisfy insurance requirements, but buyers should be prepared to walk away from homes that can't be insured.

"We're working on the front lines to figure out what insurance is available for our clients. Let's say you do have water damage or a fire claim. It might be hard to find someone to insure you so you could miss a contingency or you might not be able to close escrow. We want to make sure it's covered in advance so there are no problems," Grammar said.

To prevent moisture build up that can cause mold home owners must keep moisture away from their home or remove it as soon as it begins to accumulate.

That means maintaining a slope of 1/2-inch per foot for three to five feet (like an apron) around the perimeter of the building. Concrete walks and patios should have a similar drainage pitch away from the home.

Maintain roof gutters, downspouts and other drainage systems to keep them clear of leaves and debris. Fit downspouts with retractable extensions or splash blocks to help direct rain away from the house.

Caulk and weatherstrip doors, windows and other wise seal areas to prevent water and moisture intrusion.

Even with precautions, experts say 70 to 80 percent of all structures experience moisture problems and property owners should as soon as possible pump any standing water into a sewer system or natural drainage systems.

"This problem could have a disastrous affect on our economy and the livelihoods of home builders, realtors, escrow companies and others," Jones said.

Published: March 13, 2002

Use of this article without permission is a violation of federal copyright laws.

Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.