Homeowners, insurers spar over spores in toxic-mold cases.

The insurance industry has a mold problem. In June, a Texas jury awarded substantial damages to a couple who sued their insurer over a bathroom plumbing leak that mushroomed into a toxic-mold infestation. (Ballard v. Fire Insurance Exchange, No. 99-05252 (Tex., Travis County Dist. Ct. June 1, 2001).) It is just one of many cases.

The plaintiffs, Melinda Ballard and her husband, Ron Allison, alleged that they and their then three-year-old son suffered serious health problems--including bleeding lungs, neurological damage, asthma, and fatigue--caused by mold that grew in their home. They claimed that the problem arose because their insurance company mishandled a plumbing claim.

Soon after Ballard and Allison had a leak repaired in their home in Dripping Springs, Texas, they noticed that their hardwood floors had buckled. They filed a claim with Fire Insurance Exchange, a subsidiary of Farmers Insurance Group. A contractor told the insurer that mold could grow in the subfloor, which had been damaged by the plumbing leak, and that it should be replaced.

Farmers didn't pay the claim. The mold spread throughout the 11,500-square-foot home, and the family's health deteriorated. Farmers eventually offered a settlement that, if accepted, would not have covered the cost of repairs.

Ballard and Allison hired an air-quality company that detected severe toxic-mold contamination and urged them to leave their home immediately. It would have to be decontaminated, razed, and rebuilt. The couple alerted Farmers to the findings. Again, the insurer did nothing to remedy the problem.

The homeowners filed suit, claiming that the insurance company acted fraudulently in dealing with the leak and the mold damage. A jury awarded compensatory damages for the economic loss and mental anguish, plus punitive damages. Farmers may appeal.

Attorney Jason Coomer of Austin, Texas, who handles mold claims, said insurers try to fix such problems cheaply or they delay, allowing extensive damage to occur. "They'll hire contractors who are not qualified to fix the particular problem. They'll have the damage patched but not repaired. They'll delay paying a claim with the hope that the homeowner will grow frustrated and stop pursuing it," he said.

Throngs of homeowners nationwide are filing claims seeking payment for repairs to their mold-contaminated homes. Most homeowner policies cover mold damage if it results from a problem the policy already covers, like burst pipes or a leaky roof. Mold caused by flood damage is covered only if a homeowner has a separate flood insurance policy.

Homebuilders are also turning to insurers. Some owners are suing builders, too, alleging that shoddy construction led to the growth of toxic mold.

Some insurance companies are seeking to eliminate mold coverage from homeowner policies altogether. The Texas Department of Insurance is holding hearings on the issue, at the request of insurers after the Ballard verdict.

Coomer, who attended a hearing in Austin, said, "There's public outcry against the exclusion. A lot of the mold problems relate to insurance companies' not dealing with water problems correctly. If they had dealt with them appropriately, then so many homeowners wouldn't have had to submit so many claims."

Farmers has dropped mold-damage coverage in at least 30 of the 41 states it serves, including California, Louisiana, Maine, and Wisconsin. It seeks to do so in the remaining states, claiming that offering mold insurance as a separate policy will prevent all homeowners' premiums from increasing.

Robert Meyers, executive vice president of business development for GAB Robins North America, Inc., an independent loss-adjustment and claims-investigation firm, predicts that toxic-mold litigation will lead more insurers to seek to exclude coverage.

Why is toxic mold such a problem? The Mayo Clinic in Rochester, Minnesota, blames in door toxic-mold growth on today's tightly sealed and insulated homes, which keep drafts out but trap moisture in. The Environmental Protection Agency agrees, noting that some moisture problems have been linked to changes in building construction practices that began in the 1970s.

Many building materials provide environments suitable for mold growth, according to the National Center for Environmental Health, an arm of the Centers for Disease Control and Prevention. Among those materials are cardboard, carpet, ceiling tiles, drywall, insulation, paint, plasterboard, plywood, wallpaper, and wood products.

What's more, the federal government has set no standards for permissible levels of mold. In June, however, the California senate approved a bill that would do just that, as well as require home sellers to disclose mold problems. The Texas legislature is also considering bills that would address air-quality issues, including mold, in schools and public buildings.

The fungus among us

Mold is everywhere, and it's as old as dirt. According to the Center for Immune, Environmental, and Toxic Disorders in Houston, there are over 100,000 species of mold, about three dozen of which affect human health.

The toxic effects of the mold involved in cases like Ballard--a slimy or fuzzy, blackish-green fungus called stachybotrys--was reported as early as the 1920s, according to the center. It also notes that a 1986 study determined that the mold is commonly found in homes with water damage, grows undetected behind walls, and thrives on plaster wallboard.

A 1990 report by the American Lung Association and the U.S. Consumer Product Safety Commission found that one-third to one-half of all structures have damp conditions, which may encourage the growth of mold that can cause allergic reactions and spread infectious diseases in those exposed to it.

Moisture that spawns mold in homes may come from leaky roofs, pipes, and walls; potted plants; poorly vented appliances; and landscaping or gutters that direct water into or under the building. Mold spores germinate when the relative humidity indoors exceeds 70 percent and the temperature rises above 65 degrees, according to the Federal Emergency Management Agency. The problem is exacerbated if the moisture goes undiscovered or unaddressed.

And that's the danger.

Some medical experts say that as certain molds, including stachybotrys, multiply, they release toxins that can cause serious health problems. Mold can harm the gastrointestinal system, immune system, nervous system, respiratory system, and skin, reports the Houston center. Health problems range from headaches and irritated eyes to fibromyalgia; lung damage; and cancer of the esophagus, liver, and kidneys. People who have allergies, compromised immune systems, or lung disease are most at risk, as are infants and pregnant women.

Taking mold to court

While the number of cases has recently burgeoned, mold litigation is not new to court dockets.

* More than three years ago, the Florida District Court of Appeals affirmed a verdict for the plaintiff in a case alleging that construction defects in the Martin County courthouse caused moisture problems, resulting in extensive mold growth. The county sued the construction company for breach of contract. Most important, the court determined that expert testimony linking mold exposure to health problems was admissible at trial. (Centex-Rooney Construction Co., Inc. v. Martin County, 706 So. 2d 20 (Fla. Dist. Ct. App., 1997).)

* More than two years ago, the Delaware Superior Court affirmed a jury's verdict for the plaintiffs in a case alleging that a landlord's failure to properly and promptly repair leaks led to tenants' mold-related health problems. (Stroot v. New Haverford Partnership, No. 95C-05-074-HLA, 1999 WL 753916 (Del. Super. Ct. May 11, 1999).)

* A year ago, a jury in Fairfax County, Virginia, found a construction company liable for mold that contaminated at least 21 homes in a subdivision. The plaintiffs alleged that the company had misled them into thinking that it had used real stucco--a mix of cement, sand, and lime--on the exterior of the home. Instead, it had used synthetic stucco, a layering of foam, fiberglass mesh, and acrylic finish that allows water to seep into walls, decay wood, and foster the growth of mold.

The jury found that the defendant committed fraud by misrepresenting the stucco, violated a state consumer protection act, and breached its sales contract. (Maday v. Toll Brothers, Inc., No. 184844 (Va., Fairfax County Cir. Ct. Sept. 29, 2000).)

* This summer, another Fairfax County jury awarded damages to plaintiffs in a similar case. (Stafford v. Country Developers, No. 181455 (Va., Fairfax County Cir. Ct. July 18, 2001).)

As with all personal injury litigation, there are clear-cut mold cases and challenging ones.

Attorney Beverly Salhanick of Las Vegas represents a woman whose mobile home was plagued by toxic mold. "A good case obviously is one where the causation is clear," Salhanick said. Her client lived alone, so only she was exposed to the mold. "The defense can't combat her case with the 'How come nobody else got sick?' argument," she said.

If a plaintiff can prove that he or she has been exposed to toxic mold, the next burden of proof is linking the mold to health problems. Texas attorney Coomer said, "It is pretty well established that mold may cause allergic reactions. But can it compromise the immune system to the point that the plaintiff suffers from chronic bronchitis? Few scientific studies show how harmful toxic mold can be."

Many judges refuse to admit what scientific evidence there is. "You have to remember," Coomer said, "how long did it take to prove that smoking causes lung cancer? How long did it take to link asbestos with mesothelioma? A long time. And even now there is science that will dispute it."

He warned, "The defense may argue that the symptoms are very common, that they can be caused by a number of factors. They will ask how plaintiffs know that the symptoms are related to the mold in their homes."

Plaintiff attorneys can meet the defense. How? "Prove it," Salhanick said. "Prove that there is a real finding that, yes, there was mold. Prove that there was clear exposure. What illnesses did the plaintiff suffer? What is in the plaintiffs medical records?"

Plaintiffs need to show that their symptoms surfaced soon after they moved into the home, Coomer said, and that their health improved when they left.

The battle in third-party claims against landlords, maintenance companies, and homebuilders is similar to that in first-party claims. "The defense may say, 'No other tenants are ill. Why is your client the only one who is sick?'" Coomer said. Attorneys should interview previous tenants, he explained, to find out if they suffered through the lease and moved when it expired, leaving the problem unaddressed.

The problem with suing a homebuilder is that only a few stay in business year after year. "A lot of companies are created during an economic boom," Coomer said. "When the economy declines, many go belly-up, and the contractors disappear. There's nobody to sue."

Such is the case for Salhanick's client. She moved out of the mobile home and into a trailer, but many household items were tainted with mold and contaminated the trailer.

The woman is now making payments on two homes that she can't live in, Salhanick said. "She will not be able to eventually rent out the mobile home, as she planned. She's too short on funds to build her dream home. She doesn't have her health. Her insurance policy excludes mold contamination, and the mobile home dealer has closed up shop. My client is hitting walls at every turn."