Mold and Liability

09/30/2003 |

An Update On One of the Industry’s Top-of-mind Issues

After countless years of lead and asbestos litigation, facilities managers and attorneys alike will attest that there’s a new kid on the liability block.

Mold. And it appears that those hardy airborne spores aren’t going to disappear from court dockets anytime soon.

The commercial facilities industry has found itself in the defendant’s chair in an increasing number of mold claims, with the plaintiffs demanding huge pay-outs in monetary damages. “It may be too soon to say for certain whether mold is the ‘next asbestos,’ but it is clear that both first- and third-party insurance claims for mold damage, often a result of water damage due to fire or faulty plumbing work, are on the rise,” says John Berringer, a partner and insurance coverage litigation specialist for Anderson Kill & Olick PC, New York City. “It is not too soon to say, judging from the insurance industry’s earlier response to asbestos and environmental claims, that the rise in mold claims will bring with it a rise in insurance coverage litigation as insurance companies scrutinize their policies for exclusions or other ‘escape hatches’ to avoid this liability.”

In 2001, the American Bar Association, Chicago and Washington, D.C., observed that mold litigation may “surpass asbestos in terms of case volume and value.” Recent reporting seems to bear this out, noting a 300-percent increase in the number of lawsuits since 1999, according to the Insurance Information Institute, based in New York City.

“Mold issues have always been part of any construction defect litigation practice, but not in the numbers we see now,” says Peter R. Spanos, a partner with the Atlanta law firm Burr & Forman. “The differences are the claims and huge awards for personal injury, which is remarkable given that presently there is no definitive scientific evidence to prove that mold causes the serious illnesses that plaintiffs allege.”

The level of liability that a commercial facilities manager and/or building owner has in terms of mold is really something that a court would determine if a third-party suit was brought against the building owner or management, says consultant Mary Jane O’Keefe, principal of MJ Associates, a San Diego risk management consulting firm specializing in commercial real estate-related exposures and issues, most recently in the multi-family facility setting.

Insurance policies do help limit hefty litigation pay-outs, but it’s tough to find policies that don’t carry some sort of mold exclusion. Mold coverage has been carved out of most first-party property and third-party general liability policies, O’Keefe notes, adding that it can be purchased under the Pollution Legal Liability policy. “Right now, there are problems with this policy that I hope the insurance industry will address,” she notes.

For example, the Pollution Legal Liability policy was designed originally to cover sites that the U.S. Environmental Protection Agency (EPA) or another governmental agency has demanded to be cleaned by the policyholder. For first-party coverage to apply, an agency has to write a letter to the owner and/or manager and demand that the property be cleaned up.

“This rarely happens in the case of mold,” O’Keefe says. “So, usually there is no first-party property damage coverage available.”

Damage to a third party’s personal property and also any other bodily injury claims by a third party can be covered by the Pollution Legal Liability coverage form, O’Keefe says. Medical issues that may arise in an employee due to working in an environment that has mold would be covered under Workers’ Compensation. “I do not believe that mold has been excluded from that policy yet,” O’Keefe adds.

Consider that an aberration. As a rule, mold exclusions abound in the insurance world. It takes some sleuthing to find a policy with good mold coverage.

The good news is that mold exclusions will not necessarily limit coverage. Even policies that expressly exclude coverage for “losses caused by mold” will not necessarily exclude all claims seeking recovery for mold damages, despite the inevitable insurance company claims to the contrary, Berringer says. There have been court cases setting this precedence. Berringer’s advice? Shop around.

“Get as narrow of an exclusion from mold as you can,” Berringer says. “If you can get a policy without a mold exclusion, that’s great.”

There’s some good news when it comes to older claims. Most old policies still carry some sort of mold coverage. This can be beneficial in litigation because if mold can be traced back to fire loss or a broken water pipe in 1995, for example, the policy in effect at that time is the one the court will examine – not the building’s current 2003 policy, particularly if an expert can attest that the mold infestation began years ago when that policy was in effect, Berringer says.

And chances are, older policies will have less broad of a mold exclusion than those being written today.

“Maintain copies of every year’s policy forever, and I really mean forever,” Berringer says. “There’s always some triggering event for mold growth. If you can find that event, and if it is far enough back before there was an exclusion, you can claim coverage.”

Robin Suttell, based in Cleveland, is contributing editor at Buildings magazine.

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