GROWING PROBLEM INSURANCE COMPANIES SMARTING UNDER RISING MOLD CLAIMS; NEW POLICY REQUESTS REJECTED.

Byline: Evan Pondel Staff Writer

Andrew Sewell patched up a leaky water heater in his Northridge home three years ago and didn't think much of it until he and his wife decided to take the plunge and remodel their kitchen.

As soon as the contractor cracked open the walls last month, work was halted. Mold had grown where the water had leaked and the Sewells' little problem had become a big problem: It will cost about $6,000 to get rid of the mold and a lot more to fix up their house.

In the meantime, the Sewells and their four children have been living in a hotel and their insurance company has so far only offered to pay $900 for the damage caused originally by the leak.

``It's so frustrating'' said Zinette Ghaemmaghami-Sewell, a 38-year-old hairdresser. ``I don't know where to go, or what to do. We're not wealthy people. We can't afford the cost of the mold damage if the insurance doesn't kick in.''

The Sewells are not alone.

Water-damage claims are driving up insurance premiums and causing insurers to tighten policy limits as they struggle to manage a costly trend which, seemingly, hurts consumers at every turn.

A recent survey by the Insurance Information Network of California showed that 32 percent of the property insurance claims filed in 2001 involved water damage, which includes mold. When the survey began in 1997, 24 percent of the claims accounted for water damage.

The increase in filings is even more significant when compared with the amount insurers paid in water claims to homeowners. Insurers paid homeowners $430.6 million in 2001, up from $206.1 million in 1997. The data suggest an insurance industry that is essentially waterlogged, unable to cope with rising costs, according to Brian Sullivan, the editor of Dana Point-based Property Insurance Report.

``The problem is not mold per se; it's the threat of mold that has dramatically increased the cost of repairing water damage,'' Sullivan said. ``The question that remains is what are we, as a society, willing to pay?''

The cost of ridding a home of mold and the construction that ensues could run as high as $80,000, depending on how serious the problem is, according to Gil Caspi, owner of Unique Restoration. The Sewells have hired Caspi's company to begin work on their home this week.

Caspi, who runs Unique Restoration out of his Woodland Hills home, receives a couple of inquiries a day regarding mold removal. A detriment to consumers and the industry, mold has been a boon for Caspi's business. ``Thing's have been going well for me. We're really busy,'' he said.

Mold removal has become a highly technical process that requires sophisticated gadgetry. Vacuums, pumps and filters line the innards of Caspi's garage. A truck capable of holding a ton of equipment sits idly in front of his home.

``We are able to take care of a mold problem 24 hours a day, seven days a week,'' said Caspi, unlatching the door to his truck for another job.

Caspi's project manager, Lou Feinstein, has been in the business for more than 15 years. His enthusiasm for mold abatement is that of an engineer, not an entrepreneur attempting to turn a dollar. ``This is serious work. Many think it's the new asbestos. I wouldn't go as far as saying that, though,'' he said. ``Asbestos is far more dangerous than mold.''

Even so, mold has caused far more damage to the insurance industry of late. As costs associated with claims continue to rise, insurance companies are having difficulty absorbing the onslaught of expenses. Increases in repair costs, coupled with lackluster performance in financial markets, have aggravated the situation. These issues are boosting insurance rates by as much as 18 percent.

``Right now, there's a very tough market in California,'' said Lisa Wannamaker, a spokeswoman for Northbrook, Ill.-based Allstate Corp. For this reason, ``in October we decided not to write any more homeowners insurance for anyone with prior losses in the last three years.''

Allstate has also attached a $5,000 cap to mold claims, a necessary precaution given the costs associated with repair, Wannamaker said. Until the company observes a substantial decline in mold claims, Allstate plans on maintaining its current stance toward homeowners insurance.

Among the largest insurers in California, State Farm has stopped writing any new homeowner policies, at least temporarily. Again, the company said the rising costs associated with claims, especially those involving water damage, have stifled State Farm financially.

Among the only companies still writing homeowners insurance is Farmers Insurance Group, though the Los Angeles-based company isn't immune to the industry's woes.

``Our experience has remained unacceptable for us,'' said Mary Flynn, a spokeswoman for the company that writes about 19 percent of California's homeowners business.

Flynn said the company will continue to write insurance, although given the current environment, it's difficult to predict what the future holds.

And until the water damage and mold claims ebb, families like the Sewells will probably pursue litigation to settle their insurance issues.

In the past six months, Agoura Hills-based law firm Chulak & Shiffman has seen 18 plaintiffs involved in mold cases. The goal of toxic mold lawsuits is to address the costs to fix underlying water problems, said Michael Chulak.

``I haven't been involved in a single case that I haven't settled without suing the insurance company,'' Chulak said.

As lawyers and insurers grapple with the legal implications of mold, the best advice Chulak offers to homeowners is this:

``Mold doesn't go away by itself. Contacting someone for help sooner than later is always a better approach.''

The Sewell family concurs with Chulak's advice. However, the Sewells remain disenchanted with the reliability of the insurance industry.

``This whole situation has left me feeling very let down and the next time I renew my policy, I'm only going to seek coverage for theft and fire,'' Sewell said. ``The fact that you have to fight with your insurance company on every little thing is not worth the money and frustration.''

CAPTION(S):

3 photos, chart

Photo:

(1 -- color) Gil Caspi, general supervisor for ARC Restoration and Construction Inc., talks with Zinette Ghaemmaghami-Sewell outside her Northridge home about mold treatment.

(2 -- color) The Sewell family - including, from left, dad Andrew, Cienna, Kierra, mom Zinette, and sons Keenan and Trenton - now lives in a Chatsworth hotel while their home is treated to get rid of mold caused by a leaky water heater.

(3) Two cramped hotel rooms are temporarily home to the Sewell family while mold is being removed from their home - without support, or funding, from their insurance company.

Andy Holzman/Staff Photographer

Chart:

CALIFORNIA WATER DAMAGE CLAIMS

SOURCE: Insurance Information Network of California