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Mold: Should your client be worried about it? Don't dismiss the danger

March/April 2004

Number 4, Volume 13, American Bar Association, Business Law Today, 37

Is toxic mold the new asbestos when it comes to litigation?

This past decade has seen multimillion dollar verdicts in toxic mold cases resulting in a consumer media blitz. By way of example, more than 8,000 articles and stories about toxic mold have appeared in the media since 2000. See Gordon Stuart Gordon, "Was the Media the Medium for the Mold Crisis," National Underwriter, Property & Casualty/Risk & Benefits Management Edition, p. 24 (Feb. 17, 2003). Even a celebrity like Ed McMahon has joined the chorus of outcries against the toxic mold menace, claiming its responsibility for the death of his dog "Muffin."

The media's focus on toxic mold may just be getting started. One can't help but consider the episode of "48 Hours" featuring Erin Brockovich. She claimed her home was overrun by mold, making her sick, and making her house uninhabitable. Is this a signal of things to come? Given the movie profits and Oscar-nods received for telling the story of her past litigation struggles, it is entirely possible that somewhere in Hollywood right now, somebody is thinking about a movie sequel staring toxic mold.

Warranted or not, this level of media attention has created an avalanche of insurance claims and lawsuits that will not soon go away. By way of example, while there were approximately 9,000 mold and mildew-related cases filed in the United States and Canada between 1990 and 2000, Farmer's Insurance reported 10,150 mold-related claims in the first 10 months of 2001 alone. See Del Williams, "Toxic Mold Claims Demand Insurer Action," Claims, No. 8, Vol. 50; Pg. 69 (Aug. 1, 2002).

Given this level of increase, if you haven't already, it is probably only a matter of time before you receive a phone call from a client facing a mold dilemma. No doubt your client will be panicked having read or seen too many media articles on the subject. As your client's trusted adviser, it is your job to know what to do. Unlike most script writers in Hollywood, however, your job will require you to be able to answer the question: What is toxic mold?

As a matter of simple biology, certain molds produce toxic chemicals to inhibit or prevent the growth of other organisms competing for their environment. See "The Truth About Toxic Mold; Indoor Mold May Cause Health Problems, But There Is More Fear Than Fact To `Toxic Mold'," Harvard Health Letter, No. 3, Vol. 28, Pg. 0 (Jan 1, 2003). Collectively, these chemicals are known as "mycotoxins" and indeed, some of them are harmful to people.

By way of comparison though, of the more than 100,000 species of mold in the world, only about 50 or so are toxic to human health. See David E Blundell, "Proliferation of Mold and Toxic Mold Litigation: What is Safe Exposure to Airborne Fungi Spores Indoors?," 8 Envtl. Law 389, 391 (Feb. 2002). Of that number, only about three species are typically the cause of toxic mold litigation - stachybotrys, penicillium and aspergillus. Thus, the term "toxic mold" is not scientific in origin, but was rather haphazardly coined to refer to the few molds found in homes and buildings that produce toxins.

Although toxic molds do exist, it is important to keep in mind that most, if not all, homes and buildings in the United States have some form of mold growing in them. Contrary to the inference created by the media, the simple presence of stachybotrys, penicillium, or aspergillus in some of these homes and buildings does not mean that the occupants have been harmfully exposed to toxic mold.

Fundamentally, there is a tremendous lack of understanding in the scientific community as to what level of exposure to toxic mold will result in physical harm. See Harvard Health Letter. Typically, indoor molds are measured in "colony forming units" (CFU) through various methods of indoor airquality analysis. While the total number of indoor versus outdoor CFUs of a harmful mold species can be compared as a potential benchmark to suggest whether harmful levels of toxic mold are present inside a building, no definitive standards have been set forth to clarify the question.

Bearing this in mind, you can tell your clients not to live in fear that the discovery of mold will automatically equate to million-dollar lawsuits and emergency building evacuations. Nevertheless, because toxic mold can cause your clients to face liability or loss, your first step in protecting them should be to simply advise them how to avoid a problem in the first place. Toward this end, your clients should:

# Immediately fix water intrusions (plumbing leaks, roof leaks, etc.);

# Regularly inspect and maintain heating, ventilation and air conditioning systems (for example, drip pans should be kept clean and unobstructed);

# Maintain indoor relative humidity to between 20 percent and 60 percent (by dehumidifier if necessary);

# Fix drainage and grading problems so that building foundations do not stay wet; and

# Clean up and dry wet spots within 48 hours.

See Daniel Woody, "Address Water Intrusions To Stop Toxic Mold," Business Insurance (Nov. 25, 2002).

If one of your clients already has a mold problem, you should advise to take immediate steps to investigate, and if necessary, remediate the problem. This is especially important if your client could be liable to building occupants who may have been exposed to toxic mold. When it comes to litigation, your client does not want to face an angry jury for ignoring a problem to the alleged detriment of someone's health.

Faced with the discovery of mold, your client should follow the EPAs advice in its handbook on "Mold Remediation in Schools and Commercial Buildings," U.S. EPA Report, 402-K-01001, by first assessing the size and scope of the potential mold or moisture problem before considering remediation options. As such, you should ask your client whether the discovery of mold was prompted by:

# the observation of visible mold growth;

# the presence of musty or moldy odors; or

# reports of health problems by building occupants.

Depending on the answers to these questions, your client's next step is to determine whether or not there is an existing moisture problem in their building, and if so, whether the moisture is the result of a water intrusion (plumbing leak, roof leak, etc.), or whether the moisture is the result of excessive humidity (high enough to cause condensation).

Although a visual inspection of the building is an important first step, the extent of the potential problem is not always easy to determine because molds thrive in areas such as wall cavities, beneath wall and floor coverings, and behind ceiling tiles.

To effectively investigate the matter, your client should consider retaining a certified industrial hygienist to perform a thorough investigation and, if necessary, oversee the eventual remediation of the problem. Fortunately, there is no shortage of companies performing this type of service. It is important, however, to check references, and your client should be wary of anyone who claims to be able to diagnose a mold problem by simply doing a walk-through or by taking air samples alone. See Woody.

Once the scope of the problem has been determined, you should advise your client to develop a plan for remediation. Once again, following the EPAs advice, if the source of the moisture that resulted in mold hasn't been dealt with already, fixing that problem should be an integral part of the remediation plan to avoid a future reoccurrence of mold.

Current approaches to mold remediation vary between treating mold as hazardous material and eliminating it through stringent - expensive - safety procedures, or considering mold as basically harmless and taking no specific precautions. See E.N. Light, "Mold Remediation: How Complex Should It Be?," presentation given at Mold Medicine and Mold Science conference in Washington (May 14, 2002). These approaches are of course influenced by the level of contamination and perceived health concerns posed by toxic mold.

Published guidelines, such as the New York City Department of Health's "Guidelines on Assessment and Remediation of Fungi in Indoor Environments" (2000), and the EPAs handbook on "Mold Remediation in Schools and Commercial Buildings" base their findings on the need to control molds like stachybotrys as toxic agents. Based on the size and scope of the area at issue, these guidelines seek to minimize health effects, establish standards for worker protection, and create standards for the containment of mold. See E.N. Light.

Keeping these guidelines in mind,and relying on professional guidance by a certified industrial hygienist, your client's remediation plan should focus on:

# restoring building conditions through eliminating moisture intrusions;

# cleaning and, where necessary, replacing building materials where mold is present;

# protecting the workers performing the remediation as necessary (respirators, disposable gloves, etc.);

# establishing building conditions acceptable for the general population to minimize further health effects (containment procedures for airborne mold);

# protecting extremely sensitive individuals from further exposure where necessary; and

# verifying that remediation objectives have been accomplished (that is, air monitoring).

E.N. Light.

Being able to provide advice about how to investigate and remediate mold problems is only part of what your clients need to know. Equally important is being able to provide insight about insurance coverage for mold claims under both first-party property insurance policies and third-party liability insurance policies. This is a complex matter, however, because insurance companies are continually attempting to limit their exposure.

With respect to property insurance, both homeowner's and commercial-property policies typically have some form of exclusion for mold. For example, the 1991 ISO form for homeowner's insurance excludes coverage for mold damage unless caused by an otherwise covered event - such as a burst water pipe. This exclusion was then expanded in the 2000 version of the form to limit coverage to situations where mold is hidden and was caused by an accidental discharge or overflow of water or steam from one of the following covered losses: plumbing, heating, air conditioning, automatic fire protective sprinkler systems, household appliances, storm drains, or water, steam or sewer pipes.

Commercial-property policies take a different approach to limiting coverage for mold through an exclusion for wear-and-tear damage (that is, rust, corrosion, fungus, decay, etc.). As with homeowner's policies, the wear-andtear exclusion arguably does not apply to losses attributable to covered events like burst water pipes. Accordingly, commercial property policies typically go on to exclude damages resulting from continuous or repeated leakage of water occurring over a period of 14 days or more. The intent of such a policy appears to seek to allow coverage for damages resulting from sudden accidents like burst pipes, but to exclude long-term damages resulting from lack of maintenance.

Whether you are dealing with a homeowner's policy or a commercialproperty policy, you should always look to see how the policy deals with water damage, as this will likely become the central focus of any dispute concerning mold coverage.

When dealing with a third-party liability policy, the issues are somewhat different. For example, in interpreting whether coverage exists for claims by building occupants for ailments resulting from toxic mold exposure, the question of coverage will turn on how the policy defines "bodily injuries" and whether the alleged injuries are the result of a covered "occurrence."

Typically, bodily injuries are defined as "injuries to the physical structure of the body," while an occurrence is defined as a "continuous and repeated exposure" to a "harmful condition" over a period of time. Based on these definitions, coverage will turn on whether repeated exposure to toxic mold is considered harmful, and whether the claimant's ailments rise to the level of "injuries to the physical structure of the body." Although coverage may exist, challenges may surface because of the lack of standards on what level of exposure to toxic mold is harmful.

Another common type of claim under a third-party liability policy concerns a builder or seller being sued by a new homeowner for damages resulting from "faulty workmanship." If your client happens to be facing this situation, be aware that insurers have attempted to argue that mold damage resulting from construction defects (leaking roofs, etc.) is excluded from coverage. See David M. Pruessner & Steven J. Pawlowski, "Mold Claims: Fact, Fiction and Coverage," The Risk Report, Vol. XXIV, No. 8 (April 2002). The counterargument to this exclusion, of course, is that it was intended to preclude coverage for the cost of repairing a construction defect, not the resulting damage from the defect.

In addition to the exclusions already mentioned, you should be aware that insurers have attempted to deny mold claims under both property and liability policies through the "absolute pollution exclusion." As indicated by its name, this exclusion applies to the dispersal and release of "pollution," "irritants" and "contaminants." Fortunately for your clients, courts have so far refused to apply this exclusion by reasoning that mold is not a pollutant within the meaning the policy. See Sharon M. Stecker & Eric Harrison, "Prevent Mold Problems Before They Start," Business Insurance, p. 10 (March 3, 2003). Besides exclusions, another major consideration when dealing with mold claims and insurance is: When did the loss occur? Considering that mold is often discovered after it has been growing for a long period of time, insurers under both property and liability policies may argue that damage from mold is a long-term loss that pre-exists the policy's period of coverage.

The discovery of mold growth after a long period of time also raises coverage disputes because the loss may have occurred over multiple policy periods involving different insurers. As these issues have previously been litigated with respect to asbestos, analyzing coverage will likely follow whatever law exists in the jurisdiction. Generally speaking, there are three different theories for when coverage is "triggered" and for whom.

# The first theory holds that the loss occurred on the date of the first exposure to the cause of the loss. Thus, presuming the mold developed as a result of a water leak, the date of the first exposure is the date when the water leak first occurred.

# The second theory holds that the loss occurs on the date of manifestation, or the date when the mold was actually discovered.

# The third theory, which is followed by most jurisdictions, is known as the "continuous trigger" theory. Under this theory, all insurance policies in effect from the date of exposure (the leak) to the date of manifestation (the discovery of mold) will be responsible for coverage. Unfortunately, this theory may raise additional questions as to how coverage should be allocated between multiple insurers. In such an event, guidance on allocation can be sought through the relevant jurisdiction's asbestos case law dealing with the same scenario.

Whether or not your client is facing the need to deal with an insurance claim concerning mold, it is important to understand that what holds true today, may not apply tomorrow. In dealing with the increase in claims, insurers have been quick to attempt to limit or exclude mold coverage in an effort to avoid the kinds of losses incurred with other mass torts.

This can be seen by the increasing efforts to include more comprehensive mold exclusions to policies that even go so far as to exclude remediation costs and personal injuries. See Stecker & Harrison. As such, your clients may wish to review their property and liability policies, and if concerned about exclusionary language, may consider trying to obtain some limited mold coverage for an increased premium.

As seen in the rapidly changing dynamics of insurance coverage, toxic mold's continuing effect on business and the law is far from certain. Perhaps the only sure thing about toxic mold is that Hollywood will be watching Erin Brockovich's story with considerable interest. Until standards and guidelines as to what constitutes "safe" and "unsafe" levels of mold exposure are in place - and science has a chance to catch up with the hysteria - toxic mold will remain the subject of increasing conjecture.

As a result of this uncertainty, each of us should strive to keep abreast of the situation to better serve our clients.

John M. Simon is a member and Thomas J. Trautner is an associate of the West Orange, NJ-based firm of Wolff & Samson PC. Mr. Simon can be reached via e-mail at: jsimon@wolffsamson.com. Mr. Trautner can be reached via e-mail at: ttrautner@wolffsamson.com.
 

March/Arpil 2004, Number 4, Volume 13, American Bar Association, Business Law Today, 37. © 2004 by the American Bar Association. Reproduced by permission.