Homeowners are still surprised by the decades-old decision of insurers to consider mold too risky for coverage.

• Since the early 2000s lawsuit, the insurance industry has mostly restricted and excluded mold coverage in policies nationwide.
• As severe weather events, such as windstorms and flooding, become more frequent or intense, experts predict that water and mold claims will become more widespread.
• Often, policyholders are taken aback when they discover mold coverage exclusions and limitations, as consumer advocates argue that they expect such coverage.

In 2018, a nor'easter caused intense winds to blow shingles, gutters, and siding off Brandi Schmitt's home in Lothian, Maryland.

Schmitt stated that her family experienced three days without electricity, resulting in spoiled food in the refrigerator and leaking water in their home.

Schmitt immediately phoned USAA after the electricity returned to report the damage.

A week after the adjuster's visit, it was determined that the 5,000-square-foot roof needed a complete replacement. During the discussion between the adjuster and the insurer regarding the claim, Schmitt stated that the unaddressed damage from the previous storm allowed snow and water to seep into her home during the following spring storms.

Mold resulted from the initial wind and water damage.

A follow-up investigation in October discovered visible moisture and an increased moldy odor, despite an independent specialist finding no mold in the home in May 2018, according to USAA documents reviewed by CNBC.

Schmitt and her family experienced health problems, such as rashes and coughs, and lost their yellow Labrador and four guinea pigs in the following months.

Schmitt's November 2018 immunoglobulins test result revealed high levels of antibodies in her blood from exposure to aspergillus niger, a common mold.

Schmitt said, "I called USAA and asked, 'Are you going to wait for it to kill us?'"

The family moved out of the house for good that same month.

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Although Schmitt paid for additional coverage of up to $15,000 for fungus, wet or dry rot in her policy, she claims that USAA did not remove wet insulation from the attic where she believes the mold is growing. According to fungal activity review documents provided by USAA, air samples taken in January 2020 revealed "problem mold concentrations."

In 2019, Schmitt and her husband, Joseph, filed a lawsuit against their insurer, USAA, alleging that they had breached the terms of their homeowner policy. On March 7, 2023, a unanimous jury ruled in Schmitt's favor, awarding her $41,480 for interior repairs and $7,200 for additional living expenses. However, Schmitt is currently appealing the damages due to estimates that the repairs will cost significantly more.

USAA has stated that it cannot provide specifics regarding the ongoing litigation, but disagrees with the facts as presented by Ms. Schmitt. In response to the lawsuit filed in a Maryland court in March 2020, an attorney for USAA argued that the insurer did not breach its contractual obligations and the Schmitt family failed to mitigate damages.

Experts predict that mold damage could become more common as severe weather events, such as windstorms and flooding, increase in frequency or intensity. According to data from Insurance Services Office, water damage, including mold, accounted for 27.6% of homeowners insurance losses in 2022. Schmitt's example may be extreme, but mold damage is not an unusual occurrence.

Homeowners policies often exclude or limit coverage for repairing mold damage, leaving consumers without much financial assistance to address a costly issue.

'We called it at the time a mold stampede'

The industry standard for limiting and excluding mold coverage in policies emerged after rulings in several high-profile lawsuits, including Ballard v. Farmers Insurance Group in 2001, which resulted in a $32 million jury verdict. Even after the award for the owner of the mold-damaged home was reduced to $4 million, companies continued to pull back on mold coverage.

Amy Bach, executive director of United Policyholders, recounted how she referred to the situation as a "mold stampede" at the time. She shared her experience with the group as she sought assistance with her claim.

"Carrier after carrier announced limitations," Bach stated.

Mold coverage was excluded and limited by insurers due to high-profile lawsuits, uncertainty around health outcomes, and memories of hefty asbestos payouts, experts say.

The transfer of the risk of long-term losses to the company is the unknown risk that consumers are taking on, which is why it is heavily regulated, according to Scott Shapiro, the U.S. insurance sector leader at KPMG.

The National Council of Insurance Legislators' general counsel, Will Melofchik, stated that the organization's members have not encountered a rise in mold-related claims.

Carriers should be able to exclude coverage if it is clear and customers are aware of it, as long as customers can obtain the necessary coverage in the market, according to Melofchik.

How insurance does — and doesn't — cover mold

Insurance.com states that standard homeowners policies usually exclude coverage for mold, fungus, wet or dry rot, unless the damage is caused by a covered peril. In policies, this is often referred to as "fungus, or wet or dry rot" coverage. Mold is a type of fungus.

To protect against mold caused by other circumstances, such as water backup or hidden water damage, homeowners may need to add a rider to their policy.

After the 2001 Ballard verdict, many changes were swiftly adopted, with 40 state insurance departments approving mold exclusions and/or limitations on homeowners insurance policies, as stated in a 2003 whitepaper from the Insurance Information Institute, an industry group.

According to Bach, policyholders may be caught off guard by the limitations and exclusions in their policies.

"Mold can cause physical damage to the property it comes in contact with, and consumers reasonably expect coverage for property damage to their homes."

Homeowners insurance usually does not cover mold damage unless it is caused by a sudden, unexpected event like a burst pipe or water heater flooding, according to Scott Holeman, media relations director for the III.

"If mold has been present for an extended period, such as several weeks or more, it is unlikely to be covered by your policy. Mold claims will not be covered if they arise due to neglect, such as a leaking pipe causing water damage and mold growth over a prolonged period."

The policy language can be complex, according to Peter Kochenburger, a visiting professor at the Southern University Law Center and professor at the University of Connecticut's Insurance Law Center.

"Although it's crucial to read and comprehend your insurance policy, no one will do it for you," Kochenburger stated. "As an expert in insurance policies, I can attest to the difficulty of this task."

The regulation of insurance at the state level can lead to confusion if some states have specific limitations while others do not. For instance, in South Carolina, where hurricanes and flooding are frequent, there are no homeowner policies that cover all instances of mold. Instead, the coverage is determined based on the peril.

Each company's coverage is also different.

In most states, USAA provides limited coverage for mold resulting from a covered loss, including $2,500 for cleanup and $2,000 for additional living expenses, without any additional premiums, the company stated. Additionally, USAA offers optional coverage beyond the standard policy in certain states.

According to a company spokesperson, the coverage for mold damage caused by covered incidents is up to $10,000 nationwide, but this limit cannot be exceeded.

Mold claims can lead to nonrenewal of policies

According to data from the Federal Trade Commission, obtained through the Freedom of Information Act, 8% of anonymized home insurance-related complaints made about Allstate and Nationwide were mold-related. CNBC requested complaints about "home insurance" for a sampling of some of the largest property and casualty insurance companies, including Allstate, Nationwide, and State Farm. State Farm had no mold-related complaints.

While most complaints centered on insurers restricting coverage for mold, a few individuals reported seeing repercussions when it came time to renew their policy. Specifically, one policyholder in Lindsey, Ohio, claimed that Allstate declined to renew their policy in 2020 due to a mold claim made the previous year.

"The non-renewal limitations vary by state and are part of the regulatory framework, according to Shapiro. Generally, insurance companies have the right to not renew you for reasons such as prior loss history, which is often a trigger event."

An Allstate spokesperson did not respond directly to a request for comment about the complaints, but directed CNBC to the III. Mark Friedlander, director of corporate communications at the III, said that insurers may choose not to renew a policy due to the volume and frequency of claims activity.

It is advised by insurance experts and attorneys to meticulously examine the specifics of your insurance policy and seek the guidance of a professional to comprehend the scope of the coverage.

According to Shapiro, insurers are not yet specifically focusing on mold when assessing future risk, but rather the broader issue of how climate will affect insurance, which the industry is closely monitoring.

In our view, insurance companies cannot solely address societal needs related to affordability, incentivizing behavior, and changing behavior, and society must assist in these areas.

Six years after the nor'easter struck, the Schmitt home still sits uninhabited.

Schmitt and her family occasionally return to stay at the home, preventing it from being considered vacant or abandoned, but she still gets sick during these brief visits.

"Schmitt stated, "Although we worked diligently for many years to purchase a home like this, we never got to enjoy it during the entire process.""