As the media widely have reported, an epidemic of claims arising from indoor mold growth currently is occurring. Since the early to mid-1990s, lawsuits seeking recovery for personal injuries and property damages resulting from mold have been increasing, and some have resulted in huge verdicts in favor of claimants. There is little doubt that during the course of the next decade, toxic-mold lawsuits will continue to be filed and spawn specialized attorneys, consultants and remediation contractors, as well as insurance exclusions, just as asbestos claims did. The pattern already is well under way.
What has been happening
Liability for mold growth in buildings currently is the most serious environmental concern facing the construction industry, property managers and insurers. Although Texas and California were the primary states where substantial numbers of mold claims were initiated, claims now have been brought in all U.S. regions concerning all building types. The North American insurance industry estimates that within the past 10 years about 9,000 toxic-mold lawsuits were filed in the United States and Canada. The number continues to increase dramatically with no end in sight.
Mold claims have been brought against building owners; property managers; insurance companies; general contractors; developers; manufacturers; architects; building inspectors; plumbing contractors; heating, ventilating and air-conditioning (HVAC) contractors; exterior insulation and finish system (EIFS) contractors; framing contractors; window installers; and roofing contractors. Claimants seek to recover damages related to personal injuries and property damage, including remediation costs.
What is mold?
So what is this insipid spore that has caused such fear and consternation?
Mold is a naturally occurring microscopic organism, classified as a fungus, that is neither plant nor animal. There are many mold types, and they are found in every U.S. region. Under typical ambient conditions, mold spores exist at safe levels; it is only when living conditions for mold are enhanced, primarily through an influx of water, that spores proliferate to a degree that they could threaten health or cause property damage. The risk of exposure to airborne fungi is many times greater in an enclosed space than in the ambient environment.
As long as moisture is present, fungi will reproduce. If a building is dry, mold will not proliferate. To stop mold growth, the source of water intrusion must be stopped and existing mold must be cleaned. Moisture sources could be roof system leaks, exterior wall leaks, condensation from an improperly installed vapor barrier, foundation leaks, sewage backups, improperly sized air-conditioning units that do not remove enough humidity from the air and improper landscaping. The most notorious source of water intrusion probably is through stucco or synthetic stucco walls. The U.S. Environmental Protection Agency estimates that one-third to half of all U.S. buildings have areas damp enough to grow mold.
Any cellulose-containing material coupled with an ambient temperature between 40 F and 100 F (4 C and 38 C) is ideal for mold growth. Drywall or gypsum wall board, all types of wood, adhesive, ceiling tiles, insulation, paint, plywood, paper and cardboard are potential sources of nutrition that spur mold growth. Wallboard is an ideal food source for mold, leading to development from a few spores to a colony that can be seen with the naked eye.
Once mold begins to grow, it does not require much moisture to continue growing. Humidity may be enough to keep a colony of mold multiplying. Some molds can get a foothold in a structure in less than 48 hours. One commonly cited theory for the development of interior mold problems is the construction of airtight buildings to increase energy efficiency. When "tight" buildings suffer from water leaks and poor ventilation, they trap high humidity and become breeding grounds for mold spores.
It is important homeowners and building owners respond quickly to water intrusion by repairing a leak's source and thoroughly drying all wet materials. Any active or visible mold growth should be properly removed as soon as possible, and moisture sources need to be identified and corrected. For immovable woodwork, techniques to remove mold contamination include scraping and bleaching.
Woodwork should be removed if possible. Metal structures, such as ductwork, can be brushed clean and a bleaching solution can be used.
Health effects
Most people are exposed to mold daily and suffer no adverse health effects. In the absence of scientific studies, there is debate among people involved with mold claims concerning whether there is a causal connection between mold exposure and serious illnesses. The most common health problems associated with mold exposure are respiratory ailments that include runny nose, cough, congestion, allergic reactions and aggravation of asthma.
There currently are no federal or state regulations or standards that establish a permissible exposure limit for mold. California enacted legislation in October 2001 requiring its Department of Health Services to study the effects of mold on public health and implement guidelines and regulations. By July 1, 2003, a task force is to advise the department about the development of permissible exposure limits to mold, standards for the assessment of mold in indoor environments, and standards for the identification and remediation of mold. The California Toxic Mold Protection Act also requires sellers or lessors of real estate to provide disclosure about mold to purchasers and tenants.
Although some molds emit chemicals, called mycotoxins, that may cause health problems if present in sufficiently high concentrations, there is no complete list of molds that are harmful to humans. The Centers for Disease Control (CDC) has identified 25 toxic molds out of 3,000 known molds. The health effects of airborne mycotoxins are not currently well-understood.
The Boston-based Harvard University School of Public Health studied 10,000 homes in the United States and Canada and found that half had "conditions of ... mold associated with a 50 percent to 100 percent increase in respiratory problems." And a 1999 Rochester, Minn.-based Mayo Clinic study attributed nearly all chronic sinus infections suffered by 37 million patients to mold. There also are studies linking mold to the tripling of the asthma rate during the past 20 years.
The most well-known toxic mold is Stachybotrys chartarum, a greenish-black mold often found inside wet walls. Sometimes called "black mold," Stachybotrys feeds off organic material and is found worldwide. It requires an ongoing water source and/or extremely high humidity to grow. Stachybotrys is not the black mold found in the shower. It colonizes particularly well in high-cellulose material, including building materials, such as drywall or gypsum board, fiberboard, ceiling tiles, and wooden structures that are continually moist or water damaged, and when the humidity is in excess of 55 percent.
CDC reported in 1997 that significant exposure to Stachybotrys and other molds may have played a large role in the development of infant lung disease. Despite widespread claims and some studies that Stachybotrys produces potent toxins that affect the immune system and cause serious adverse effects on the central nervous system, upper and lower respiratory tract, eyes and skin, the American Industrial Hygiene Association states Stachybotrys "has been inconclusively associated with more severe health effects in some people."
The people most likely to be susceptible to the effects of mold are those with respiratory problems; those suffering from allergies, asthma or a compromised immune system; or the elderly or very young.
The presence of mold can be tested through surface testing (a bulk, swap or tape sample) or air samples. However, testing for mold generally is not recommended as a normal protocol because testing is not recognized as a reliable measurement of the amount of mold present or the amount to which people are exposed. The general rule is if mold can be seen or smelled, it is a concern and should be removed.
Lawsuits
Lawsuits seeking recovery for personal injury and/or property damage arising from the growth of interior mold usually fall into the following categories: first-party lawsuits by homeowners against their insurance carriers; claims by tenants or other building occupants against landlords, building owners and property managers; and lawsuits against construction contractors for building defects that allowed water entry.
Ballard v. Farmers Insurance Group was the lawsuit that galvanized attention to mold liability because of its award—$32.1 million—by a Texas jury against Farmers Insurance Group of Cos., Los Angeles. The lawsuit was brought by Melinda Ballard and her family against their homeowners insurance carrier for failure to cover repairs from water leaks, which allowed mold to overrun the Ballards' mansion. The jury found that the Ballards' insurance carrier had committed fraud and awarded $6.2 million in actual damages to replace the home and possessions, $12 million in punitive damages, $5 million for mental anguish and $8.9 million in attorney's fees.
The claim's origin was a bathroom plumbing leak that caused damage to hardwood floors. The Ballards' insurance carrier arranged and paid for replacement of the floors but allegedly ignored a warning from the flooring contractor that mold could grow in the subflooring. A year after the floor was removed, the family began coughing up blood and suffered from alleged neurological damage. Removal of Sheetrock revealed a coating of thick, black, gangrenous mold on the other side. Testing by a mold expert retained by the Ballards found pockets of mold. The Ballards abandoned their home and all possessions based on the advice of their mold expert.
The jury found that Farmers Insurance Group acted in bad faith in evaluating the Ballards' property damage claim; had engaged in unfair and deceptive acts; and had failed to appoint a competent, independent appraiser when initially evaluating the environmental concerns. The jury's verdict was upheld by the trial court and a $32 million judgment was entered in favor of the Ballards. The award did not include any personal injuries. The Ballards voluntarily dismissed their personal injury claims before trial based on a pretrial ruling of the judge not allowing medical testimony regarding one family member's health problems. They are expected to refile the personal injury claims after gathering more evidence, including epidemiological studies, to show a causal relationship between mold exposure and health problems.
Centex-Rooney Construction Co. Inc. v. Martin County was a 1996 Florida case that demonstrated the potential liability of construction contractors arising from mold growth in new commercial construction. Martin County, Fla., entered into a contract in 1987 with Centex-Rooney Construction Inc. Plantation, Fla., whereby Centex-Rooney would serve as the construction manager for a new courthouse and county office building.
Centex-Rooney Construction and its sureties issued performance and payment bonds. Centex-Rooney Construction assumed complete oversight and control, including selection of subcontractors and supervision, coordination, management and inspection of their work.
After completion and occupancy of the new courthouse complex, the county complained to Centex-Rooney Construction about window and exterior wall leaks, mold growth and excessive humidity. Centex-Rooney Construction acknowledged and documented water infiltration through the EIFS as a result of defective insulation, which led to leaks and mold growth. Investigations also indicated problems with the HVAC system. By December 1992, about 25 percent of the occupants had evacuated the building. The county hired an environmental firm and engineering consultant to identify causes of the indoor air-quality problems and analyze the HVAC system.
The county filed suit in October 1992 against Centex-Rooney Construction, its sureties, the architect, and concrete and masonry contractors for breach of contract and negligence alleging improper design and construction. Experts hired by the county conducted air and bulk sample testing that indicated significant presence of two toxic molds. Removal of moldy ceiling tiles, wallboards and carpet using hazardous-water disposal techniques was recommended. The building was evacuated, and a remediation contractor was hired to remove drywall and outer coverings in contaminated areas.
As the demolition proceeded, the county became aware of more construction defects, including absence of expansion joints in the EIFS; inadequate number and improper spacing of EIFS fasteners; severe rust and water damage of metal studs, fasteners and other building components; inadequate attachment of multistory glass curtain walls; numerous cuts in the curtain wall frames; improper window glass and frame installation; and drainage system defects.
The jury rendered a verdict of $11.55 million against Centex-Rooney Construction and its sureties in 1996. This amount was reduced by $2.75 million, which the county had received through pretrial settlements with the architect and others. The trial court judge entered judgment in the amount of $14,211,156, which included $8.8 million in damages and $5,411,156 in prejudgment interest.
Centex-Rooney Construction appealed. In upholding the jury's verdict and judgment entered by the trial court judge, the Florida 4th District Court of Appeals concluded that the county had provided sufficient evidence to show Centex-Rooney Construction's breach of contract was a substantial factor in causing the damages.
The appellate court referred to evidence that Centex-Rooney Construction's employees acknowledged its subcontractors' defective installation of the EIFS and windows led to extensive water infiltration and mold growth. The county was able to recover its costs to rebuild the building because it proved the purpose of the remediation was to remove the existing mold and prevent new mold growth.
Mondelli v. Kendel Homes Corp. involved a family in Nebraska. In 1991, the Mondellis entered into a purchase agreement with Kendel Homes Corp., Papillon, Neb., for a house. After moving into the house in April 1992, the Mondellis noticed water coming into the basement beneath the dining room and living room windows. Kendel Homes caulked the windowsills, but each time it rained, water appeared in the basement.
A Kendel Homes employee cut into a section of Sheetrock in the dining room and an upstairs bedroom and found the interior insulation was wet and had an odor. The Mondellis alleged that surface water and rainwater leaked through the exterior of the house and mold, fungi and airborne spores began growing in the exterior wall insulation and spaces between the interior and exterior walls. In June 1993, the Mondellis learned mold, fungi and spores had circulated throughout the house. The Mondellis subsequently filed suit and sought damages for injuries from exposure to mold spores and fungi that were present in their home as a result of construction defects.
After a nonjury trial, the trial court judge found the exterior walls were not properly weatherproofed as a result of Kendel Homes' failure to install water-resistant sheathing; flashings and weep holes were not properly installed; and mortar was not properly applied. These defects constituted a breach of an implied warranty that the house would be constructed in a workmanlike manner.
Kendel Homes was liable for breach of warranty and negligence in construction of the house. However, the Mondellis were unsuccessful with their personal injury claim because the trial court judge excluded their expert's testimony.
The Nebraska Supreme Court reversed the trial court's ruling and said the testimony of the plaintiff's expert should have been allowed.
In Searle v. City of New Rochelle, the residents of a one-bedroom house leased to them by the city of New Rochelle, N.Y., filed suit against the landlord and a roofing contractor to recover personal injuries resulting from toxic mold. The residents observed mold and mildew growth starting in fall 1995 and began experiencing health problems. Alleging the mold problem was exacerbated in 1996 when a new roof system was installed over the existing one, they also sued the roofing contractor.
The roofing contractor succeeded in obtaining a dismissal of the case. In upholding the dismissal, the New York appellate court said there was no evidence in the record that the roofing contractor knew about the condition that existed inside the home. There also was no evidence that the interior moisture problem was apparent from the exterior so as to have alerted the roofing contractor that installing a new roof system without removing the old roof system was dangerous. The court ruled the contractor could not be liable for negligence in installing a new roof system over the existing one.
Defending yourself
As is evident in the previously mentioned cases, construction contractors, designers and building owners face liability exposure related to mold. Contractors will be liable for defective construction that allowed moisture entry and use of wet construction materials. Claims against designers and engineers may be based on a design that allowed water entry, specified improper use of vapor retarders, specified materials that did not allow a building to breathe or failure to engineer an effective HVAC system. Owners will be liable for poor building maintenance, including failing to train employees to recognize fungal growth and treat it appropriately.
Just as with asbestos, you will need to manage, control and reduce risks posed by mold. (See "How to reduce your exposure") Of course, the most effective defense to a mold claim is ensuring a roof system is designed and constructed so it will not leak. Because the key to preventing mold growth is to act quickly once there is a leak, procedures need to be in place so repairs are made promptly and any resulting interior wet spots are cleaned, dried or replaced. If roof leaks are minimized and steps are taken to ensure resulting moisture is removed promptly, the likelihood of you facing liability for a mold claim is reduced substantially.
Because of the potential liability of building owners and property managers, you may find property managers now are more receptive to professional, comprehensive roof system maintenance programs. When developing maintenance programs, increase the frequency of on-site inspections from the customary twice per year and include below-deck inspections to look for signs of water entry. Rather than not incurring repair expenses until leaks occur, owners now may be much more interested in preventative maintenance.
But when undertaking maintenance and repair work, be careful not to expose yourself to unlimited liability. You don't want a $350 repair job to result in a $1 million lawsuit because the owner thought you were going to stop all future roof leaks. Contract terms used for maintenance and repair work are just as important as those in new and reroofing construction contracts. Before entering into a maintenance contract or agreeing to make repairs, educate owners that repairing existing leaks does not mean future leaks will not occur. Consider specifically disclaiming liability for future leaks and obtaining hold-harmless protection from claims against tenants and other building occupants.
To avoid liability, state clearly in proposals, contracts, maintenance agreements and warranties what is and is not covered. If you intend to exclude interior damages, including mold, contract and warranty documents should state unequivocally that your company is not liable in any respect for any damage to the building or any components or contents thereof, including mold, mildew or interruption in the use of the building or personal injury claims resulting from the alleged mold growth. To honor an obligation to repair leaks and reduce the likelihood of mold growth, you might include a provision requiring an owner to inspect ceilings periodically for signs of leakage and report leaks promptly.
Insurance coverage
The need for you to avoid liability for mold damage is more critical because of the lack of liability insurance coverage. As a result of mold claims, many current commercial general liability (CGL) insurance policies specifically exclude mold. Insurance carriers have adopted mold exclusions to reduce their losses with the hope that there might be fewer claims or the amount sought might decrease.
Before the policy forms that explicitly exclude mold claims existed, there was litigation concerning whether a pollution exclusion and other provisions barred coverage for mold claims. Courts were split in their views. Because mold results from water intrusion; is naturally occurring; and a pollutant is not released, discharged or dispersed by the insured, there is a strong argument that a pollution exclusion does not apply to mold claims.
For example, CNA Insurance Cos., Chicago; Crum & Foster, Morristown, N.J.; American Equity Insurance Co., Scottsdale, Ariz.; Lexington/AIG, New York; and Zurich North America, Schaumburg, Ill., have added specific mold exclusions to their CGL policies.
CNA added a mold exclusion endorsement, effective May 1, to its CGL and commercial umbrella policies. The CNA mold exclusion states insurance does not apply to bodily injury or property damage arising out of or relating to actual, alleged or threatened contact with, exposure to, existence of or growth of any "fungi" or "microbes." The exclusion also excludes any loss, cost or expense arising out of or relating to the testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, remediating, or in any way responding to or assessing the effects of fungi or microbes.
CNA defines fungi as any form of fungus, including yeast, mold, mildew, rust, smut or mushroom. This includes any spores, microtoxins, odors, substances, products or byproducts produced by fungi. Microbe is defined as any nonfungal microorganism or nonfungal, colony-form organism that causes infection or disease.
For property damage claims, CNA will determine what portion of a loss is and is not attributable to fungi or microbes. If a contractor disagrees, arbitration should take place to resolve the dispute.
The Insurance Services Office (ISO), which prepares standard policy language for insurance carriers, has promulgated a "Fungi or Bacteria Exclusion," which excludes bodily injury or property damage claims that would not have occurred, in whole or in part, except for the actual, alleged or threatened inhalation, exposure to or presence of any fungi or bacteria in a building. This is regardless of whether any other cause, event or material contributed concurrently to the injury or damage. The exclusion extends to any cost arising out of abating, testing, cleaning, removing, remediating, or in any way responding to or assessing the effects of fungi or bacteria. ISO defines fungi as any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or byproducts produced or released by fungi.
Homeowners insurance policies typically will cover mold if the mold develops as a result of a covered loss. Most lawsuits interpreting the traditional language contained in homeowners policies have concluded there is coverage if the mold resulted from a covered condition in the policy, such as a storm. However, if there is no identifiable source other than homeowner neglect or inadequate cleaning and mold cannot be traced to a covered peril, there is no coverage. Homeowners insurance policies generally provide coverage for mold if there is a direct physical loss unless there is a mold exclusion. For instance, if mold results from a burst pipe, there is coverage for the homeowner. However, if the mold results from high humidity or lack of maintenance, an exclusion applies.
Wrap-up
Mold claims will challenge roofing professionals in the immediate years ahead. Roofing contractors will be named as defendants in lawsuits seeking recovery for personal injury and property damage claims related to mold. Although roofing contractors have not yet been primary defendants in most mold lawsuits, if you ignore the risks posed by potential mold claims, you do so at your peril, particularly in the absence of insurance coverage.
Prompted by legal claims and the political climate, the scientific and medical community, as well as federal and state governments, will be paying more attention to mold. These efforts should result in better understanding of the health effects associated with concentrated quantities of mold in a closed environment and protocols to manage mold.
Your efforts should be focused on actions in the field and day-to-day operations to reduce the likelihood that roofing work causes mold growth. The operational efforts undertaken to reduce your liability exposure to mold claims should be coupled with thoughtful use of contract provisions to reduce potential liability exposure.
The current legal climate relating to mold may present an opportunity for you to develop new and closer relationships with homeowners, building owners and property managers. A prudent owner should welcome an alliance with a roofing contractor to prove there is no ground for a claim against either as a result of poor roof system maintenance or roof conditions.
Stephen M. Phillips is a partner with the law firm Hendrick, Phillips, Salzman & Flatt, Atlanta.
Although you cannot control whether you will be subject to a mold claim, there are steps you can take to reduce its likelihood. Consider the following ways to reduce liability exposure:
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