Beyond sick building syndrome: mold litigation enters the main stream: Mold; a superficial, often wooly growth, found especially on damp or decaying matter or on living organisms. (Cover Story).
Although it affects a broad range of concerns for risk managers, from damage claims to workers' compensation, this frenzy has created an instant insurance industry crisis. The major reason toxic mold has become one of the hottest topics in the insurance industry is the usual reason: money, in the form of multimillion dollar judgments against insurers.
The flagship case is Ballard vs. Fire Insurance Exchange. In June 2001, a Texas jury found in favor of the plaintiffs and awarded $32 million, including $12 million in punitive damages and $8.9 million in legal fees. According to Alexander Robertson, the California attorney representing the Ballards, the jury found bad faith, concluding that the insurance company, a subsidiary of Farmer's Insurance Group, had fraudulently and intentionally held back vital information from the insured after discovering Stachybotrys, a mold that produces mycotoxins. When inhaled, these mycotoxins can cause nosebleeds, cold symptoms, headaches and pulmonary infections. The jury held that the adjuster owed a duty to inform the insured of the presence of toxic mold.
Although the Fire Insurance case is presently under appeal, it represents a harbinger of change in the way that risk managers must examine their approach to mitigation, as well as their coverage polices with many insurance companies, because toxic mold litigation is by no means limited to residential cases. Construction defect suits and litigation stemming from mold contamination are among the fastest growing areas of tort litigation. Defendants include contractors, subcontractors, landlords, property managers, construction managers, architects, building owners and construction component suppliers. Millions of dollars have already been awarded in remediation claims.
The Uncertain Costs
Quantifying the precise number of mold-related claims pending or the projected costs is difficult. Mold claims are often the result of other more easily defined and covered perils, such as water damage or a construction defect.
The 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.
Several 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.
More 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 control.
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 accelerating.
Hundreds of 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.
He 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 in 1997.
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 managers:
1) Develop 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.
2) Learn 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.
3) Develop 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.
4) Develop fast-track education on mold litigation issues. Web sites such as 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.
5) Develop 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:
(a) directs the Department of Health Services to adopt permissible exposure limits for mold in indoor environments.
(b) directs the Department of Health Services to adopt mold identification standards for the environmental assessment of molds in indoor environments.
(c) directs the Department of Health Services to adopt mold remediation.
Just the Beginning
Overcoming 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.
If 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 may not be covered by existing policies.
Defining Toxic Mold
Although mold is more prevalent in cold, damp climates and tends to grow in dark, interior spaces, it can begin to grow on construction materials within twenty-four to forty-eight hours following water damage and can expand exponentially as it uses the building materials as its food source. Natural disasters like floods and storms or accidents such as burst pipes, sewage leaks or dripping roofs can act as a source of growth.
Mold spores can enter a building through open doorways, windows, and heating, ventilation and air conditioning systems. Spores can also attach themselves to people and animals, making clothing, shoes, bags and pets common means of transport.
But there are other factors--such as faulty building design, construction, inspection, commissioning, operations and maintenance--that if proved to be the cause of mold could mean virtually unlimited litigation possibilities.
The health hazard molds that insurance inspectors wince at and trial lawyers capitalize on are Stachybotrys, Penicillium, Aspergillus, Alternaria, Aarimonium, Memnoniella and Chaetomium--even though the exact relationship between these airborne toxic mold spores and adverse health effects is still unclear.
Experts disagree on the exact impact of molds on people's health because individual sensitivity to mold is different and will vary according to what allergies or irritations develop, the response of the host's immune system and the geographic region where the mold occurs. Potential effects include respiratory ailments, skin rashes, headaches, memory loss, coughing up blood and nausea.
Experts do agree that more research needs to be done to determine the toxic effects of mold, but at the time of this writing there are no national industry standards on acceptable exposure to mold.
Until these standards are achieved, private outside sources will have to be relied upon. Michael Thompson, chief executive officer of Engineering and Fire Investigations (EFI), a Houston-based subsidiary of GAB Robins, says that his company has a newly formed unit to address the mold investigation needs of insurance carriers, self-insured entities and businesses.
They are able to conduct building inspections, diagnostic sampling and data interpretation that identifies and quantifies mold growth, assesses the potential health risks, makes remedial recommendations and conducts clearance testing. The unit, headed by Michael Tillman, director of laboratory services, was formed in the spring of 2001 and consists of a team of engineers, toxicologists and mold specialists, including twenty-five microbiologists.
According to experts at EFI, "Stachybotrys appears as a sooty black mold that requires constant moisture and cellulose rich materials (e.g., sheet rock, ceiling tiles, wallpaper) for growth. Typically under active growth, the spores of Stachybotrys adhere to one another in a sticky sac, making aerosol sampling difficult. However, when a contaminated surface has dried for an extended period of time, the sticky sac desiccates and the spores are released more readily.
"Penicillium, a mold commonly found outdoors in temperate soils or indoors on carpets, wallpaper and interior fiberglass duct insulation, produces mycotoxins that can cause kidney damage. Some species of mold are reported to be allergenic to hypersensitive individuals. Aspergillus grows on moldy corn and peanuts and can be found indoors on water-damaged carpets and building materials. Some species of Aspergillus produce alflatoxins that are carcinogenic food toxins. This mold can also result in disease via inhalation called aspergillosis."
In 1994, the Centers for Disease Control (CDC) conducted a study in Cleveland on a small group of infants suffering from unexplained bleeding in their lungs. Most of the infants lived in homes with water damage and where the Stachybotrys mold was present. The CDC concluded that the there was a connection between mold, tobacco smoke and the infants "acute idiopathic pulmonary hemorrhage" (AIPH). As a result of the CDC findings, local and state governments invested millions of dollars to clean up mold in the homes of AIPH and asthmatic children and also notified pediatricians to monitor the mold exposure of children under one year old.
In March 2000, the CDC recanted the study and said that the available evidence did not support the associating epidemiological associations between household water, household fungi and AIPH or any inferences regarding causality. But with the amount of litigation and class action suits growing daily, further studies and research is underway, with much more still to be learned.
Toxic Mold Resources
Guidelines on Assessment and Remediation of Fungi in Indoor Environments New York City Department of Health Bureau of Environmental and Occupational Disease Epidemiology www.ci.nyc.ny.us/html/doh/html/epi/moldrpt1.html
"Mold & Mildew: A Creeping Catastrophe" by Everette L. Herndon Jr. and Chin S. Yang Claims Magazine, August 2000 www.claimsmag.com/Issues/aug00/mold.asp
"Mold in the Workplace" www.jobjournal.com/mold/
"Hazardous Times" General Cologne RE October 2000 www.facworld.com/FacWorld.nsf/doc/Polltoxmo2/$file/HTMold2.pdf
Contamination: Toxic Tort and Property Claims Mealey's Coverage 1995 - 2000 www.mealeys.com/specialreports.html#MOLD
Conferences and Industry Contacts
National Mold Litigation Conference November 12 - 13, 2001 Ritz Carlton Hotel West Palm Beach, FL www.mealeys.com/sem_agen.html#mold3
Emerging Trends Series: Mold American Insurance Association November 8 - 9, 2001 Omni Shoreham Hotel Washington, DC * www.aiadc.org
National Association of Independent Insurers Dave Golden, Co-Chair, Mold Task Force Director of Commercial Lines 2600 Des Plaines, IL 60018 847.297.7800 * www.naii.org
American Insurance Association 1130 Connecticut Ave. NW Suite 1000 Washington, DC 20036 202.828.7100 * www.aiadc.org
Ann Deering ("Beyond Sick Building Syndrome: Toxic Mold Litigation Enters the Main Stream," p. 12) is a Santa Monica, California-based management consultant and writer specializing in energy and environmental issues. She has a twenty-year background in the insurance industry. Her last feature for RM (May 2001) was "The Expanding Energy Crisis." (firstname.lastname@example.org)
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|Title Annotation:||health aspects of mold, economic aspects of insurance industry|
|Comment:||Beyond sick building syndrome: mold litigation enters the main stream: Mold; a superficial, often wooly growth, found especially on damp or decaying matter or on living organisms. (Cover Story).(health aspects of mold, economic aspects of insurance industry)(Cover Story)|
|Article Type:||Cover Story|
|Date:||Nov 1, 2001|
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