Farmers Refuses Coverage For Houses With Past Water Claims

Associated Press
07/18/2002

AUSTIN – Texas’ second-largest homeowners’ insurer — Farmers Insurance Co. — no longer writes new policies for homes that have had a water-damage claim in the past three years.

The company also no longer insures houses older than 30 years unless they have had their plumbing systems renovated in the past 10 years.

The move by Farmers, which took effect Monday, follows a similar but less restrictive decision last month by Allstate Insurance Co.

Allstate no longer issues new policies for houses or individuals with water claims in the past three years.

Some agents for Farmers said the company wants to pare back its business in Texas, where it says it’s suffered mounting financial losses from water and mold claims.

“We’re trying to hang in there as best we can” and keep writing policies, Farmers spokesman Mark Toohey told Austin American-Statesman for its Thursday editions. “The statistics demonstrate beyond the shadow of a doubt that for people or properties that have had claims, there’s a pretty good chance there’s going to be more claims down the road.”

At a state Senate committee meeting Tuesday, lawmakers were told that homeowners are effectively being locked into their current homes, unable to sell because prospective buyers can’t find coverage.

Bill Stinson, vice president of governmental affairs for the Texas Association of Realtors, says nearly 100 prospective home buyers in Houston and Corpus Christi haven’t been able to close on homes.

Wednesday, several real estate brokers said they had house closings fall through because of water claims.

Earl Lovell, a RE/MAX broker in Pflugerville, said a closing on a home in Buda fell apart last month because the owner had recently filed two claims on minor water leaks. Four days before the closing, Lovell said, the prospective buyer was told the home could not be insured because of the claims.

Farmers’ new policy limits affect homes with certain types of roofing and plumbing materials. One of the biggest changes is the denial of new coverage for any home that is more than 30 years old and doesn’t have copper plumbing, which is less likely to erode and lasts longer than alternatives.

Farmers insures 750,000 homeowners in Texas. Allstate insures 600,000.

Farmers said Texas represents one-fifth of the company’s nationwide business but accounts for 40 percent of its losses.

Farmers said payments for mold claims were $310 million last year; this year, it expects to pay mold claims of $600 million.

Farmers’ Mark Toohey wouldn’t disclose the company’s specific losses in providing Texas homeowners insurance.

Insurance Commissioner Jose Montemayor, said Tuesday that he’s been studying the issue and so far hasn’t found one instance of a sale not closing because an insurer refused to write a new policy for a house with a previous water claim.

Montemayor has not yet acted on a request by the Office of Public Insurance Counsel to limit insurers’ ability to stop writing new policies for houses with water claims.

The insurance counsel, Rod Bordelon, told Montemayor in August that such exclusions violate the state’s insurance code, which says insurers have to determine whether houses can be covered based on current condition rather than age or value.

Montemayor said Wednesday that he is re-examining the counsel’s request based on the legislative testimony Tuesday.

A year ago, Farmers stopped writing policies for individuals who have filed a claim in the past three years. Earlier this year, they began offering one of the state’s most restrictive homeowners policy. It doesn’t cover mold damage, sewage backup, foundation damage caused by water leaks or wind-related damage.

Like Farmers, Allstate says it’s trying to do less business in Texas.

Author: Contributor