Environmental Protection Agency (EPA) warns that mold growth can
weaken floors and walls and cause structural damage to schools
and office buildings, so claims could also include personal
injury and property damage. An increase in sick building claims
could result in both workers’ compensation and civil liability
lawsuits. And defense costs including data gathering, scientific
analysis and expert medical opinions are considerable.
At a June hearing on the mold
issue, Farmer’s officials said they already have received more
than one thousand new mold-related claims this year. Further,
they said, independent actuaries have estimated that insurance
companies will pay an additional $128.5 million for Texas-based
mold damage claims in 2001.
cases are under appeal and their outcomes will shape the
responses to losses involving mold. It appears, though, that the
courts are favoring the plaintiffs. Companies may have two
choices: mitigate or litigate.
Insurance Industry Reactions
The insurance industry is
monitoring the mold issue closely and it is uneasy. Insurers are
considering a number of options to mitigate mold losses,
including premium increases, excluding mold from policies or
eliminating policies that cover water damage and the mold damage
that may follow.
proactive responses include educational forums developed by
industry associations that risk managers should consider
attending. The National Association of Independent Insurers
(NAII) is closely watching the litigation developments and
serves as an education and information resource. In the spring
of 2001, NAII formed a mold task force consisting of different
insurance disciplines, including claims, underwriting and loss
David Golden, director of
commercial lines and co-chair of the task force, says mold could
be the next asbestos in terms of litigation and insurance
losses. He advises learning from past experiences in asbestos
and silicon breast implants. Even though scientific evidence was
sometimes lacking to support the allegations, courts found in
favor of the plaintiffs. This cost the insurance industry
millions in defense expenses and claims payments.
The insurance industry is on a
learning curve Golden says, and it needs to get up to speed
quickly. The courts have been finding that if the mold
contamination was caused by an insured event, then the loss
should be covered. In assessing mold claims, each case is
unique; the circumstances surrounding each claim must be studied
(e.g., storm or faulty maintenance) so coverage for the ensuing
mold loss can then be determined.
But even if the precise
relationships between mold, coverage, claims and the impact on
people’s health is uncertain, one thing is clear: The trend of
litigation settlements and the use of the courts is
millions of dollars have been awarded to claimants and this is
only the beginning. Although there are no exact statistics on
the number of mold cases pending, according to Robertson, the
founding partner of Robertson, Vick, and Capella in Woodland
Hills, California, there may be as many as ten thousand
mold-related cases in litigation throughout the United States.
The states with the most mold litigation are California,
Tennessee and Texas. Robertson represents over one thousand
cases in the states of California, Colorado and Texas in both
first and third party toxic mold claims. His present client list
includes Erin Brokovich, who is alleging mold damage to her
multimillion-dollar Southern California home.
Another leading California mold
litigation expert is Edward Cross, of Santa Anna-based Cross and
Associates, which represents both residential and commercial
clients. According to Cross, “the insurance industry is a victim
of many years of bad construction in the United States.” Cross
believes that the construction of the 1980s is starting to fail
and roofs, decks and stucco are all beginning to decline,
allowing water seepage, followed by mold growth.
says that over $100 million has already been paid out for
remediation costs in cases of Exterior Insulated Finished System
(EIFS) manufacturing systems. In this system, the insulating
foam is applied to the outside of the building and as a result,
water seeps in the crevices and gaps and cannot escape. The
cases include the Martin County courthouse in Texas, in which a
construction defect suit was filed against the builder of the
courthouse alleging that two types of mold, Asperigillus and Stachybotrys,
were found in the building and fifteen workers were exposed to
mold. The contractor was ordered to pay $11.5 million in damages
and $2.9 million in interest. The decision was upheld on appeal
There is some good news. Mold can
be managed. Insurers and risk managers can equip themselves with
the right knowledge, planning, defense strategies and resources
to respond accordingly to the mold crisis. They must then become
experts on all aspects of mold, participate in multidisciplinary
industry groups, develop industry standards for acceptable
exposure to mold, and train personnel to quickly report and
properly repair water damage that could foster mold growth.
A new industry subculture is even
unfolding to support the legal process and insurance industry
needs, including adjusters trained in mold assessment,
microbiologists and mold remediation specialists.
A series of
proactive, diligent steps can be taken by insurers and risk
programs for adjuster training in mold claims assessment.
Initiating rapid deployment teams of mold specialist adjusters
is an important first step because time is critical and only
adjusters who have the appropriate level of knowledge and
expertise should be assigned. If the remediation is not handled
promptly and correctly, mold can spread and exacerbate the
situation. This can increase the clean-up costs exponentially.
about the latest remediation technologies. The May 2001 issue of
Engineering News Review describes a new way of locating toxic
mold and identifying the cause of sick building syndrome through
the use of a DNA-based system. The system was developed by two
EPA scientists and allows for rapid identification and
quantification of over fifty problematic molds, including
Stachybotrys. Current mold detection methodologies can take days
or weeks to identify the mold, while the EPA claims its new
system can run ninety-six simultaneous analyses. But the
technology—which is being introduced by the EPA’s Environmental
Technology Commercialization Center in Cleveland, Ohio—is
several times more expensive than standard methods.
preventive building maintenance programs. Michael Thompson, CEO
of Houston-based Engineering and Fire Investigations, urges risk
managers to use preventive maintenance techniques and to
constantly inspect buildings inside and out for signs of water
leakage. He advises risk managers to beef up building
maintenance programs when there is a water problem. He suggests
using a fast drying process to eliminate any mold problem.
Since mold will start to grow in
twenty-four to forty-eight hours, this is the critical period to
mitigate mold growth. Thompson recommends monitoring the area
for two weeks to eliminate the possibility of a mold problem.
This preventive process can mean a
huge difference to the bottom line. According to Robertson, one
of his clients—a publication business in California—had a pipe
break over a weekend. The insurance adjuster arrived about a
week after the event. The water damage was dried and the dry
wall replaced. Fans that were used to dry the area blew the mold
spores into the ventilation system. As a result, twenty-six of
the thirty employees developed nosebleeds. They subsequently
submitted workers’ compensation claims, resulting in payments of
a few hundred thousand dollars, and a civil suit was filed
against the landlord. The civil case is still pending.
fast-track education on mold litigation issues. Web sites such
www.mealeys.com track mold litigation. Mealey’s report Mold
Contamination: Toxic Tort and Property Claims is a compilation
of thirty studies of twenty-five cases from around the country,
with references for twenty-nine available complaints, motions
and decisions in the field.
national industry standards for exposure to mold. At present,
there are no federal standards setting acceptable levels of
exposure to toxic mold and no regulation of mold remediation
contractors. Efforts are underway, however, to study the
possibility of developing national standards, and states are
taking some action in this area.
For example, New York is the only
state with guidelines on toxic mold and other indoor fungi. The
guidelines were established in 1993 and updated in 2000. On
February 23, 2001, California state senator Debra Ortiz
introduced the Toxic Mold
Protection Act (SB 732). The California assembly is evaluating
the bill, which is the first to establish acceptable mold
exposure limits. The bill:
the Department of Health Services to adopt permissible exposure
limits for mold in indoor environments.
the Department of Health Services to adopt mold identification
standards for the environmental assessment of molds in indoor
(c) directs the Department of
Health Services to adopt mold remediation.
the toxic mold problem may prove to be one of the greatest
environmental challenges for the insurance industry since
asbestos. Over the past year, because of the press from Ballard
vs. Fire Insurance Exchange, mold has garnered a lot of
attention as to what should or should not be done. There are
universities and private laboratories performing tests,
insurance associations having symposiums and lawyers going to
court. All of this attention has resulted in huge but still
surmountable insurance problems.
risk managers and other insurance professionals develop the
knowledge base and use their combined risk management,
engineering, litigation and financial skills to start fighting
this crisis now, then perhaps many of the problems associated
with other environmental problems can be avoided. Part of the
problem with toxic mold is that until large jury awards emerged,
only specialists paid much attention. Now is the time for the
insurance industry to take notice, and for risk managers to take
whatever proactive steps they can to counter a peril that may or
be covered by existing policies.
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