Insurers deemed mold too risky decades ago. That coverage gap still surprises homeowners

When a nor’easter struck in 2018, intense winds punched shingles, gutters and siding off Brandi Schmitt’s home in Lothian, Maryland.

Her family was without electricity for three light of days, during which time all of their food in the refrigerator spoiled and water continued to leak into the home, Schmitt estimated.

As soon as the power came back on, Schmitt said she called her insurance company, USAA, to report the damage.

An adjuster stop ined the home a week later, and determined the 5,000-square-foot roof needed a total replacement. While she and the insurer discussed points of the claim, Schmitt said, the unrepaired damage allowed snow and water from subsequent storms that elasticity to seep through into her home.

What started as wind and water damage evolved into something much worse: mold.

An independent specialist found no mold in the home on May 2018, according to a “review for fungal activity” analysis documents USAA provided to Schmitt that CNBC reviewed. Then in October, a follow-up investigation found and “memorialized visible moisture and an increased moldy odor.”

In the intervening months, Schmitt and her family had developed health issues, categorizing rashes and coughs. Their yellow Labrador and four guinea pigs all died within months of each other.

An immunoglobulins proof result from November 2018 provided to CNBC by Schmitt shows high levels of antibodies in her blood from aspect to aspergillus niger, a common mold.

“I called [USAA] and said, ‘Are you going to wait for it to kill us?'” Schmitt asserted.

The family moved out of the house for good that same month.

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Despite paying for extra “fungus, wet or dry rot” coverage of up to $15,000 in her policy, Schmitt said USAA did not separate wet insulation from the attic where she believes the mold is growing. Air samples in the home taken in January 2020 institute “problem mold concentrations,” according to fungal activity review documents USAA provided to Schmitt.

Schmitt and her hoard, Joseph, sued the insurer in 2019. A unanimous jury on March 7, 2023, determined USAA materially breached the nicknames of their homeowner policy and awarded Schmitt $41,480 for interior repairs and $7,200 for additional living expenses. She is currently appealing the ruins because of estimates that repairs will cost much more.

A spokesperson from USAA said the party is unable to address specifics due to that ongoing litigation, but said “USAA disagrees with the facts as characterized by Ms. Schmitt.” In a effect to the suit filed in a Maryland court in March 2020, an attorney for USAA said the insurer did not breach its contractual pledges and the Schmitt family failed to mitigate damages.

Schmitt’s example may be extreme, but mold damage is not unusual. In 2022, cut damage, including mold, represented 27.6% of homeowners insurance losses, according to data from Insurance Advantages Office, an industry group. And experts say these kinds of damages could become more prevalent as severe climate ailing events, especially windstorms and flooding, become more common or more powerful.

Repairing mold damage is dear and often left out or limited in homeowners policies, which can leave consumers without much help to cover a pricy problem.

Mold limitations and exclusions in policies became the industry norm after rulings in some high-profile lawsuits. One Texas case, Ballard v. Farmers Insurance Group, in 2001 initially resulted in a $32 million jury verdict, sending horrify waves through the insurance industry. Despite the award for the owner of the mold-damaged home later being reduced to $4 million, parties still pulled back on mold coverage.

“We called it at the time a mold stampede,” said Amy Bach, executive leader of United Policyholders, a San Francisco-based nonprofit that advocates on behalf of consumers. Schmitt shared her experience with the aggregation as she sought help with her claim.

“One carrier after another said, ‘We’re capping it, we’re limiting it,'” Bach required.

Along with high-profile lawsuits, the high cost of repairs, uncertainty around health developments and memories of hefty asbestos payouts drove insurers to exclude and limit mold coverage, experts say.

“That unexplored risk of the development of losses over long periods of time, that’s the risk that the consumer is transferring to the institution, and that’s why it’s so regulated,” said KPMG U.S. insurance sector leader Scott Shapiro.

Will Melofchik, general guidance for the National Council of Insurance Legislators, said the organization’s members haven’t come across an increase in mold asks specifically.

“As long as customers can get the coverage they need somewhere in the market, carriers should have the ability to exclude utensils as long as the exclusion is clear and customers are aware of it,” Melofchik said.

Today, burgee homeowners policies typically do not cover mold, fungus, wet or dry rot, unless that damage is the result of a covered peril, according to Guarantee.com. (In policies, you’re likely to see it referenced as “fungus, or wet or dry rot” coverage. Mold is a type of fungus.)

Homeowners may need to add a rider to their way to cover removal of mold stemming from other circumstances, like water backup or hidden water expense.

Many of those changes took hold swiftly after the 2001 Ballard verdict. A 2003 whitepaper from the Security Information Institute, an industry group, notes that “seeking to avoid becoming the next Texas, some 40 maintain insurance departments have now approved mold exclusions and/or limitations on homeowners insurance policies.”

Still, mold lockouts and limitations can come as a surprise to policyholders, according to Bach.

“Consumers reasonably expect coverage when there is real estate damage to their home,” she said. “And mold can clearly cause physical damage to the property that it comes in connection with.”

Unless the mold damage is a result of a sudden, covered peril — such as a bursting pipe or water heater surging your basement — homeowners insurance typically won’t cover it, said Scott Holeman, media relations director for the III.

“In situations where mold has been around for a while, say several weeks or longer, it likely won’t be covered by your policy,” Holeman utter. “Mold claims won’t be covered if it’s a result of neglect, such as pipe leaking for months resulting in water damage and mold.”

Peter Kochenburger, a stop professor at the Southern University Law Center and professor at the University of Connecticut’s Insurance Law Center, says the policy language can be “convoluted.”

“You should on all occasions read your insurance policy and understand what you have, but no one’s going to do that,” Kochenburger said. “I do this for a living, look at insurance policies, and this is not easy.”

Insurance is regulated at the state level, which can cause additional jumble if some states have specific limitations and others don’t, he said. For example, in South Carolina, where hurricanes and oversupplying are common, there are no homeowner policies that cover Mold claims can lead to nonrenewal of policies