1. Forms
2. HO
3. HO-04-27

What the Form Is

The HO 04 27, titled "Limited Fungi, Wet Or Dry Rot, Or Bacteria Coverage," is an endorsement to specific homeowners insurance policies, namely the HO 00 03 (Special Form) and HO 00 05 (Comprehensive Form). Its primary purpose is to provide a restricted amount of coverage for losses caused by fungi (including mold and mildew), wet or dry rot, or bacteria. This endorsement typically introduces an aggregate limit of liability for property damage under Section I of the policy and a separate aggregate limit for liability claims under Section II, Coverage E (Personal Liability), stemming from these specified perils. Insurers introduced this type of endorsement to manage and cap their exposure to the increasing number and cost of mold-related claims.

Classes of Business It Applies To

This endorsement is used in personal lines insurance, specifically for owner-occupied homes covered under an HO 00 03 or HO 00 05 policy form. It is not intended for commercial properties or other types of homeowners policies (like HO 00 02, HO 00 04, or HO 00 06, which would typically use the HO 04 26 or HO 04 28 endorsements for similar limited coverage).

Real-world example: A homeowner has an HO 00 03 policy with the HO 04 27 endorsement. Following a minor, slow leak from a bathroom pipe that went unnoticed for some time, significant mold growth is discovered within the bathroom wall and vanity. The HO 04 27 endorsement would provide coverage up to the specified sublimit (e.g., $10,000 for property damage) for the costs of testing for mold, removing the mold, and repairing or replacing the damaged wall and vanity. If the mold exposure also led to a third-party bodily injury claim, the Section II liability sublimit (e.g., $50,000) would apply.

Special Considerations

• Coverage Limits: The coverage provided by this endorsement is subject to specific, often relatively low, sublimits which are stated in the endorsement or on the policy Declarations. These are typically aggregate limits, meaning they are the most the insurer will pay for all losses arising from fungi, wet or dry rot, or bacteria during a policy period, regardless of the number of claims.
• Mandatory vs. Optional: Depending on the state or the insurer's underwriting guidelines, this endorsement (or a similar one limiting fungi/mold coverage) might be automatically included, sometimes as a way to buy-back a small amount of coverage where a full exclusion might otherwise apply. In some cases, higher limits than the basic offering may be available for an additional premium.
• Definition of Fungi: The endorsement will include a definition of "fungi," which generally encompasses mold, mildew, and their byproducts.
• Underlying Cause: Coverage for fungi, wet or dry rot, or bacteria often requires that the condition resulted from a covered peril (e.g., a sudden and accidental water discharge). However, the endorsement's language will be paramount.
• State-Specific Rules: The exact provisions, available limits, and regulatory requirements concerning fungi and bacteria coverage can vary significantly from state to state.

Key Information for Agents and Underwriters

• Risk Assessment: Underwriters should evaluate factors such as the property's age, geographic location (especially humidity levels), maintenance history, and prior water damage incidents. Older homes or those in humid climates may pose a higher risk for mold-related claims.
• Pricing: Basic limits for this coverage might be included with no additional charge or for a nominal premium. Offering higher limits will typically involve an increased premium, which should be commensurate with the increased exposure.
• Educating the Insured: Agents must clearly explain that this endorsement provides limited coverage. It's crucial to discuss the specific sublimits and how they compare to the overall policy limits (e.g., Coverage A for the dwelling). Insureds should understand that these limits may not be adequate for extensive contamination.
• Loss Prevention: Agents can add value by advising clients on preventive measures to reduce the risk of mold growth, such as controlling humidity, promptly repairing leaks, and ensuring proper ventilation.
• Documentation: The selected coverage limits for Section I and Section II must be clearly indicated on the endorsement itself or the policy Declarations page.
• Claims: Underwriters should be aware that claims involving fungi often require specialized investigation and remediation. The aggregate nature of the limits means tracking payments across claims within a policy period is important.