What the Form Is
The HO 04 26, Limited Fungi, Wet Or Dry Rot, Or Bacteria Coverage endorsement, is a standard form used with many homeowners insurance policies. Its primary purpose is to manage the insurer's exposure to claims involving mold, mildew, and other microbial organisms. The endorsement achieves this in two main steps: first, it introduces a broad exclusion for loss caused by or resulting from fungi, wet or dry rot, or bacteria. Second, it then "gives back" a limited amount of coverage for these types of losses, subject to specific aggregate dollar limits stated in the endorsement or on the policy declarations page. These limits typically apply separately to Section I (Property Coverages) and Section II (Liability Coverages – specifically Coverage E for Personal Liability and Coverage F for Medical Payments to Others).
Classes of Business It Applies To
This endorsement is used in personal lines homeowners insurance. It is designed to be attached to various homeowners policy forms, including:
It is specifically noted that this endorsement is generally not used with the HO 00 03 (Special Form) and HO 00 05 (Comprehensive Form); a similar endorsement, HO 04 27, is typically used for those forms.
Real-world example: A homeowner with an HO 00 02 policy and the HO 04 26 endorsement discovers significant mold growth behind a wall due to a slow, previously undetected plumbing leak. While the base policy might have limitations or exclusions for mold, the HO 04 26 would specify the maximum amount the insurer would pay for the property damage (e.g., mold remediation, repair of damaged drywall) and potentially for any associated liability if, for instance, a guest claimed illness due to mold exposure, up to the limits stated in the endorsement.
Special Considerations
- "Give and Take" Coverage: It's crucial to understand that this form first excludes coverage broadly and then provides a limited buy-back. The coverage provided is not comprehensive and is subject to the specified sublimits.
- Aggregate Limits: The limits provided by this endorsement are typically aggregate limits, meaning they are the total amount payable for all losses arising from fungi, wet or dry rot, or bacteria during the policy period or for a single occurrence, depending on the policy language and the specific wording of the endorsement version.
- Cause of Loss: The applicability of the limited coverage can sometimes depend on the original cause of the loss that led to the fungal growth (e.g., a covered water damage peril).
- Mandatory Inclusion: In some regions or for some insurers, this endorsement (or a similar one) may be a mandatory part of the homeowners policy to control mold-related loss costs.
Real-world example: If the HO 04 26 provides a $10,000 aggregate limit for Section I property damage due to fungi, and a covered water leak leads to $15,000 in mold remediation costs, the policy would only pay up to $10,000 for the mold portion of the claim, assuming all conditions are met.
Key Information for Agents and Underwriters
- Agent's Role: Agents must clearly explain the function of this endorsement to clients, particularly the initial broad exclusion and the subsequent limited nature of the coverage provided. It's important to manage expectations regarding mold coverage. Agents should also clarify the specific dollar limits that apply.
- Underwriting & Risk Assessment: Underwriters use this form to standardize and cap the insurer's exposure to the potentially high costs associated with mold and bacteria claims. The presence of this endorsement is a key factor in assessing the overall risk of a homeowners policy.
- Coverage Gaps: This endorsement can create significant coverage gaps for severe mold infestations. Agents should discuss whether higher limits are available (some insurers may offer options to increase the sublimits for an additional premium ) or if standalone policies for mold (if available) might be necessary for clients with heightened concerns or specific exposures.
- Documentation: The specific limits of liability for fungi, wet or dry rot, or bacteria coverage provided by this endorsement should be clearly indicated on the Declarations page or within the endorsement itself.
- State Variations: While ISO forms aim for standardization, there can be state-specific rules or variations. Insurers may also have their own proprietary versions of this endorsement.