ISO Mold Filings

CAS Ratemaking 2002

Agenda

 Claims Situation  Goal of Filings  Present Coverage, Proposed Changes  Personal Lines, Commercial Property, CGL  Current Approvals

Property Problems Associated with Mold

 Costs of remediation and clean up are considerable  Proper precautionary and disposal procedures must be followed to avoid further exposure and additional losses  The longer the delay in inspecting a loss, the more difficult it is to prove the mold was caused by a covered loss

Property Claims

 Generally, property damage claims for mold arise from two types of incidents:  Exposure to water following the sudden intrusion of water such as from fire-fighting or the breaking apart of a water system component within the premises  Accumulation of moisture over a prolonged period such as would occur because of faulty, inadequate or defective materials, construction, maintenance or repair

CGL Claims

 A products-completed operations exposure for contractors and subcontractors  A premises/operations exposure for owners or lessees of premises  Claimants may allege bodily injury, property damage, and personal and advertising injury  Multiple plaintiffs mean potential for class action lawsuits

CGL Claims (Cont’d)

 Third party actions may be filed for contribution regarding damages  Bodily injury claims similar to pollution claims because they allege future damages  A key problem is the lack of scientific evidence demonstrating a causal relationship between mold and serious health effects

CGL Claims (Cont’d)

 No standard guidelines for cleanup and disposal, therefore, further contamination and additional claims may result  A small number of court decisions have addressed mold  Insufficient number of cases to date to be able to identify a trend in court decisions with respect to the application of the pollution exclusion to mold

ISO Research

 We have held a number of panel meetings and done extensive research  Lack of consumer education, and of federal and state guidelines for evaluating the potential health risks of mold or its remediation  Inconclusive reports from the medical and scientific communities  Paranoia from public due to media coverage

Goal of ISO Filings

 Well-reasoned, balanced solution that restores predictability  Decreases financial incentives for trial lawyers and mold remediation “experts”  Limited coverage options intended to put property owner on the road to recovery  Caps the catastrophic potential for insurers  Supports insurance availability  Addresses the mold problem before it spreads

Fungi Endorsements

 Developed to offer insurers and insureds options regarding mold-related exposures  Provide a means for the industry, particularly in those areas of the country where this type of exposure occurs more often, to place a limit on the amount of coverage offered  Insurers can continue to write water damage coverage  Bacteria included

Homeowners 2000 Program Property Coverage

 Damage caused by mold, fungus and wet rot, resulting from a covered peril:  water to fight fire  wind-driven rain  accidental discharge  storm drain back-up off the residence premises  Mold-related claims may trigger coverages under Building, Contents, Additional Living Expense, Liability, and Medical Payments

Personal Lines Changes

 Optional endorsement  Sub-limits provide limited first ($10,000) and third ($50,000) party mold coverage, both on an annual aggregate basis  Options to purchase additional limits  The current mold, fungus or wet rot preclusion is deleted and a Fungus, Wet or Dry Rot Section I Exclusion is introduced  The limited mold coverage will address mold losses including testing that result from any covered peril

Personal Lines Changes (Cont’d)

 A constant or repeated seepage or leakage preclusion has been added but limited coverage exists if the seepage or leakage and resultant damage is hidden from view and not known  For fire and lightning, if there is water damage and mold following a fire, the total of all damages is subject to the full policy limit  A definition of "Fungi" has been added

Definition of Fungi

"Fungi" means any type or form of fungus, including mold or mildew, and any mycotoxins, spores or scents or byproducts produced or released by fungi, but does not include any fungi that is, is on, or is contained in any goods or products intended for consumption. (Exception for liability only.)

Personal Lines Changes (Cont’d)

 Underlying base loss costs do not reflect the increased cost to provide remediation of mold losses as we now understand them  Loss costs being calculated for various limit options

Personal Lines Data Collection

 We are introducing a new Mold Damage Coverage Code to capture the extent of coverage for losses due to mold or bacteria.  We are introducing new Cause of Loss Codes to segregate loss assessment expenses from remediation expenses, and to identify the peril causing the damage.  We are introducing new Cause of Loss Codes to identify these losses as either Bodily Injury-related or Property Damage-related.

Commercial Property Coverage

 Policy intent and practice is to cover fungus only in the immediate aftermath of a covered cause of loss  Like Debris Removal, mold claims are changing in size and character to the point where the cost of mold remediation may exceed other damages  Commercial Property policies cover a mold loss that results from a covered peril

Commercial Property Coverage (Cont’d)

 Not all mold losses are covered. Exclusions in the Special Form:  Loss resulting from fungus, rust, corrosion, decay, hidden or latent defect that causes property to damage or destroy itself  Damage due to continuous or repeated seepage of water over a period of 14 days or more  Loss arising from faulty design, construction and materials

Undermining Coverage Intent

 An overly broad interpretation of water damage coverage in the Broad and Special Forms has been used to undermine the mold exclusion  An overly broad interpretation of water damage coverage has been used to defeat the exclusion for construction error. An exception to the exclusion provides coverage where the faulty design, construction or maintenance results in a covered peril

Commercial Property Revisions

 Modify the present wear and tear exclusion to eliminate reference to fungus and retain reference to the remaining conditions  Introduce a separate exclusion addressing fungus (a newly defined term), and wet and dry rot with an exception for loss from specified perils, to the extent provided in an "Additional Coverage”  Require that, to be covered, the insured use all reasonable means to preserve the property from further loss

Commercial Property Revisions (Cont’d)

 The new Additional Coverage:  is subject to a sub-limit of $15,000 per premises,  runs to specified causes of loss (includes windstorm, sudden/accidental on-premises water damage, leakage from fire extinguishing equipment) with the addition of accidental discharge from an off premises system break, and  includes post-remediation testing for the presence of mold  The sub-limit includes all expenses related to mold, including tearing out and replacing parts of the building to allow access; does not increase the limit of insurance; and applies on an aggregate limit basis

Commercial Property Revisions (Cont’d)

 Reinforces the 14-day continuous and repeated water leakage exclusion by adding “discharge” and explicitly referring to the presence or condensation of humidity, moisture or vapor  Ensuing loss covered, if mold results in a specified cause of loss  For fire and lightning, if there is water damage and mold following a fire, the total of all damages is subject to the full policy limit

Commercial Property Revisions (Cont’d)

 These changes also impact Time Element coverage. If mold is the only loss, a 30-day limit applies. If in combination with other damage, if mold is not remediated by the time the other property is restored, an additional period of restoration of 30 days for mold only is provided  No change in base loss costs; recent mold data not included in current loss costs

Commercial General Liability

 Possible legal liabilities (covered or not):  negligence,  strict liability,  breach of warranty,  constructive eviction,  failure to disclose,  breach of contract,  fraud,  workers compensation, and  violation of air quality laws.

CGL Exclusions

 Pollution:  Is mold an irritant or contaminant? Some courts hesitant to consider common natural organisms a pollutant  Does a discharge, dispersal, release or escape take place as the exclusion specifies? Mold does emit toxins during its reproductive cycle  Your Product  Your Work (exception for sub-contractor)

CGL Changes

 Two optional fungi endorsements in addition to the current coverage:  A Fungi Exclusion endorsement that totally excludes coverage for injury or damage caused by fungi  A Limited Fungi Coverage endorsement that puts a limit of liability on coverage for bodily injury and property damage caused by fungi, and excludes coverage for fungi under Personal and Advertising Injury  Both use the identical definition of fungi  Endorsements will be a-rated

Fungi Exclusion

 Excludes all:  bodily injury or property damage arising out of mold  related clean-up costs and associated expenses  States that the Personal and Advertising Injury coverage does not apply to mold

Limited Fungi Exclusion

 Provides a BI and PD Fungi Liability Limit that applies regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to the injury or damage  States that the Personal and Advertising Injury Coverage does not apply to mold claims

Commercial Lines Data Collection

 We are introducing a new Mold Damage Coverage Code to capture the extent of coverage for losses due to mold or bacteria.  For commercial property coverage we are introducing new Type of Loss Codes to identify mold damage, including the antecedent peril causing the consequential mold damage  For commercial liability coverage we are introducing new Type of Loss Codes to identify mold as the cause of either a bodily injury or property damage

Current Approvals

 April effective date  Commercial Property = 22 (Forms)  General Liability = 22  Homeowners = 21  July effective date  BOP  Farm

Current Approvals (Cont’d)

The Commercial Property filing will be supplemented to provide rating information for mold increased limit options and, at that time, the effective date will be revised to June 1, 2002.

ISO Mold Filings

CAS Ratemaking 2002