In the late 1990s and early 2000s, the insurance industry saw a very sharp increase in the number of claims being submitted for mold damage associated with covered water damage claims. At that time, most property policies had a standard mold exclusion that had been present for many years. The standard Homeowners 3 form from the Insurance Services Office provided all-risk or open-perils coverage for direct physical loss to the dwelling, but contained a standard mold exclusion that was generally interpreted as excluding only damage that was caused by the peril of naturally occurring mold. It did not exclude the mold growth and damage that occurred as a result of a covered water damage claim.

In the early 2000s, the public became more aware of a potential health hazard resulting from prolonged exposure to mold. As a result, the insurance industry faced tens of thousands of claims nationwide for mold damage associated with covered water damage claims, with hundreds of millions of dollars in claims on the line along with a lengthy and expensive litigation process.

By no later than 2001, the insurance industry was acutely aware of the potential cost of covering mold damages resulting from a covered cause of loss. The industry prepared and then enacted a number of changes and endorsements to existing property policies. These changes and endorsements were aimed at eliminating or limiting coverage for any mold damages.