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Toxic mold invades the Texas home insurance market

When it comes to major insurance problems, Texas has two: toxic mold and unlicensed health plans.

See the biggest insurance problems across the country

Ever since June 2001, when a jury awarded a Texas family $32 million in a highly publicized toxic mold lawsuit against Farmers Insurance Group, the Texas home insurance market has been in upheaval. (See Killer mold is nothing to sneeze at.) Complaints of exorbitant home insurance rate hikes — some as high as 300 percent — are pushing Texas consumers to their financial limits.

Texas is a hotbed for mold claims because state insurance law has had a liberal view of mold damage coverage that is the direct result of a "covered peril," such as a burst water pipe. This is not true of most other states. A standard home insurance policy typically does not cover losses caused by rust, rot, mold, or other fungi. Most insurers consider mold a "home maintenance" problem, not an insurance claim.

Texas home insurance policies have historically offered more liberal coverage because the state "gets a little bit of everything" when it comes to severe weather that can damage homes, according to Rod Bordelon, executive director of the Office of Public Insurance Counsel. In addition to the occasional ice or snowstorm, Bordelon says, "Texas has hail, tornadoes, severe thunderstorms, hurricanes, and high winds. Consumers in Texas have come to expect a certain level of coverage."

This liberal coverage has come at a high price. Because state law exempts insurers now writing 95 percent of the home insurance sold in Texas from any kind of rate regulation, prices for home insurance have soared and home insurers have either reduced or cut out their coverage of mold damage altogether. Read Why most Texas home insurers can charge whatever they like.

A plague of bogus health plans

Mold is not the state's only insidious insurance problem. Three unlicensed health insurers have been ordered to stop selling health insurance in Texas in the past 12 months. American Benefit Plans, Employers Mutual LLC, and SAI Plus all drew sanctions from the Texas Department of Insurance, as well as the ire of Texas Insurance Commissioner Jose Montemayor.

"These plans bypass the normal licensing process for a reason and it's not a good one," says Montemayor. "Invariably, unlicensed health plans stop paying claims and leave their members with stacks of unpaid medical bills." See How to spot an unlicensed insurer.

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