Toxic mold coverage tightens. (Insurance).

You've no doubt heard about "sick building syndrome." There's another, related worry these days for companies--toxic mold. More than 10,000 new cases have been reported in the U.S. and Canada in the past few years.

Escalating and often unpredictable costs of testing for and remediating toxic mold conditions, as well as the potential liability associated with their presence, represent financial exposures the insurance industry is becoming unwilling to assume. And while financial executives might think their company has no mold exposure, attorney David Anderson advises them to think again. While most mold claims are leveled against designers, contractors and others whose allegedly poor workmanship contributed to the damp conditions that promote mold, others have been targeted.

Anderson, senior counsel at Risk International Services, a Houston-based risk management consulting firm, cautions that building owners and even tenants could face mold claims if it is alleged that their negligence contributed to mold conditions, or that they knew about a problem and failed to adequately address it.

"Mold exposure is something large corporate clients have to consider in the overall scope of their risk management planning," says Alan Bressler, senior vice president in the environmental practice at the Atlanta office of Marsh Inc. High-profile and high-dollar mold claim awards have prompted insurers to act. The result, he says, is that available coverage is limited.

Bressler reports that many commercial property forms contain exclusionary language that precludes coverage for loss or damage caused by, or resulting from, a variety of culprits, including "fungus." Another, more recently seen exclusion precludes coverage if mold damage is the result of continuous or repeated seepage or leaking of water occurring over 14 days or more. Such exclusions have enabled commercial property insurers to rein in their exposure even further, Bressler points out.

Likewise, commercial general liability (CGL) insurers are moving to limit their potential exposure, reports Bill Wilson, director of the Big "I" Virtual University, an online education facility operated by the Alexandria, Va.-based Independent Insurance Agents & Brokers of America. While many CGL insurers had previously been silent on the mold issue, relying on the policy's pollution exclusion, this rationale has often proven faulty, notes Wilson; courts have frequently determined that mold is not a pollutant as defined by the CGL firm.

Many CGL insurers, he says, are attaching some sort of exclusionary language or limitations, and even if the insured can get coverage, "it's no longer at the limits they're used to. The feeling among insurers is that there is significant loss potential."

Insurance experts anticipate that many corporate clients will look to specialty environmental insurers for mold coverage. Yet challenges to obtaining adequate coverage are emerging here, as well. In a March 2002 "Risk Alert" published by Marsh, "Toxic Mold Losses Grow Into Billion-Dollar Problem," pollution underwriters express concerns and add mold exclusions to their policies. And, even when pollution policies lack such exclusions, the report warns, that "does not guarantee coverage for losses due to mold. Insureds must still obtain clear language to affirm coverage."

While future trends for mold claims are unclear, some experts say mold exposure is unlikely to explode with the same intensity as did the issue of, say, asbestos-riddled buildings. Alan Eagle, a partner at the Uniondale, N.Y., law firm of Rivkin Radler LLP, notes that claims of causation--linking the presence of mold to the injuries alleged--have not been scientifically proven. Eagle is confident that the defense bar will prevail on many toxic mold lawsuits, diminishing the economic incentive to file such claims in the first place, and predicts that claims will wane.

In the meantime, financial executives should work closely with their broker to secure even limited insurance protection. If they can demonstrate sound preventive and monitoring procedures with respect to mold, they are more likely to be successful.

Yet the bottom line, stresses Eagle, is that the suspected presence of mold must be addressed proactively and candidly to prevent a manageable claim from mushrooming into a financial and public relations nightmare. He advises financial executives to be "careful, responsible, and, to the extent that you face a mold problem, deal with it sooner rather than later."

Barbara Morris is a freelance business writer in Oakland, N.J. She can be reached at 201.337.7046.