How homeowners insurance covers mold damage

During a northeasterly storm in 2018, strong winds blew away shingles, gutters and siding from Brandi Schmidt’s home in Lothian, Maryland.

Schmidt said her family was without power for three days, during which time all the food in their refrigerator spoiled and water constantly leaked into their home.

Schmidt said that as soon as his power was restored, he called his insurance company, USAA, to report the damage.

A week later, an adjuster came to the house and determined the 5,000-square-foot roof needed a complete replacement. While Schmidt and the insurance company were arguing over the claim, the damage, left unrepaired, allowed snow and water to seep into the house during subsequent storms that spring, Schmidt said.

What started as wind and water damage has evolved into more severe mold.

According to a “fungal activity investigation” document provided to Schmidt by USAA and reviewed by CNBC, an independent expert found no mold in the home in May 2018. Then, in October, a follow-up inspection “observed visible moisture and an increased musty odor.”

Over the next few months, Schmidt and his family began suffering from health problems, including rashes and coughs. Their yellow Labrador and four guinea pigs all died within a few months of each other.

Schmidt provided CNBC with immunoglobulin test results from November 2018 that showed high levels of antibodies in her blood caused by exposure to Aspergillus niger, a common mold.

“I called [USAA] And I said, ‘Are we going to wait for it to kill us?'” Schmidt said.

The family left the home permanently that same month.

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Schmidt said USAA failed to remove damp insulation from the attic where he suspected mold was growing, even though he paid up to $15,000 in additional “mold, moisture and dry rot” coverage under his insurance. According to a mold activity investigation document provided to Schmidt by USAA, air samples taken from the home in January 2020 found “concerning concentrations of mold.”

Schmidt and her husband, Joseph, sued the insurance company in 2019. On March 7, 2023, a unanimous jury found USAA had materially breached the terms of her homeowners insurance and ordered Schmidt to pay $41,480 for interior repairs and $7,200 for additional living expenses. She is currently appealing the decision, seeking damages based on estimates that the repairs will cost even more.

A USAA spokesperson said they couldn’t go into specifics because the litigation is ongoing, but said, “USAA does not agree with the facts as set forth by Mr. Schmidt.” In a response to the lawsuit, filed in March 2020 in a Maryland court, USAA lawyers said the insurer had not breached its contractual obligations and that the Schmidts had failed to mitigate their damages.

While Schmidt’s example may be extreme, mold damage is not uncommon: Water damage involving mold accounted for 27.6% of homeowners’ insured losses in 2022, according to data from the Insurance Services Office, an industry group. Experts say this type of damage could become more prevalent, especially as severe weather events like windstorms and floods become more frequent and powerful.

Mold damage repairs are expensive and often excluded or limited in coverage under homeowners insurance, meaning consumers may not get enough help covering costly issues.

Following the decisions of several high-profile cases, mold limitations and exclusions in insurance policies have become the industry standard. The 2001 Texas case of Ballard v. Farmers Insurance Group shocked the insurance industry with an initial jury verdict of $32 million. The amount awarded to mold-affected homeowners was later reduced to $4 million, but insurers still refrained from covering mold.

“At the time, we called it the mold stampede,” said Amy Buck, executive director of United Policyholders, a San Francisco nonprofit that advocates for consumers’ interests. Ms. Schmidt told the group about her experience, seeking help with her claim.

“Airlines after airlines are saying, ‘We’re going to cap it, we’re going to restrict it,'” Bach said.

Experts say high-profile lawsuits, plus high repair costs, uncertainty about health effects and memories of huge asbestos claims, have prompted insurers to exclude or limit mold coverage.

“The unknown risk of losses growing over time is a risk that consumers will pass on to insurers, which is why we’re seeing increased regulation,” said Scott Shapiro, U.S. insurance leader at KPMG.

Will Merofchik, general counsel for the National Council of Insurance Legislators, said his organization’s members haven’t seen an increase in mold-related claims specifically.

“As long as customers can get the coverage they need elsewhere in the market, insurers should have the right to make exclusions as long as the exclusions are clear and customers are aware of them,” Merovchik said.

According to Insurance.com, standard homeowners insurance policies today typically do not cover mold, fungus, or damp or dry decay unless the damage is the result of a covered peril. (On your policy, you’ll probably see it referred to as “fungus, damp or dry decay” coverage; mold is a type of fungus.)

Homeowners may need to add riders to their insurance to cover the removal of mold resulting from other situations, such as water backflow or hidden water damage.

Many of these changes took hold quickly after the Ballard decision in 2001. A 2003 white paper from the Insurance Information Institute, an industry group, noted that “trying to avoid becoming the next Texas, nearly 40 state insurance departments have approved mold exclusions and/or limitations in homeowners insurance policies.”

Still, mold exclusions and limitations can come as a surprise to policyholders, Bach said.

“Consumers naturally expect to be compensated if property damage occurs in their home,” she said, “and mold can obviously cause property damage on contact.”

Scott Holman, III’s director of media relations, said mold damage typically isn’t covered under homeowners insurance unless it’s the result of a covered accidental disaster, such as a burst pipe or a faulty water heater causing a basement flood.

“If the mold has been present for more than a few weeks, insurance likely won’t cover it,” Holman said. “If the mold has developed as a result of neglect, like a pipe leaking for months and causing water damage and mold, insurance won’t cover it.”

Policy language can be “complicated,” said Peter Kochenberger, visiting professor at Southern University Law Center and professor at the University of Connecticut’s Insurance Law Center.

“You should always read your policies and understand what you have, but nobody does,” Kochenburger said. “I’m in charge of looking at policies, and it’s not an easy thing to do.”

Insurance is regulated at the state level, which could lead to further confusion if some states have certain restrictions and others don’t, he said. In South Carolina, for example, where hurricanes and floods are common, there are no homeowners policies that cover all mold cases, according to the South Carolina Independent Agent. Instead, it’s determined by peril.

The compensation varies depending on the company.

For example, USAA offers limited coverage for mold resulting from a covered loss ($2,500 for cleanup and $2,000 for additional living expenses) at no additional premium in most states, the company said in a statement. USAA also offers optional coverage beyond the standard policy in some states.

Nationwide will cover mold damage caused by a covered incident up to $10,000, but the limit cannot be increased, a company spokesman said.

According to data provided to CNBC under the Freedom of Information Act by the Federal Trade Commission, 8% of a sample of anonymous home insurance complaints about Allstate and Nationwide were mold-related. CNBC asked several of the largest property and casualty insurers, including Allstate, Nationwide and State Farm, to provide a sample of “home insurance” complaints. State Farm had no mold-related complaints.

Most of the complaints centered on insurers limiting mold coverage, and several said they saw the effects firsthand when it came time to renew their policies. One policyholder in Lindsay, Ohio, said Allstate chose not to renew his policy for 2020 because he had filed a mold claim the previous year.

“Restrictions on non-renewal vary by state and are part of the regulatory framework,” Shapiro said. “Generally speaking, insurers have the right not to renew policies for a variety of reasons, including past loss history, which is often a triggering event.”

A Nationwide spokesperson said the company does not comment on individual claims. An Allstate spokesperson did not directly respond to a request for comment on the complaints but referred CNBC to III. Mark Friedlander, III’s director of corporate communications, said the volume and frequency of claims activity can be one reason insurers choose not to renew policies.

Insurance experts and lawyers recommend carefully reviewing the details of your policy and consulting with an expert to make sure you understand your coverage.

Shapiro said mold isn’t a specific focus for insurers assessing future risks yet, but it falls under the macro question of how climate will affect insurance, and that the industry is tracking this closely.

“At a time when society needs to come together to help lower premiums, incentivize behavior, change behavior, there’s only so much that insurers can do. And we don’t think it can be left to insurers alone,” he said.

Six years have passed since the northeaster struck, and the Schmidt house remains deserted.

Schmidt and her family stay at the facility from time to time to ensure it isn’t considered vacant or abandoned, but she said she gets sick even during those short stays.

“This whole process has kept us from enjoying our home,” Schmidt said. “My husband and I have been together for many years and worked really hard to buy a home like this.”