A. Types of Claims Being Brought and Types of Damages Available
1. Background
Over the last few years, toxic mold litigation has become a hot issue. It has generated enormous public attention and has sparked a media frenzy. Toxic mold has been featured in such publications as The New York Times Magazine, The Washington Post, The Boston Globe, and The Boston Herald, to name a few. It has also been covered on television programs such as 48 Hours, The Today Show, 60 Minutes, Dateline, and NOVA. Toxic mold has even infiltrated Hollywood. Celebrities, like Ed McMahon and the real-life Erin Brockovich have filed mold claims.
More locally, some of you may have heard of the toxic mold case in Abington, Massachusetts that involved a family, who lost their 6-month child to bacterial meningitis in 1996.[1] This family moved into a home they purchased in 1994, and shortly thereafter each family member became sick.[2] They developed rashes, bacterial infections, and other immunity-related problems.[3] After having their house inspected by a lab, they discovered that the basement under an addition to the house, was rampant with toxic mold.[4] The problems this family faced culminated with the death of their six month old son.[5] Although they couldn't prove that toxic mold caused the death of their son, there are studies linking sudden death in infants to toxic mold.[6] The family has since had the house torn down and have built a new house.[7]
All of the public attention given to mold claims is not surprising, considering that the most recent statistic puts the number of mold claims filed nationwide in the 10,000 range.[8] The majority of these claims have been filed in the south and west, in states like California, Florida and Texas, where the climate provides a viable habitat for mold. In fact, as of 2002, statistics show that 70% of the country's mold claims were filed in Texas.[9]
Of the 10,000 claims filed, they are broken down roughly as follows: 2000 claims were filed against landlords, building owners and/or property managers for improper property maintenance; 2000 of the claims were filed against contractors and other tradesmen for construction defects; 5000 claims were filed against insurance companies for bad faith; and 1000 claims were filed against home-sellers for failing to disclose mold's presence in the sale of property.[10]
Additional claims that are brought, though less frequently, include constructive eviction, worker's compensation, professional malpractice, strict liability and violations of the Unfair Competition Act.[11]
Mold is not a new phenomenon. However, "mold claims" have increased dramatically in the past few years. The major reasons to explain this include:
1) Energy efficient construction techniques used in the 1970's. These techniques cause moisture to be trapped inside the building structure and lead to poor indoor air ventilation. These problems are exacerbated by central heat and air-conditioning that was installed during this period.
2) The use of construction materials that are more susceptible to mold growth;
3) Lower quality construction work done by less experienced contractors. This is the result of the construction "boom," this country has experienced over the last ten years;
4) High profile media attention; and
5) Aggressive legal action.[12]
2. Claims Against Property Owners, Landlords and Managers:
Mold claims brought by those who lease commercial and residential premises have been increasing in recent years. Most of these claims are based on negligence.
Property owners and managers have a common law and/or statutory duty to keep the property in good repair.[13] They also have a common law duty to maintain the indoor air quality. Other related claims include breach of contract, breach of the implied warranty of habitability or the covenant of quiet enjoyment, and constructive eviction. Employees working in commercial buildings have even brought cases under the American with Disabilities Act, seeking reasonable accommodations.[14]
Older buildings, including low-income apartment complexes, are frequently targeted by this type of litigation.[15] This is because the plumbing and mechanical systems are often out-dated and have not been properly maintained.[16]
Air quality claims also make up a large number of suits directed at property owners and managers. This type of claim has generated much public attention in recent years. Claimants typically allege that managers and owners of private buildings and public facilities, such as schools, courthouses, or hospitals, have negligently maintained the indoor air quality.[17] The resulting injuries, termed, "Sick Building Syndrome," include burning eyes, nose and throat; sinusitis; dry skin; nausea; headaches; fatigue; mental confusion; and rashes.[18] Claims against hospitals, though less publicized, are particularly worthy of note because of the immune-compromised patients that can be affected.[19]
Plaintiffs may encounter some difficulties in the prosecution of air quality claims because neither the federal government nor any state has set minimum threshold levels for toxic mold exposure.[20] It is important to note, however, that California is currently in the process of establishing a threshold level for toxic mold exposure.[21] There is also pending legislation in a number of states to study the health effects of indoor toxic mold exposure.[22]
The current lack of government standards related to indoor levels of toxic mold presents causation difficulties for plaintiffs making this type of claim.[23] Currently, there is not enough reliable research that exists concerning the health effects of mold exposure, and the exposure levels that cause disease.[24] Therefore, the issue of causation often becomes a battle of experts, who argue whether the level of toxic mold in the indoor environment was high enough to have caused the plaintiff's injuries, and whether toxic mold caused the plaintiffs' injuries at all. While there are a number of studies that link mold to health problems, most deal only with less life-threatening health effects, such as allergies.[25] There is also evidence that mold does not affect all individuals the same, and that those who are suffer from allergies or other disease affecting the immune system, are more susceptible to mold-related illness.[26] The result of this is that, "[E]ach person's physical idiosyncrasies, genetic make-up, and medical history make the determination of individual causation close to impossible."[27]
Claimants can recover a number of types of damages in mold-related claims. These include damages for personal injuries, property damage, investigation costs, including testing and monitoring, remediation clean up costs, relocation costs, medical expenses, loss of rent, contract damages, reconstruction costs, loss of use, business interruption, loss of wages, and impaired earning capacity.[28]
A sampling of cases is illustrated below:
1) Residential Lease: In 2001, the Delaware Supreme Court upheld a one-million dollar verdict in a toxic mold case brought by apartment tenants against their landlord.[29] The plaintiffs alleged that their landlord failed to address leaks and mold problems in their apartment. They alleged that mold caused them to suffer from asthma attacks and other health problems.[30]
2) Residential Lease: In December 2001, a group of about 500 tenants in a New York apartment complex settled against the building owner, Henry Phipps Plaza Associates, for a reported $1.8 million dollars.[31] The tenants originally sought $12 billion in damages, alleging that their Kipps Bay apartments were infested with toxic mold, which caused a range of health problems, from respiratory disease to death.[32]
3) Commercial Lease: In a recent lawsuit that was filed in February 2003, three employees of two large law firms that maintain offices in the same building in New Jersey have sued the building owner for negligence, alleging that the building suffered chronic roof and plumbing leaks that the owner failed to repair. This caused a mold infestation problem. The plaintiffs allege that they have suffered from injuries such as respiratory illness, sinusitis and chronic fatigue syndrome. They seek medical expense damages as well as lost wages and impaired earning capacity damages.[33]
3. Construction Defect Claims:
Construction defect claims constitute another sizeable portion of mold-related claims. Typical claimants include owners of single-family homes or homeowner associations in common interest developments. Typical defendants include any construction-related tradesmen, such as architects, builders, developers, contractors, subcontractors, suppliers, construction managers, engineers, or consultants.[34] This type of claim may also be made against the original home-seller as well.
Constructive defect claims are based on a number of legal theories, including traditional construction-related claims such as strict liability, breach of contract, breach of express and implied warranties of reasonable workmanship and habitability. Other related claims include those based on negligence, misrepresentation or fraud, and intentional infliction of emotional distress.[35] Claimants typically allege personal injuries from their exposure to the mold, as well as property damages.[36]
Mold problems caused by construction defects are usually the result of water or moisture trapped somewhere in the building structure. Plaintiffs blame this on a defect in the materials used and/or a defect in the tradesmen's workmanship. Because moisture provides a viable habitat for mold, and it can begin to grow in as little time as twenty-four to forty-eight hours. The following is a list of the most common causes of mold growth in commercial and residential structures:[37]
1) Finished Basements;
2) Negative Drainage:
Where the slope of the land immediately adjacent to the building is sloped toward the building, causing water to be channeled next to the foundation;
3) Polytheylene Vapor Barrier;
4) Closed and Vacant Buildings;
5) Air Conditioning Equipment;
6) Forced Hot Air Heating Systems with Humidity;
7) Exterior Insulation Finishing System; and
8) Roof Leaks.
There is an increasing number of construction defect suits brought against remediation contractors and experts for improperly remediating mold problems.[38] Claimants allege that contractors did not properly repair conditions that caused mold, did not retain the mold during remediation, or caused it to spread.[39]
Construction defect claims also account for a portion of the litigation involving mold-infested schools, courthouses, and other public buildings.[40] In fact, some of the largest verdicts in Florida have been from cases involving mold infestation in Florida courthouses.[41]
School-related claims, especially, have emerged as a trend.[42] Parties potentially implicated in school suits include school districts, board members and any construction-related trades.[43]
Damages available to claimants in construction defect claims include many of the same damages noted above. Claimants may be able to recover for investigation and testing costs, containment and remediation costs, direct damage claims, including repair or replacement costs, loss of use, relocation expenses, diminution of value, medical expenses, loss of earning potential, loss of use, emotional distress/mental anguish, and other contract-related damages.[44]
Claimants may also seek recovery from product manufacturers for losses due to defective components.[45] However, the economic loss doctrine could preclude recovery.[46]
Some case examples are illustrated below:
1) On June 11, 2002, a jury in Santa Ana, California, returned a $7.8 million dollar verdict to a Homeowner's Association.[47] The Association brought a construction defect claim against the builder, alleging that the defects caused water to leak in the roof, decks and windows of a 180-unit condominium complex.[48]
2) On February 15, 2002, a $2.2 million dollar mediation settlement was entered into in a construction defect claim made by the California State University.[49] The University brought this claim against the contractor, architect and product supplier for negligently designing and constructing a new building for the University, after water leaks damaged the building's interior and caused the growth of toxic mold. The contractor filed a cross-complaint for indemnity against a number of sub-contractors who worked on the building.
3) On March 26, 2003, the parents of two middle school students in Torrington, Connecticut filed a notice of intent to sue, alleging that the students were exposed to mold in the school caused by the school's water leakage problems, lack of ventilation, dampness, and overall poor indoor air quality. The parents blame the problems on the school's construction defects, and have moved to sue the general contractors and the companies that both manufactured and installed the school roof, as well as the Board of Education and the school superintendent.[50]
4. Bad Faith
Bad faith claims make up the highest portion of mold claims filed. These claims are brought against defendant insurance companies for failing to pay an insurance claim or in delaying or otherwise obstructing payment under the insured's policy.
Bad faith claims are generally based on either a contract or tort theory of liability.[51] In most states, bad faith claims are based on tort law, while a minority of states recognize such claims based on contract law.[52] Today, nearly every state provides a statutory remedy for bad faith.[53]
Bad faith claims based on tort law are based on the insurers duty to act in good faith when managing settlement claims.[54] While some states have adopted a negligence standard for bad faith claims, most states have adopted a standard that requires a showing of reckless or intentional conduct on the part of the insurer.[55] A number of recovery theories are often alleged, including, negligence, fraud, intentional infliction of emotional distress, interference with protected property and breach of good faith and fair dealing.[56]
Bad faith claims based on contract theory are based on the principle that parties to an insurance contract have a duty of good faith and fair dealing in relation to that contract.[57] Depending on the jurisdiction, damages are often limited to typical contract damages. This is often the policy limit plus interest or what was reasonably foreseeable at the time the contract was entered into.[58]
Massachusetts
In Massachusetts, common law bad faith claims against insurance companies have been virtually "eclipsed" by statutory causes of action that provide for much greater damage awards.[59] M.G.L. c. 93A s.9 ("Massachusetts Consumer Protection Act"), provides a private right of action for any person whose rights are violated by an insurance companies' unfair claims settlement practices.[60] The Massachusetts Consumer Protection Act allows for recovery of attorney's fees and double or trebble damages, where a willful or knowing violation is shown and no reasonable settlement offer was made.[61]
Part of the problem with insurance companies dealing with mold claims is that the traditional way of handling property damage claims has proved ineffective in dealing with mold.[62] Because money is usually the bottom-line in property damage claims, insurance companies try either to get rid of a claim completely or to resolve it for much less than it is worth.[63] This is generally accomplished by a number of measures, including:
1) Slow responses to the initial claim filed and/or once the claim is underway;
2) Requiring a large quantity of documents from the claimant;
3) Giving unclear instructions to the claimant about the process, the rights of the claimant and the property damage itself;
4) Requiring one or more Examinations under Oath;
5) Conducting an endless investigation;
6) Applying managed care techniques to property damaged claims;
7) Making unreasonable settlement offers;
8) Once a case is filed, litigation tactics of the Insurance Defense Counsel.[64]
The problem is that because mold can begin to grow within twenty-four to forty-eight hours after there has been water damage, insurance companies can be guilty of bad faith for many of the actions noted above, even though these actions might not constitute bad faith in more typical property damage claims.[65]
One of the best case examples of the way in which a bad faith claim was successfully asserted, is the Texas case, Ballard v. Fire Ins. Exch.[66] Many of you are have probably heard of this case, since it resulted in the largest verdict in toxic mold history.
In Ballard, the plaintiffs filed a claim with their insurance company after their house suffered water damage. Although the claim mentioned the possibility of mold, the insurance company took no immediate action and instead invoked its appraisal provision. It was during the eighteen month appraisal process that the mold was able to spread and damage the Ballard's house. In fact, the house was so damaged that it had to be destroyed and re-built. The plaintiffs also lost most of their personal belongings.
In Ballard, the jury found that the insurance company breached its duty of good faith and fair dealing, when it engaged in delay tactics and offered to pay only a fraction of the costs the plaintiffs needed to get rid of the mold infestation. As a result, the jury awarded the plaintiffs $32 million dollars in damages, including $6 million dollars for their house and its contents, $12 million dollars in punitive damages, $5 million dollars for emotional distress damages and $9 million dollars in legal fees. These damages have since been reduced to $4 million dollars, plus interest and attorney's fees.[67]
5. Failure to Disclose Mold's Presence in the Sale of Property
This is a growing area of mold litigation.[68] This type of claim is often brought against home-sellers.[69] Real estate agents may also be implicated.[70] In most states, every person who sells or transfers title to residential real estate must disclose all facts that materially affect the value or desirability of the property.[71] This includes facts that a reasonable inspection might discover.[72] This type of claim is often based on negligence, fraudulent concealment, negligent misrepresentation and typical breach of contract theories.[73]
Case Example:
A few years ago in Salem, Massachusetts, a condominium owner brought a toxic mold claim against the trustees of her condominium association, the real estate broker who sold her the unit, and the condominium management companies.[74] The plaintiff alleged that the trustees knew about chronic water problems in her unit for at least ten years before she purchased the unit. The plaintiff also alleged that the real estate broker failed to disclose the chronic water problems and that the management companies failed to properly fix the water problems. The plaintiff has since settled with these latter two entities for an undisclosed sum.
B. Types of Claims That Have Been Successful
All of the claims noted above have had some degree of success. Bad faith litigation has probably been the most successful, both in terms of percentage of favorable plaintiff verdicts and verdict size.[75] The Ballard case, noted above, is still the highest jury award at $32 million dollars, even though the award was reduced to $4 million dollars by the Texas Appellate Court.[76]
Additional Bad Faith Case Example:
Ed McMahon, formerly of The Tonight Show, is reported to have recently settled his mold-related claims against all but one defendant for over $7 million dollars.[77] McMahon sued his insurer, as well as several environmental cleanup contractors, for handling his mold remediation in bad faith, after a burst pipe caused water damage to the entertainer's home.[78] This led to the growth of toxic mold.[79] McMahon claims that his insurer failed to hire qualified remediation and testing experts to get rid of the mold. He claims that the environmental cleanup contractors simply painted over the mold, instead of completely removing it.[80]
The recorded settlement amounts by defendant are as follows:
Travelers and American Equity and other insurers ($5.05 million);
Southern California Insurance Adjustors, Robert Koster and Ken Koster ($250,000);
Pacific Health and Safety
Consulting Agency
($250,000);
Michael Parkinson of California Power Vac
Mold Remediation Company
($3000);
Alliance Environmental Group, Inc.
Mold Remediation Company
($500,000):
Benchmark MPE, Ltd.
General Contractor for Construction or Re-Construction of Damaged Property
($750,000); and
Controlled Environmental Solutions
Mold Remediation Company
($230,000).[81]
This case also represents a good example of how fault can be apportioned among defendants who all played a role in the mold infestation problem.
C. Assessing Likelihood of Liability - Property Damage v. Personal Injury Claims
1. Property Damage
Property damage claims far exceed other types of damage claims in mold cases. Victims of mold damage often seek damages for the cost of repairing a damaged building or structure.[82] Such costs must be reasonable, however, and do not include extensive remodeling costs.[83]
In mold claims, plaintiffs often seek to recover for damage to personal property. Mold often damages household items such as clothing, furniture and appliances.[84] Most jurisdictions allow plaintiffs to recover the fair market value of the damaged property.[85] This figure is determined by the value of the property immediately before it was damaged.[86] As an alternative, plaintiffs are usually able to recover for the reasonable cost of repairs, plus the loss of use while such repairs are being made.[87]
2. Personal Injury Claims
Proving personal injury claims related to mold is extremely difficult for plaintiffs.[88] Because there are few reliable studies that link toxic mold to illness, shrewd defendants' attorneys can easily challenge expert testimony as "junk science" under the Supreme Court's decision in Daubert v. Merrell Dow Pharmaceuticals.[89]
As noted above, there are no federal government standards related to toxic mold. In fact, if anything, the federal government has actually made it more difficult for plaintiffs to prove the causation element of their claims.[90] Both the federal government and the Center for Disease Control ("CDC") have denied that a causal link exists between mold exposure and human illness.[91]
Another problem with proving causation in toxic mold cases is that there is no signature illness linked with toxic mold exposure.[92] Some of the physical symptoms associated with toxic mold exposure include headaches, nausea, sleeplessness, loss of breath, asthma, and chronic sinusitis. Other health problems alleged include rashes, compromised immune systems, fatigue, forgetfulness, tremors, kidney lesions, learning problems, heart problems and emotional distress. These subjective symptoms can often be easily linked to other causes, particularly with plaintiffs, who drink, smoke, or are inactive, and where the symptoms may have existed long before the mold exposure.
While causation has been difficult for plaintiffs to prove historically, there is some evidence that this area of the law is evolving.[93] There are two state court decisions that were issued recently that allowed plaintiffs' experts to testify to mold-related injuries using current science.[94] In New Haverford Partnership v. Stroot,[95] the plaintiff's expert was allowed to testify that mold counts in the plaintiff's apartment were excessive, without determining what was normal in Delaware's air.[96] The Delaware Supreme Court upheld the testimony noting that the failure to conduct baseline testing went to the weight and not the admissibility of the expert opinion.[97] Another decision, Mondelli v. Kendall Homes Corp.,[98] had a similar result.[99] In Mondelli, the Nebraska Supreme Court reversed the trial court's exclusion of expert testimony, noting that "even though there was no established standard regarding mold levels, the scientific community has generally accepted the principle that a connection exists between the presence of mold and health."[100]
Emotional distress damages are also sometimes alleged in mold-related claims. They may be claimed as consequential damages in breach of contract claims, or tort damages in negligence claims.[101] Only some jurisdictions recognize emotional distress damages in breach of contract claims.[102] In tort claims, however, most jurisdictions allow plaintiffs to recover for intentional and/or negligent infliction of emotional distress.[103] While the elements of proving intentional infliction of emotional distress vary according to jurisdiction, the general premise is that the defendant engaged in some form of outrageous conduct.[104] Oftentimes, a plaintiff can recover these damages without having to establish a physical injury, though they must establish "severe" emotional distress.
For negligent infliction of emotional distress claims, the elements that must be proven also vary according to jurisdiction.[105] Most states require some physical manifestation of emotional harm in order for the plaintiff to recover.[106] For example, in Hansen v. Mountain Fuel Supply Co., the plaintiff claimed negligent infliction of emotional distress after being exposed to asbestos while renovating an office building.[107] The plaintiff claimed he suffered anxiety and sleeplessness from his exposure.[108] The Utah Supreme Court rejected the plaintiff's argument, holding that only those who have significant exposure to toxic substance which leads to "serious emotional distress" may recover for negligent infliction of emotional distress.[109] The plaintiff in this case did not reach such level in the court's eyes.[110]
Punitive damages may also be recoverable depending on jurisdiction. It is important to note, however, that punitive damage awards have not been consistently upheld in toxic-mold cases. For example, in the Ballard case, noted above, punitive damages were not upheld because the plaintiff failed to establish a "knowing" violation on the part of the insurance company.[111] In Anderson v. Allstate Ins. Co., the California case that resulted in the second highest jury verdict in a toxic mold case, the punitive damage award was overturned by the U.S. Court of Appeals for the Ninth Circuit, because it was not supported by substantial evidence.[112]
[1] Wedge, Dave, Family Claims Mold a Killer; Say Addition Made House a 'Sick Building, Boston Herald, February 25, 2002, available at 2002 WL 4069103; see also Conkey, Don, Owners of 'Mold' House Receive $2000 Check, The Patriot Ledger, September 27, 2002, available at 2002 WL 20521240.
[8] Mold Contamination: Typical Claims and Typical Defenses in This Emerging Litigation Trend, June 2000, at 1; Ann Deering, Beyond Sick Building Syndroome: Mold Litigation Enters the Main Stream, Risk Mgmt., Nov. 1, 2001, available at 2001 WL 8916049; Mary Ellen Egan, The Fungus that Ate Sacramento, Forbes, January 21, 2002, at 32, available at 2002 WL 2213706.
[9] Sabrina Jones and Sandra Fleishman, One Claim Too Many?; Insurance's New Policy: Use It and Lose It, The Washington Post, Nov. 10, 2002, available at 2002 WL 102571001.
[10] Mold Contamination: Typical Claims and Typical Defenses in This Emerging Litigation Trend, cited above at supra note 8, at 2.
[11] Thelma Jarman-Felstiner, Mold is Gold: But, Will It Be The Next Asbestos?, 30 Pepp.L.Rev. 529, 536 (2003).
[12] William J. Pritchard, Insurance For Mold: Where Do We Go From Here?, Am. Agent & Broker, Feb. 1, 2003, available at 2003 WL 13643359.
[13] Jarman-Felstiner, supra note 11, at 537.
[14] Stephen J. Henning and Daniel A. Berman, Mold Contamination: Liability and Coverage Issues: Essential Information You Need to Know for Successfully Handling and Resolving Any claim Involving Toxic Mold, 8 Hastings W.-N.W.J.Envtl.L.& Pol'y 73, 77 (2001); citing American with Disabilities Act of 1990 (ADA), 42 U.S.C. § 12, 101 (2000).
[15] Henning and Berman, supra note 14, at 75-76.
[19] Henning and Berman, supra note 14, at 78.
[20] John J. Delany, III, David M. Governo, and R. Kenneth Willman, Insurance Coverage Claims Handling Strategies, Overview of Mold Litigation & Mold Internet Directory, Mealey's Publications Mold Conference, at 40 (June 25-26, 2001); In 2002, a toxic mold bill was introduced in Congress by U.S. House of Representative democrat, John Conyers Jr. The U.S. Toxic Mold Safety & Protection Act of 2002 would require the Center for Disease Control, the Environmental Protection Agency, and the National Institute of Health to conduct corroborated studies of the health effects of toxic mold. The bill would also establish professional standards for mold remediation. See Toxic Mold Safety & Protection Act of 2002, H.R. 5040, 107th Cong., §1(a) 2d Sess. (2002).
[21] Jarman-Felstiner, supra note 11, at 548; Pursuant to the California's Toxic Mold Protection Act, effective 1/1/02, the California Department of Health Services is currently researching the issue of establishing limits for toxic mold exposure and is required to report its progress on the issue by July 1, 2003. Toxic Mold Protection Act, Cal. S.B. 732, 2001-2002 Reg. Sess. (Cal. 2001).
[22] In 2003, Illinois, Massachusetts, Oklahoma, Pennsylvania, and Rhode Island introduced bills to study the health effects of indoor toxic mold exposure. See National Association of Mutual Insurance Companies' web-site (updated June 25, 2003), available at <www.moldupdate.com/legislation>. Several other states, such as Minnesota, for example, have already created units within their Departments of Health to study the health effects of indoor toxic mold exposure. Delany, Governo, and Willman, supra note 20, at 41.
[23] Mold Contamination: Typical Claims and Typical Defenses in This Emerging Litigation Trend, cited above at supra note 8, at 21.
[24] Jarman-Felstiner, supra note 11, at 541-42.
[27] Laurie Alberts, Causation in Toxic Tort Litigation: Which Way Do We Go, Judge?, 12 Vill.Envtl. L.J. 33, 63, n. 6 (2001), citing Patricia E. Lin, Opening the Gates to Scientific Evidence in Toxic Exposure Cases: Medical Monitoring and Daubert, 17 Rev.Litig. 551, 552 (1998).
[28] Daniel J. Callahan, Mold: The Unseen Dilemma, Orange County Lawyer, May 2002, at 31.
[29]New Haverford P'ship v. Stroot, 772 A.2d 792 (Del. 2001).
[31] Ray A. Smith, Apartment Owners Face Growing Liability: Rise in Potential Dangers and Resulting Suits Send Insurance Premiums Higher, Wall St. J., April 24, 2002, at 1-2.
[32] Helen Peterson, Mold Suit Nets Tenants 1G, New York Daily News, December 16, 2001, available at 2001 WL 27990359.
[33] Schrope v. Frawley, No. BUR-L-581-03 (N.J. Super. Ct., Burlington Cty., Law Div.), c.f., Courtroom News, Columns-Mold, May 2003, at 18
[34] Tamara L. Boeck and Linda M. Bolduan, Underlying Exposures in Mold Claims: What are the Damages?, 70 Def. Couns. J. 218, 218 (April 2003).
[37] Francis Xavier Finigan, Eight Modern Building Practices That Promoted Mold Growth, Columns-Mold, August 2002, at 6-7.
[38] Henning and Berman, supra note 14, at 78.
[40] These cases also usually include air quality claims, as well.
[41]See Centrex-Rooney Constr., Inc. v. Martin County (1997) 706 So.2d 20, Rev. denied 718 So.2d 1233 (Fla. 1998).
[42] Henning and Berman, supra note 14, at 75.
[44] Boeck and Boldaun, supra note 34, at 219.
[47] Breakers v. Shea Homes, No. 811386 (Calif.Super. 2002), c.f., Courtroom News, Columns-Mold, August 2002, at 12-13.
[49]California Bd. of Trustees v. Dillingham Constr., No. 312566, 2002 WL 31996685 (Calif.Super. Feb. 15, 2002).
[50] Courtroom News, Columns-Mold, May 2003, at 17.
[51] Michael Childress and George K. Lang, Bad Faith in Mold Claims, National Mold Litigation Conference, Oct. 1-2, 2001, at 11.
[54] Childress and Lang, supra note 51, at 12; see also, Daniel S. Bopp, Tort and Contract in Bad Faith Cases: Is the Honeymoon Over?, 59 Def.Couns.J. 524, 524-25 (1992).
[56] Id.; see also, Bopp, supra note 54, at 525.
[57] Childress and Lang, supra note 51, at 12; Bopp, supra note 54, at 524.
[59] See Thomas P. Billings, The Massachusetts Law of Unfair Insurance Claim Settlement Practices, 76 Mass.L.Rev. 55, 57 (1991). Note that contract and tort claims arising out of the same facts may also be joined to c. 93A claims. Id.
[60] See also M.G.L. c. 176D, s.3(9) ("Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance").
[61] M.G.L. c. 93A s.9; Billings, supra note 59, at 58.
[62] Childress and Lang, supra note 51, at 3-4.
[66]Ballard v. Fire Ins. Exch., 2001 WL 883550 (Tex.Dist. Aug. 01, 2001) (No. 99-05252).
[67] See Alison v. Fire Ins. Exch.,98 S.W.3d 227 (Tex. App. 2002, no pet. h.). The Texas Appeals Court reversed the jury's punitive and mental anguish awards, holding that Farmer's breach of good faith and fair dealing, and deceptive business practices was not done knowingly. Id. In Texas, a "knowing" violation is required to recover punitive and mental anguish awards. Id.
[68] Jarman-Felstiner, supra note 11, at 539.
[73] Id.; see also, Henning and Berman, supra note 14, at 76.
[74]Stevens v. Fennessy, No. 96-0403 (Mass.Super.Ct. 2002), c.f., Courtroom News, Columns-Mold, August 2002, at 11.
[75] It is important to note that in California and Texas, appellate courts have frequently reversed large punitive damage awards. See Alexander Robertson, IV, Beyond Ballard: The Current State of Mold Litigation Today, in Columns-Mold, June 2003, at 5.
[76] See Robertson, supra note 75 at 50.
[77] Courtroom News, Columns-Mold, June 2003, at 10; see alsoMcMahon v. American Equity Ins. Co., No. BC271423 (Calif. Super. 2003).
[79]Ed McMahon: 'Death Mold Killed My Dog,'ABC News, April 11, 2002, available at <www.abcnews.go.com>.
[81] Courtroom News, Columns-Mold, June 2003, at 10. Note also that the only defendant left to settle is Monteleone Interiors. Id.
[82] Boeck and Bolduan, supra note 34, at 219.
[88] Henning and Berman, supra note 14, at 90; see also, Thomas P. Redick and Angela Loehr, Causation in Mold Cases Continues to Develop, in The National Law Journal, June 9, 2003, at 29.
[89] 509 U.S. 579 (1993); Redick and Loehr, supra note 88, at 29. The Daubert doctrine was established specifically to guard against unreliable expert testimony in federal courts.
[90] Mold Contamination: Typical Claims and Typical Defenses in This Emerging Litigation Trend, cited above at supra note 8, at 21.
[91] Id.; see also, Center For Disease Control ("CDC")website, available at <www.cdc.gov>. The CDC is currently funding a project with the Institute of Medicine, to evaluate the relationship between damp and moldy indoor spaces and adverse health effects. The results of this project will be available in the summer or fall of 2003. See Testimony of Stephen Redd, M.D., before House of Representative Subcommittees, on July 18, 2002, at 14. Also, it is important to note that neither the Occupational Health and Safety Organization ("OSHA") nor the Environmental Protection Agency ("EPA") have established guidelines for acceptable levels of exposure to toxic mold. The EPA has issued guidelines for mold remediation, available at <www.epa/gov> (April 2001). The state of New York has also issued guidelines for mold remediation, available at <www.nyc.gov> (Jan. 2002).
[92] Michael B. Hyman and Christopher J. Stuart, Mold Litigation: The Medical Monitoring Class Claim, National Mold Litigation Conference, Oct. 1-2, 2001, at 1; see also Jarman-Feltstiner, supra note 11, at 543.
[93] Redick and Loehr, supra note 88, at 29.
[94]Id. at 34; see also, Mold Contamination: Typical Claims and Typical Defenses in This Emerging Litigation Trend, cited above at supra note 8, at 23-24.
[95] 772 A.2d 792 (Del. 2001).
[96] Redick and Loehr, supra note 88, at 34.
[99]Redick and Loehr, supra note 88, at 34.
[101] Boeck and Bolduan, supra note 34, at 226.
[107] 858 P.2d 970 (Utah 1993).
[111] Robertson, supra note 75, at 50.
[112] 45 Fed. Appx. 754, 2002 WL 2121617 (9th Cir.Cal.); see also Robertson, supra note 75, at 51.
INSURANCE COVERAGE FOR MOLD CLAIMS
A. Background and Types of Policies Implicated by Mold Claims
Toxic mold has created a crisis in the insurance industry. This is the result of the following three factors that have occurred in recent years:
1) Large verdicts, like Ballard;
2) The large amount of mold-related claims that have been filed; and
3) The amount of money insurance companies have paid to settle mold-related claims.
In 2002, the insurance industry paid out $2.5 million dollars in mold-related claims, twice the amount paid in 2001.[1] An average mold claim in 2002 cost about $35,000. Some claims cost more than $100,000.[2] Mold is anticipated to be a "multi-billion dollar problem" for the industry in coming years.[3]
In response to the "mold crisis," insurance companies are taking drastic measures to combat the problem. For example, in 2002, Farmer's Insurance announced that it would not renew any home insurance policies in Texas for precisely this reason.[4] Farmer's Insurance has also stopped taking on new customers in 30 other states.[5] Other measures taken by the industry have included raising premiums and subjecting homes and customers to extensive background checks before issuing new policies.[6] This is problematic because first time home-buyers cannot get a mortgage without insurance.[7] Also, houses that have a history of water-related damage have become uninsurable and consequently, un-saleable.[8]
In thirty-eight states, including all six New England states, state regulators have recently allowed insurers to exclude coverage for mold and related claims from homeowner's policies.[9] Most of these states still require insurers to offer mold coverage, but permit insurers to charge an additional fee for this coverage.[10]
Last year, the Massachusetts' Division of Insurance ("DOI") implemented its own new rules on mold.[11] In Massachusetts, insurers may specifically exclude mold coverage from homeowner, commercial general liability and professional liability policies.[12] Homeowners can opt to purchase mold coverage for an additional $50 to $80 dollars/year, with coverage limits up to $25,000 or $50,000, respectively.[13] The new rules also require that commercial property, fire, boiler and machinery policies must include a minimum amount of $15,000 for claims arising from mold.[14]
We are in an era where there is a major shift in the manner in which the insurance industry handles mold-related claims. Much of the present litigation involves claims in situations where mold coverage was not specifically excluded from the policy or where mold damage was the result of another covered loss. However, this is changing. By the end of 2003, the majority of policies will specifically exclude mold coverage.[15] This includes eliminating mold coverage even where it results from another covered loss.
There are a number of different policies implicated by mold claims. They include homeowner's policies, commercial general liability ("CGL") policies, professional liability policies, and completed operations policies.
1. Homeowner's Policies
Homeowner's policies cover the home, the garage, and any other buildings on the property. These policies also cover personal possessions within the home, such as appliances, clothing, and furniture. Homeowner's policies provide protection against a number of dangers, including fire and theft. However, the extent of coverage depends on the specific policy.
Homeowner's policies generally contain a liability section that protects the homeowner against third-party claims for accidental injuries. Additionally, most policies provide "loss of use" coverage, which apply when the home is damaged by a disaster. "Loss of use" coverage reimburses the homeowner for the extra cost of living elsewhere while the home is repaired.
2. CGL Policies
CGL policies are broad policies that protect businesses against most liability claims.
3. Professional Liability Policies
Professional liability policies protect professionals from claims based on negligence and other errors or omissions that cause injury.
4. Completed Operations Policies
Completed operations policies protects businesses from bodily injury or property damage claims stemming from work that has been completed.
B. Coverage Available Under Each Type of Policy - Exclusions, Covered Damages
and
C. Reported Decisions on Insurance Coverage
1. Homeowner's Policies
In the past, the majority of mold claims have been made under homeowner's policies.[16] The standard homeowner policy in most states has an exclusion for mold, rot or other fungi.[17] In states with this type of exclusion, mold is viewed as a maintenance issue, and thus, within the homeowner's responsibility.[18] This exclusion is meant to preclude coverage for mold where it arises naturally, or where it arises as a result of some other excluded loss.[19] The result is that if mold damage is caused by some other covered loss, the insurance company might pay for it.[20] For example, if mold is caused by a burst pipe, it will likely be covered, since this is typically a covered loss under most policies. However, if mold arises from a construction defect, it will not be covered, since most homeowner policies exclude coverage for construction defects. This type of analysis, termed the "efficient proximate cause test" has been utilized by courts nationwide to determine whether mold growth was caused mainly by a covered or excluded loss.[21]
Case Examples
Home Ins. Co.v. McClain:[22] The Texas Court of Appeals held that because mold resulted from a leaky roof, which was a covered loss under the policy at issue, the mold exclusion did not apply.
Bowersv. Farmer's Ins. Exchange:[23] The Washington Court of Appeals held that where mold damage in a rental house resulted from vandalism/malicious mischief, which was a covered loss under the policy at isse, the mold exclusion did not apply.
Another issue that arises with homeowner's policies is how much the insurance company should pay for remediation work and the resulting damages, once the insurer agrees mold damage is covered on the policy.[24] As noted earlier, the EPA and New York City have each published guidelines regarding investigation and remediation work done by those working on behalf of insurance companies.[25] They provide excellent guidance and should be consulted.
2. CGL Policies
CGL policies are the broad policies that protect the insured from liability in a number of situations.[26] Those protected by such policies may include:
-Owners of commercial buildings or apartment buildings;
-Contractors and other trades-men;
-Product manufacturers, distributors etc.;
-Any other business or professional that provides a service.
These types of policies are meant to protect the insured from liability stemming from his/her work or product.
In the environmental context, there are two situations for which insurance providers generally write CGL policies.[27] The first covers pollution conditions caused by something at the insured's owned premises.[28] This type of policy typically protects an owner of a building against indoor air quality claims.[29] The second type of policy covers pollution conditions caused by work performed for others away from the insured's owned premises.[30] This type of policy typically protects contractors, remediators, and other trades-men.[31] In addition to environmental policies, tradesmen and business may have general liability insurance.
Between 2002 and 2003, renewal premiums for most commercial accounts have grown from 20% to 200%.[32] This is because most trade contractors and developers are particularly at risk for these types of claims.[33] As with homeowner's policies, many insurance companies have sought permission from state regulators to exclude mold in CGL policies.[34] In states where regulators have not approved such exclusions, insurance companies are refusing to write new policies.[35] Many companies are also willing to leave an entire state where mold exclusions have not been allowed.[36]
Most of the insurance coverage litigation battles that arise, often surround the exclusions/endorsements contained in a CGL policy.[37] One of the most commonly litigated exclusions is the absolute pollution exclusion.[38] The purpose of this exclusion originally was to exclude coverage for typical outdoor environmental pollution claims.[39] However, over the course of the last thirty years this exclusion has evolved and been applied to indoor air quality claims with varying results.[40]
The standard absolute pollution exclusion excludes coverage for: "(1) Bodily injury or property damages arising out of the actual, alleged or threatened discharged, disbursal, release or escape of pollutants: (a) At or from premises you own, rent or occupy."[41] This exclusion defines "pollutants" as, "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."[42]
There are two main issues triggered by the absolute pollution exclusion. They are:
1) Does mold qualify as a "pollutant"; and
2) Has there been an actual alleged or threatened discharge, disbursal, release or escape?[43]
Courts that have interpreted absolute pollution exclusions in the context of indoor air quality claims have reached varying results.[44] While courts in jurisdictions apply different standards in evaluating pollution exclusions, some require more traditional, environmental pollution for this exclusion to apply at all.[45] This is the current trend, and the way in which Massachusetts and New York courts apply this exclusion.[46]
Case Example:
Leverence v. U.S. Fidelity & Guar.:[47] The Wisconsin Court of Appeals held that because mold was a microorganism that formed over time as a result of environmental conditions, it was not "released" within the policy's meaning. Therefore, the pollution exclusion did not apply.
In the future the issues presented by the absolute pollution exclusion in relation to mold, may become moot. As noted earlier, many insurers are now writing policy endorsements that absolutely exclude mold claims, whether mold arises naturally or where it results from another covered loss.[48]
Other exclusions that are litigated related to CGL policies include, the "owned property" exclusion, the "business risk" exclusion, and the "sudden and accidental" exclusion (written prior to 1985).
D. Current Insurance Products Available to Cover Mold Claims
One of the most important first steps in dealing with a client that wants to renew an existing CGL policy, is to determine whether their new policy has a mold exclusion.[49] There is a major difference between a policy that does not exclude mold and one that covers it.[50] Where a policy does not specifically exclude mold, the client should get their insurance carrier's viewpoint as to the extent of mold coverage the policy might provide.[51] Some carriers might believe they are not required to cover mold claims, based on other wording in the policy.[52]
The insured should also be encouraged to find out from their representative exactly how their properties could be damaged by mold, or how their activities could give rise to it.[53] If a client accepts a mold exclusion, their insurance carrier should help them determine who else needs to know about it.[54] For example, general contractors may need to know whether sub-contractors have coverage or lenders may also need to know the same.[55] If an agent fails to disclose a mold exclusion limitation, he or she may be subjected to liability.[56]
Homeowners and businesses who are unwilling to accept mold exclusions are currently able to purchase mold coverage at an additional cost, although such coverage is not easy to qualify for.[57] Businesses can purchase site-specific pollution policies that would cover apartment buildings, hospitals, office buildings or other fixed facilities.[58] These policies generally cover first-party clean up and third-party bodily injury and property damage, although you should check with your carrier to be sure.[59] This coverage is not cheap, and deductibles usually start at $10,000 or higher.[60]
To qualify for such coverage, applicants generally have to prove that they have developed and implemented procedures to prevent mold claims.[61] This information is usually requested via a supplemental application.[62]
For most environmental fixed-site commercial policies, where mold coverage has been purchased, mold is typically added to the definition of a "pollutant."[63] Under such policies, coverage is triggered when there is a "pollution condition."[64] This is the most desirable way to have mold included on a policy, in order to maximize the potential for coverage.[65] Where mold coverage is not specifically excluded on a policy, lawyers can argue that mold fits the definition of pollutant.[66] However, making this argument can be somewhat problematic. For example, it could be argued that mold qualifies as a "contaminant." In contrast, it could be argued that because mold is an organic rather than an inorganic substance, the pollution exclusion is not applicable since most contaminants are non-living substances.[67]
Another problem with site-specific policies is that even where mold coverage is provided, this type of policy often contains exclusion clauses for construction defects or if the insured fails to properly maintain the premises.[68] Since many of the claims now are often related to a construction defect, a mold claim may not be covered.[69]
Contractors may also obtain pollution liability policies that cover mold.[70] These types of policies are designed to cover "pollution conditions" that are the result of off-site work performed by the insured.[71] Typical insureds include contractors and sub-contractors such as homebuilders, plumbers, roofers and heating, ventilation and air conditioning contractors.[72]
It is becoming increasingly important for these types of entities to have coverage that includes mold. Since homeowner's policies frequently exclude mold coverage, contractors and builders have been targeted more frequently in lawsuits by homeowners.[73] The result is that high numbers of contractor commercial liability policies have been purchased in recent years.[74]
Like fixed-site policies, contractor commercial liability policies are expensive and typically cost between $5000 and $25,000, with minimum premiums starting at $5000.[75] These prices will likely rise as insurers pay out more money on mold claims.[76] Additionally, contractors must endure a rigorous application process. This includes a supplemental application that requires the contractor to address its mold-awareness procedures.[77] Such procedures should address employee training techniques, how finished work is inspected, and how the possibility for water damage is minimized.[78]
Like the fixed-site policies, contractors can purchase policies with or without a specific mold exclusion.[79] However, policies that do not specifically exclude mold coverage present the same problems as mentioned above. In policies where mold coverage is included, it is best for mold to be included within the definition of "pollutant."[80] This is extremely important in relation to contractors, since these policies are sometimes meant to apply to contaminants brought on-site by contractors or other trades-men.
There are a number of other common exclusions that can be problematic in a contractor's pollution liability policy.[81] For example, while the CGL forms often contain an exception for work performed by sub-contractors, most contractors' pollution liability policies do not.[82] Some policies also exclude coverage for damages that arise from construction defects or faulty maintenance.[83] Also, it is important to note that the standard contractor's liability form was originally designed to cover remediation contractors (i.e. contractors that removed contaminated materials from the job-site).[84] This distinction is important because many of these policies do not cover major "damage to your work" completed-operations exposure.[85]
In addition to contractors and property owners, mold coverage insurance is available to building material manufacturers and distributors, who might be sued for selling wet building materials or building materials that are unreasonably susceptible to mold growth.[86]
E. How to Make a Claim and Protect Potential Coverage of a Mold Claim
There are a number of potential coverage issues that arise in the handling mold claims. There are also a number of issues that arise related to potential insurance coverage litigation.
First of all, it is important to note that coverage issues are often jurisdiction-specific.[87] Here in New England, and in the country in general, there are a limited number of court decisions that address the plethora of insurance issues mold invokes. That does not mean, however, that it is impossible to predict how courts might rule on issues related to mold. Instead, one must look at prior court opinions that present issues that are likely to be raised in mold cases.[88] For example, when dealing with a specific coverage issue, one can look to see how courts in a particular jurisdiction have evaluated similar coverage claims.[89]
Other issues to keep in mind in litigating a coverage claim include:
1) How courts have interpreted similar insurance clauses in the past;
2) Whether similar policy interpretations have been made by the state in the past;
3) Whether there are public policy considerations that might influence the court's decision;
4)Whether the state is typically pro-insurer or pro-insured.[90]
One of the most crucial steps in making a mold-related insurance claim is giving the insurance carrier proper notice.[91] Any water intrusion and mold growth should be addressed as expeditiously as possible. Mold can begin to grow in as little as twenty four hours after there has been a water intrusion. This means that mold-related damage can also escalate very quickly. There are two main reasons why prompt notice to the insurance carrier is critical in a mold-related claim. They are:
1) Reduces the risk insurance company can blame mold on an excluded loss, such as improper maintenance;
2) Reduces the risk insurance company can deny claim based on late notice.[92]
Another important issue in mold claims, is determining when insurance coverage has been triggered under CGL policies. This issue often requires a court to determine what constitutes the triggering "occurrence." There are four main trigger theories different jurisdictions follow.[93] They are:
1) Exposure Theory: Coverage is triggered when the initial exposure to injury-causing condition occurs;
2) Injury-In-Fact Theory: Coverage is triggered when personal injury or actual property damage first occurs, regardless of whether that damage or injury is determinable at the time.
3) Manifestation Theory: Coverage is triggered at the time personal injury or property damage becomes known.
4) Continuous/Multiple Theory: All policies are triggered from the time of exposure through manifestation.[94]
Another important insurance issue is the insurer's duty to defend. In most jurisdictions, the duty to defend is much broader than the extent of coverage.[95] In Massachusetts, and a number of other jurisdictions, this concept is liberally construed. For example, in Massachusetts, a complaint only has to show a possibility that the claim falls within the policy's coverage for the duty to defend to be triggered.[96]
There are a number of other issues related to insurance coverage that may be raised by mold claims.[97] They are as follows: owned property exclusion, applicability of personal injury coverage, presence of covered property damage, known loss/loss in progress, mitigation, own work exclusion, faulty workmanship, extra-contractual exclusions, allocation, and excess coverage.[98] These issue should all be inquired into when addressing a mold claim.
[1] See Alexander Robertson, IV, Beyond Ballard: The Current State of Mold Litigation Today, in Columns-Mold, June 2003, at 5, citing, New York Times, March 23, 2003.
[2] See Testimony of Gordan Stewart, President, Insurance Information Institute, before House of Representative Subcommittees, on July 18, 2002, at 24.
[3] Scott Bernard Nelson, As Molds Claims Surge, Worry Spreads for Firms, Boston Globe, June 14, 2003.
[4] Sabrina Jones and Sandra Fleishman, One Claim Too Many?; Insurance's New Policy: Use It and Lose It, The Washington Post, Nov. 10, 2002, available at 2002 WL 102571001.
[9] Nelson, supra note 3. Also note that in the past, the majority of mold-related insurance claims were handled in the context of sudden and accidental water damage. See Stewart Testimony, supra note 2, at 24.
[11] Id.; see also, Massachusetts DOI website, available at <www.state.ma.us/doi>.
[12] Massachusetts DOI website.
[15] William J. Pritchard, Insurance For Mold: Where Do We Go From Here?, Am. Agent & Broker, Feb. 1, 2003, available at 2003 WL 13643359.
[16] Pritchard, supra note 15, at 12.
[17] Sylvia Pena-Alfaro, The Toxic Mold Terrifying Texas: Mold's Hold on the Insurance Industry, 34 St.Mary'sL.J. 541, 569 (2003).
[18] Thelma Jarman-Felstiner, Mold is Gold: But, Will It Be The Next Asbestos?, 30 Pepp.L.Rev. 529, 550 (2003).
[19] Pena-Alfaro, supra note 17, at 569.
[20] John J. Delany, III, David M. Governo, and R. Kenneth Willman, Insurance Coverage Claims Handling Strategies, Overview of Mold Litigation & Mold Internet Directory, Mealey's Publications Mold Conference, at 12 (June 25-26, 2001).
[21] LiMandri, Charles S., Epidemic of Mold Litigation Plagues Insurance Industry, 23 No. 9 Ins.Litig.Rep. 261, Jul. 12, 2001.
[22] 2000 WL 144115 (Tex.App.-Dallas, Feb. 10, 2000).
[25] See EPA and New York State web-sites, available at <www.epa/gov> (April 2001) and <www.nyc.gov> (Jan. 2002), respectively.
[26] Couch on Ins. § 103:19 (West 2003).
[27] William J. Pritchard, Coping With The Mold Menace, Am. Agent & Broker, Feb. 1, 2002, available at 2002 WL 12754452.
[32] Pritchard, supra note 15.
[37] Delany, Governo, and Willman, supra note 16, at 20.
[38]Id. at 13-14; see also, David L. Leitner, Reagan W. Simpson, and John M. Bjorkman, Law and Prac. of Ins. Coverage Litig., § 44.9 (West Group & ABA 2002).
[39] Delany, Governo, and Willman, supra note 20, at 13-14.
[40]Id.; see also, Leitner, Simpson, and Bjorkman, supra note 37, at § 44.9.
[43] Delany, Governo, and Willman, supra note 20, at 16.
[44] Id.; see also, Leitner, Simpson, and Bjorkman, supra note 37, at § 44.9.
[46] Delany, Governo, and Willman, supra note 20, at 15.
[47] 158 Wis.2d 64 (Ct. App. 1990).
[49] Pritchard, supra note 27.
[51] Pritchard, supra note 15.
[66] Leitner, Simpson, and Bjorkman, supra note 37, at § 44.9.
[68] Pritchard, supra note 15.
[87] Delany, Governo, and Willman, supra note 20, at 11.
[88] Stephen J. Henning and Daniel A. Berman, Mold Contamination: Liability and Coverage Issues: Essential Information You Need to Know for Successfully Handling and Resolving Any Claim Involving Toxic Mold, 8 Hastings W.-N.W.J.Envtl.L.&Pol'y 73, 88 (2001).
[89] Delany, Governo, and Willman, supra note 20, at 11.
[92]Id.; For example in Massachusetts, an insured's failure to give notice to the insurer expeditiously will bar coverage only where the insurer shows it was prejudiced by the late notice. Darcy v. Hartford Ins. Co., 407 Mass. 481, 485 (1990).
[93] Couch on Ins. § 102:22 (2003).
[94] Id.; Note that in Trustees of Tufts Univ. v. Commercial Union Ins. Co., 415 Mass. 844, 854-55 (1993), the Massachusetts Supreme Judicial Court rejected the manifestation theory, but did not decide which of the other theories was applicable. The Supreme Judicial Court noted that the theory to be applied required a factual inquiry into the nature of the injury.Id; see also Schreckinger, Steven L. and Nosowitz, Harvey, Insurance Issues in Environmental Practice, in Massachusetts Environmental Law, Volume III, Chapter 27 (2002 Supplement), at § 27.2.16.
[95] Schreckinger and Nosowitz, supra note 94, at § 27.2.2.
[96]Sterilite Corp. v. Continental Cas. Co., 458 N.E.3d 338, 341 (1983); see also Schreckinger and Nosowitz, supra note 94, at § 27.2.2.
HANDLING A MOLD INFESTATION SCENARIO
C. Determining Causative Factors
1) Identify the source of moisture intrusion
Here, it appears that because of the negative slope of the hill, water has been able to leak into the basement. Although a drainage system was built, the basement has still been frequently damp and moist.
Heavy rains and humidity in September 2002 also contributed to the water intrusion/moisture. Wetness was visible in one of the basement's closets.
Laying the plywood and carpet directly on a damp floor surface, likely contributed to mold growth, because it allowed moisture to build up. This provided a viable habitat for mold.
2) Hire a Certified Industrial Hygienist ("CIH")
The CIH can help locate the source of the moisture intrusion in the basement, can identify the type and quantity of mold present in the basement, and can help in preparing a remediation plan.
The CIH can also identify indoor air quality issues and provide important overall expertise.
The CIH's work will be helpful in determining whether there may be a link between the health problems suffered by the teacher and students and any toxic mold that is potentially present. It is important to remember, however, that there are no guidelines for indoor exposure to toxic mold. Therefore, even if there is toxic mold present, that does not automatically mean it was present in such levels as to cause injury.
3) Consider hiring a construction expert.
An expert can help identify potential construction defects and potentially negligent contractors or other trades-men. A construction expert could help you identify whether:
i) Whether the school was negligently designed and built, based on the fact it was built into the side of a hill;
ii) Whether the drainage system in the basement was negligently constructed since moisture continued to accumulate;
iii) Whether the school was negligently advised by the conversion contractors about converting the school's basement into a classroom, where the basement was clearly damp and moist;
iv) Whether the basement was negligently converted into a classroom, and whether the conversion was negligently constructed (with plywood and carpet).
D. Identifying/Investigating Responsible Parties and Available Insurance Coverages
1) Identify all parties that might be involved and the scope of the work performed by each. This includes parties that might be absent from the picture.
Dick Thorpe, Headmaster:
-Was aware of prior flooding and general moisture in basement
-Consulted construction company about converting basement space to classroom
-Responsible for re-locating first grade class to basement
-Responsible for deciding to make basement renovations as cheap as possible, and to use plywood and carpet on basement floor
Construction Company for Basement Conversion:
-Should have identified negative drainage issue with basement
-Provided advice on how classroom conversion should take place (i.e. with plywood and carpet)
-Performed work to convert basement into classroom
Other Potential Parties:
-Original contractor who built school with negative drainage
-Architect or consultant who designed original school building with negative drainage
-Company that installed drainage system, since drainage system did not completely eliminate moisture
-Sub-Contractors who may have contributed to any work
-Board of Education and Superintendent
2) Do a joint and several liability analysis.
Ask:
-Is there a contract existing between the parties that might assign responsibility?
-How does the jurisdiction you are in handle the risk transfer between potentially liable parties?
3) Identify any insurance policies of the parties noted above that may be applicable.
Dick Thorpe, Headmaster:
-Does the school have a fixed-site commercial general liability ("CGL") policy that protects the school from pollution conditions caused by something at the school?
-Are there any other policies that could be triggered?
Construction Company for Addition:
-Does the construction company have a CGL policy that protects the construction company from pollution conditions caused by work performed for others away from the insured's owned premises?
-Are there any other policies that could be triggered?
4) What exclusions/endorsements are contained in the policies?
Dick Thorpe, Headmaster:
-Has the insured purchased mold insurance?
-If not, is mold specifically excluded under the fixed-site CGL policy?
-If it is, can the mold be attributed to another covered loss?
-Is there an exclusion for construction defects or the insured's failure to maintain the premises?
Construction Company for Addition:
-Has the insured purchased mold insurance?
-If not, Is mold specifically excluded under the CGL policy for pollution conditions caused by work done off-site?
-If it is, can the mold be attributed to another covered loss?
-Is there any other applicable exclusions, such as for completed operations?
