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ADDENDUM
TO
ADVISORY LETTER NUMBER 01-02
September 16, 2005
TO: ALL PROPERTY AND CASUALTY INSURERS ADMITTED OR APPROVED TO ISSUE POLICIES INSURING RISKS IN LOUISIANA
RE: Use of Mold Exclusions in Insurance Policy Forms Providing First Party
Property Damage Coverage
Clarification of Advisory Letter 01-02
STATUTE AND REGULATION REFERENCES: Title 22 of the Louisiana Revised Statutes §§ 2, 620-621, 1211 et seq., and 1262.1 Regulation 78
It has come to the attention of the Department that there is some misunderstanding regarding the intent of Advisory Letter 01-02. It is the purpose of this Addendum to clarify this agency’s intent regarding approval of new mold exclusions developed in response to the much publicized Linda Ballard case in Texas.
What’s Covered
Property policies cover damage caused by water if the underlying cause is a covered cause of loss. For example, during a storm a tree branch falls and causes damage to the roof, allowing water into the insured property; or a waterpipe cracks or bursts and water escapes and causes property damage including ruined sheetrock and carpet. Under the policy, the insurer is obligated to replace and/or repair the damaged property. If mold appears on the wet sheetrock or carpet, the insurer is not relieved of its obligation to make the covered repairs, including, taking the usual and customary steps of treating the damaged area with bleach and thoroughly drying it out. However, in the absence of a specific remediation coverage provision, an insurer does not have a separate obligation to remediate any damage arising directly from mold. (Remediate/remediation as used herein includes, but is not limited to the testing, investigation, treatment, containment, decontamination, removal or disposal of Mold.)
The presence of mold does not convert a covered claim arising from a covered cause of loss to a non-covered claim. On the other hand, the presence of mold does not create new and distinct obligations to remediate, decontaminate or otherwise remove the mold unrelated to the repair or replacement of the water-damaged property.
What’s Not Covered
Property policies have traditionally excluded coverage for “rust, mold, dry or wet rot.” For example, a policyholder leaves a window open and it rains, causing moisture to enter the property. Mold develops and spreads ruining sheetrock and carpet. The mold exclusion would exclude coverage.
Acceptable Exclusions
Please be advised that after due consideration, the LDI has determined that it will allow the use of insurance policies and/or endorsements that exclude coverage for mold that results from a covered cause of loss if the exclusion is directed at precluding coverage for remedial costs, including but not limited to the costs of testing the insured premises for mold, or the cost of eradication, containment or fumigation of the insured premises; however such exclusions shall not exclude coverage for the removal of mold on the items damaged.
The LDI will continue to approve the standard exclusion for “mold, rust, wet or dry rot” which has been traditionally included in property policies.
Insurers doing business in Louisiana should take note that standard homeowner’s policies do not provide coverage for “seepage” or for damage arising from wear and tear or the failure to do proper maintenance. More importantly, unlike most states there is very limited punitive damages exposure in Louisiana.
General Liability Coverage - Personal and Commercial
Advisory Letter 01-02 is not applicable to General Liability Coverage, personal or commercial lines. Insurers may exclude all coverage for damages alleged to arise from mold, rot or fungus or any other such similar airborne spores. In accordance with La. R.S. 22:621, such exclusions should be specific as to the risk being excluded, be unambiguous, and not overly broad.
Any questions regarding Advisory Letter 01-02 or the 2005 Addendum may be directed to Paula Pellerin-Davis at pdavis@ldi.state.la.us or to Clarissa Preston at cpreston@ldi.state.la.us. They may also be reached by telephone at 225-342-5203.
J. ROBERT WOOLEY
ACTING COMMISSIOER OF INSURANCE
