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The four-letter threat: insurers are applying the experience they've gained from handling mold claims to abate costs and prevent future payouts. (Mold: Property/Casualty).

With almost two years of mold claims experience behind them, insurance and legal experts spoke at a recent mold symposium in San Antonio about the lessons they've learned. The more than 450 attendees of the Property Loss Research Bureau's National Mold Symposium II in May heard speakers take on the myths concerning mold and its effects on health and address the future legal battles centering on subrogation and pollution exclusion clauses in policies.

In addition to the repeated messages to address all water claims quickly and to subrogate mold claims, attendees were told that the current mold crisis isn't anything like the asbestos litigation morass.

Asbestos is sold as a product by a manufacturer that has liability issues, while mold is made by nature and its growth is based on negligence, said Joseph A. Gerber, a senior partner with the law firm Cozen O'Connor. The health problems from asbestos are much more serious, including asbestosis and lung scarring, than those caused by mold, which can trigger dizziness and headaches.

Legal Issues

W. Lane Neilson advised insurers to avoid lawsuits caused by bad faith, a situation in which an insurer unreasonably withholds or delays payment of benefits due under the policy. Not only is this type of lawsuit a tricky bullet to dodge, but juries usually decide whether bad faith occurred, Neilson said.

Attendees also were advised to check whether mold claims stem from covered losses and commenced during the policy period. Neilson related a case in which condominium owners made a mold claim to their insurer. Simply by investigating maintenance records and talking with the maintenance crew, his firm was able to determine that the water problem existed before his clients provided coverage.

Instead of being stung by bad-faith cases, Neilson urged insurers to make good-faith moves, such as warning insureds of possible health problems and communicating promptly in writing of the insured's duties after a loss. Insurers also should consider relocating the insureds during the repair-and-remediation period, especially people at high risk of physical injury, such as infants, the elderly, severe allergy sufferers and people with suppressed immune systems, he advised.

"It's easier to spend a little money up front than a fortune down the road," Neilson said.

Mark Vespole, of the law firm Tressler, Soderstrom, Maloney & Priess, warned insurers that the mantra of the plaintiffs bar is "mold is gold" and to make sure that doesn't happen. To accomplish this, Vespole advised the industry not to refer to mold as toxic during the court session in health-related lawsuits. "You're playing into the hands of the plaintiffs' bar with that wording," Vespole said, noting that a jury could begin to associate mold with other toxic substances such as asbestos. Evidence that is gathered also must be preserved properly, he cautioned, in case the plaintiffs' experts want to examine it. Especially after investing a lot of money on experts, defendants don't want evidence thrown out on grounds of spoliation, Vespole said.

Using the existing pollution exclusion in insurance policies to fight first-party and third-party mold claims is an uphill battle, according to attorney Jacqueline Jauregui of the Los Angeles law firm Crosby Heafey, Roach & May. Since case law seldom addresses mold, parties are forced to refer to past court rulings on the pollution exclusion to get an idea of how the bench will respond to interpreting mold as a pollutant. The Insurance Services Office Inc.'s absolute pollution exclusion in standard commercial general-liability contracts contains the wording "damage arising out of discharge, dispersal, seepage, migration, release or escape of pollutants," she said.

ISO refers to pollutants as any solid, liquid, gaseous or other thermal irritant or contaminant including smoke, vapor, fumes, acids, alkalis, chemical and waste. Jauregui said the problems arise when courts interpret the definition of pollutant.

Jauregui said the best bet is to tie mold to the word "pollutant" in the pollution exclusion, because that is how it's referred to and perceived in the media.


Product defects, inadequate design and bad construction are all potential reasons to pursue subrogation in mold claims. William Marx, southern property supervisor with Chubb Corp., said the insurance industry is in a crisis situation, with four of the five largest Texas writers having 39,000 active mold claims and one insurer reporting spending $1 million a week on independent adjuster expenses. Attorney Joann Selleck, a partner with Cozen O'Connor, said insurers need to use subrogation to recoup the money flowing out to handle these claims.

Marx reviewed areas of potential subrogation claims--namely indoor, systemic events and outside sources. Illustrating the insidiousness of water claims, Marx reviewed a mold claim he handled that stemmed from a leaking toilet. The self-cleaning toilet was designed with a faulty piece that shot a fine stream of water against the top of the toilet bowl, which then leaked and drained down the bowl in a fine, unnoticeable stream that led to water damage and a mold claim. "It was time that caused the mold claim, but the manufacturer of the unit could be a case of potential subrogation," he said.

In systemic events, the loss isn't localized, but rather runs throughout the building. Marx used the example of a defective heating-ventilation-air-conditioning system that created an improper balance between the thermal control, filtration and humidity systems. In the moist environment, mold grew in the home. "Air-conditioning systems have been identified as breeding grounds and problematic," Marx said.

Marx also pointed to potential liability for interior decorators in mold claims when vinyl wallcovering is applied to a "wet wall." A wet wall is the wall where pipes are located, Marx said when the wall covering is applied on the interior wall, it can create a humid environment for mold to grow. "Should interior designers know this? It's another potential source, something we're thinking about," Marx said.

When looking for liability, Selleck urged attendees to realize that the adjuster is the eyes and ears at the scene and should document everything. Their checklist includes the following: interview and note witnesses and potential witnesses; obtain contract documents and identify and obtain insurance information on those potentially liable; and determine who hired the workers and what they were asked to do.

Debunking Health Risks

One of the biggest misconceptions is that toxic mold exists in the first place, said Dr. Ronald E. Gots, a physician and toxicologist. "The term 'toxic mold' makes no sense; almost all molds can make toxins. There is no such thing as a toxic mold," Gots said.

Gots said a mold-management dilemma is brewing among the public, the insurance industry and the medical community. The public is overcome with fear of mold, and alarmist physicians have raised the issue to a fever pitch, he said.

"Some people are scaring folks and profiting from it," said Gots, who cut his teeth on the subject of mold 20 years ago handling a health claim from mold occurring in a Florida courthouse. Today, he is a principal with the International Center for Toxicology and Medicine.

On the other side of the debate stand some insurers and providers who deny the mold problem even exists, said Gots, who advises that the middle ground is the proper response--using a medicine-based, sensitive response to a worried public.

Misinformation about how mold is tied to health is also rampant, Gots said. This began with the Centers for Disease Control's 1994 study tying bleeding lungs in infants with the presence of stachybotrys mold in their homes. Despite the fact that the CDC retracted the study in 2000, its conclusion began a geometrical progression of reports linking mold and health issues, Gots said.

Debunking the popular belief that molds are harmful, Gots pointed out that they make up 25% of all living creatures and live in the soil, trees, plants and grains. Although about 15% to 20% of people are allergic to molds, they are allergic to other substances--such as animal dander and pollen--as well. Molds also can cause other medical ailments such as infections under nails and athlete's foot, but toxicity occurs only in high doses and is rare, he said.

RELATED ARTICLE: Uncovering Mold Myths

Insurers are using their newfound knowledge to expose myths and to begin spreading scientific facts about mold, especially during the costly remediation part of a claim.

Douglas Rice, the laboratory director of environmental health services for Colorado State University, said the common belief that dead mold is as nasty as living mold is untrue. This is an important myth to explode when handling remediation of a mold claim, which can cost insurers thousands of dollars, he said. In an experiment, Rice, a mycologist, challenged the viability of stachybotrys, a toxic form of mold, by growing about 25,000 spores per square inch on a substance and then allowing it to dry. "Mold doesn't live forever--it dies as days go on," Rice said.

Another myth is that all mold spores must be removed during the remediation of a claim, Rice said. Rice commented that people are looking for sterility, an impossibility in life on Earth, because mold spores exist in every environment. "Mold spores exist in carpeting and clothing. It's impossible to get all mold spores out. As soon as you open the door, it will come in." Rice said.

To illustrate how ubiquitous mold spores are in the environment, Rice measured the amount of mold spores in a popular blue cheese dressing and joked that its high numbers should qualify it to be listed on the contents label.

Rice also attacked the idea that all duct work in a mold claim must be cleaned or demolished during remediation. He explained that for mold to be present in duct work, it has to grow in proximity to it. "Mold has no mobility--it's looking for food and water. If it appears on a wall far from duct work, it can't get in there," he said.

To prove that mold exists in a multitude of surfaces and environments people use every day, Rice conducted a study and measured mold spores on new and used carpeting and furniture as well as in hotel rooms. He found that mold exists even in new leather and cloth-upholstered furniture and on hard surfaces such as tables, although in low counts per square centimeter. The mold counts were higher in used furniture and carpeting, scoring an average of 2.51 fungal population (spores per square centimeter) on used upholstered furniture and 3.21 in used carpeting. Rice measured an average count of 6.53 fungal population on bedspreads in an average hotel room and 1.33 on hard surfaces, "like the desk you put your laptop on," he said.

After the remediation of a mold claim, some say it's important to conduct a clearance sampling to make sure no mold spores remain. Rice said that's another myth, because it's not even required by the Environmental Protection Agency, and numbers vary from season to season, so absolute numbers are unrealistic.
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Comment:The four-letter threat: insurers are applying the experience they've gained from handling mold claims to abate costs and prevent future payouts. (Mold: Property/Casualty).
Author:Goch, Lynna
Publication:Best's Review
Geographic Code:1USA
Date:Jul 1, 2002
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