Montemayor Tells Farmers to Stop Non-Renewal Plan

News Release Date: 11/12/2001 Category:   Homeowners

Commissioner Jose Montemayor today told Farmers Insurance Group to immediately stop all activities related to non-renewal of the most-common homeowners policies in Texas pending clarification of its plans. He said without clear information on the plan and its effect on current policyholders he cannot determine whether it is in violation of state law and Texas Department of Insurance (TDI) rules.

On Friday, Farmers told its Texas agents that they could no longer renew the comprehensive HO-B policy as of December 30, 2001. This action follows the company's August decision to stop selling HO-Bs to new customers. In both cases, the company cited a big increase in losses due to mold-related claims.

A news release from the company sent to TDI on Friday said when renewals come due policyholders would be offered a "named perils" policy with "limited coverage for water damage." However, some news media reports indicated Farmers was withdrawing completely from the homeowners market.

Under some circumstances, state law requires a plan of orderly withdrawal when a company withdraws from the market. Montemayor told Farmers today to either file such a plan or to clarify that it will continue to issue homeowners policies.

Montemayor said he was both surprised and dismayed by Farmers' latest action, particularly since he had made clear he soon will make a decision on whether and how to reduce mold-related claims by altering policy coverages. A proposal from the TDI staff has called for placing a $5,000 cap on mold-related claims within the one-year policy period, but allowing policyholders to purchase additional coverage. The Commissioner held a hearing on the proposal on October 16.

"I have expressed to the company my strong disappointment in its action, particularly when my decision on mold-related coverage is close at hand," Montemayor said today. "I would have appreciated the common courtesy of the company's waiting to learn of my decision before taking such an extreme action that could be detrimental to its policyholders. I have made Farmers' officials aware that their action may be in violation of state statutes and rules. I also am asking the TDI staff to research this possibility. Based on information I receive on this issue, I will consider taking appropriate action."

In addition to the October 16 hearing on the staff proposal, Montemayor held three public hearings and receiving hundreds of written comments on mold-related coverage. "I fully understand Farmers' concerns about the recent skyrocketing of mold-related losses," Montemayor said today. "But apparently they did not listen to my many calls for restraint pending my decision. I'm stunned that Farmers Insurance would consider turning their back on loyal Texas customers in these times of economic uncertainty and national crisis."

In early October, Montemayor asked the Office of Attorney General to look into mold clean-up practices in the Corpus Christi area that may be abusive, including the possibility of excessive pricing by mold remediators and testers.

He said today that he is considering a number of other actions, including:

1. Establishment of standards and best practices for responding to water and mold claims in an effort to put cost controls on mold-related claims.
2. Evaluation of alternative homeowners coverage and other nationally used forms to ensure the availability of homeowners policies.
3. Evaluation of possible changes to building codes to address mold suppression.

He said he expects to submit comprehensive recommendations to the 2003 Texas Legislature to address mold-related coverage and the problems of price and availability in today's homeowners market.