If you have had to renew your homeowners insurance policy recently, you possibly were unable to obtain coverage for water damage. This is a result of a number of recent large claims concerning severe health problems, even death, and property damage possibly caused by mold.

Legal cases involving insurance companies are causing these and other insurers to be reluctant to compensate for remediation and reconstruction of mold infested areas. In several of these cases, the courts have awarded well over one million dollars to plaintiffs.

Some claims have been fraudulent. There have been claims for small amounts of mold found under a kitchen sink and the claimant gets a new kitchen, etc.

Other cases have been filed by home owners who have found mold believed by the insurance companies to have been caused by “slow and continuous” leaks, indicating a possible lapse in regular maintenance by the home owner.

These cases became more frequent and are financially crippling the insurance companies. As a result, in Texas, California, Florida and other states, the insurance companies simply stopped offering coverage for water damage - any water damage, whether mold is involved or not.

Recent news from the Texas Department of Insurance is that some coverage for water damage will soon be available to home owners - likely on a 'sliding scale' where incremental costs of coverage will buy more coverage. And there will likely be a 'cap' or maximum amount the insurance company will cover at each increment or for specific types of claims.

For example, there will likely be no coverage at all for any type of water damage deemed to be caused by 'slow and continuous' water leaks or anything deemed as deferred maintenance on the part of the home owner.

Insurance companies are taking the position that regular maintenance should be a requisite for insurance coverage. Water damage coverage of the future will likely be in the form of coverage for damage caused by 'sudden and accidental events.'

This, then, raises the question, what is a 'sudden and accidental event'? What if the hose connecting to a washing machine to the water source in the wall bursts while the homeowner is away for a weekend? That would be a 'sudden and accidental' event, wouldn't it? Or would the insurance company view that as deferred maintenance? Should I have replaced that hose prior to its failure?

An example of a 'slow and continuous' leak which would be very difficult to detect might be in the case where the bathroom floor covering is a vinyl sheet and it is caulked around the toilet and then that ring seal between the toilet and floor begins to slowly leak. The moisture may stay below the vinyl floor covering for some time before being noticed.

As you can see there are many questions remaining when it comes to water damage and mold claims, and this can affect all your buyers and sellers.

Encourage anyone you are working with to contact their insurance agent and find out when water damage coverage is available, under what conditions is the homeowner covered, and what the insurance company considers appropriate maintenance by the homeowner. In other words, which events will be covered under the homeowner's current policy and under what conditions? Ask if the insurance company offers a list of homeowner maintenance tasks that may affect insurance payouts. Insist that the insurance company's policies are in writing so they can be clearly understood. If the homeowner has copies and is ever involved in a dispute, he or she has something to take before the state department of insurance to aid remediation.

Published: September 3, 2002

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Jack C. Schoppa, I.F.A.S. is a Texas-based Certified General Real Estate Appraiser, Licensed Real Estate Broker, and Licensed Real Estate Auctioneer. He is a nationally-known speaker and columnist on appraisal issues including mold. Contact him at www.northtexasproperties.com or e-mail him at jack@northtexasproperties.com