Toxic mold: What you should know about it and what you can do about it

Real Estate Issues, Summer 2002 by Barsh, Kerri L

PERSPECTIVE

The past eighteen months have seen a plethora of toxic mold lawsuits rivaling the asbestos and lead-based paint tort claims for litigation potential. This article discusses this recent phenomenon; the measures that can be taken to protect against such claims; and the prospects for future mold-specific governmental regulation.

WHAT IS "TOXIC MOLD" AND WHY IS IT A CONCERN?

Mold is a fungus that is naturally occurring and found both indoors and outdoors. To survive, mold requires only a source of food, warmth, and moisture. Its food sources are many, including building materials such as wood, carpet, ceiling tiles, drywall, upholstery, wallpaper, and sheetrock. Warmth and moisture are plentiful, especially in humid climates. The United States Environmental Protection Agency (EPA) estimates that more than 20,000 species of mold exist, many of which are harmless. Nevertheless, molds such as stachybotrys, aspergillus, cladosporim, and penicillium may be potentially harmful to health, especially when present in high dosages.

Exposure to mold spores or mold may cause, in sensitive individuals, allergic reactions such as dermatitis, runny nose, sneezing, and red eyes and may exacerbate asthmatic conditions in those who have asthma. Inhaling or touching mold may also irritate one's eyes, skin, throat, and lungs or cause hypersensitivity pneumonitis. For those molds that produce mycotoxins (potentially toxic substances), the symptoms of such exposure include liver cancer, toxicosis, infant pulmonary (lung) hemorrhage, and kidney disease. Although scientific research of the long-term health impacts of mold has not been exhaustive or conclusive, claims for damages for personal injuries have not abated. According to an independent insurance association, toxic mold lawsuits against building owners and managers, building product manufacturers, builders, architects, engineers, contractors, and insurance carriers "are beginning to rival 'construction defect' claims in their number and magnitude." Examples of such litigation include:

1. Recovery of a $14 million verdict by Martin County, Florida, which was upheld on appeal, against the builders of the County courthouse.

2. A verdict of $32 million by a Texas jury against an insurance carrier for acting in an unfair, deceptive, and fraudulent manner when evaluating the homeowner's property damage claim.

3. Recovery by Polk County, Florida, of $47.8 million in settlements against various companies involved in the construction of the Polk County courthouse (including $35 million from the general contractors' builder's risk insurer).

4. Award of $6.7 million against a North Carolina motel owner for construction defects that resulted in water intrusion and mold accumulation.

Pending litigation includes the purported filing of two class action suits against the owners of a number of California apartment buildings and a reported lawsuit by tenants of a subsidized housing project in New York against the building owners and managing agent seeking over $12 billion in damages for cancer and multiple organ failure alleged caused by fungal contamination. The lack of definitive governmental regulations establishing safe exposure levels and the dearth of conclusive scientific data on the health impacts of mold will only foster the proliferation of mold-related litigation and concerns.

WHAT CAN YOU DO ABOUT MOLD?

Given this emerging mold problem, possibly driven by modern energy-efficient building practices and the increased use of new building materials, building owners and operators, contractors, insurance carriers, and property managers are inquiring as to the steps, if any, that can be taken to avoid or minimize liability for mold-related claims. Protection comes in a variety of forms: legal, technical, insurance-related, or a combination of each.

On the legal front, many building owners and managers are incorporating into their purchase and sale agreements and leases, disclosures or similar language acknowledging that mold is "naturally occurring" and that the builder owner or manager is not responsible for mold-related impacts. The reasoning underlying such language is similar to that of the radon disclosures-namely, to provide notice to the buyer or lessee of the potential for mold and avoid any claim based upon a failure to disclose an environmental problem. Because these disclosures have not been the subject of extensive litigation, their effectiveness has yet to be determined. In addition, condominium developers are including in condominium documents certain language restricting the use by owners of building materials such as non-breathable wall coverings on exterior walls, low-permeability paints, and vinyl wall paper, which trap moisture in gypsum wallboard.

To no great surprise, the extent to which current or pre-existing insurance policies provide coverage for mold-related damage is the subject of increasing dispute. Coverage under general liability policies often revolves around the insured's ability to show that the damage resulted from a "covered" cause of loss such as a ruptured pipe. Insurance carriers themselves have responded to the wave of mold litigation by modifying new policy language to clarify that mold-related damages are excluded from coverage or canceling policies thought to have provided mold coverage. Although certain insurance companies will insure against mold-- related risk, the cost for such coverage is marketdriven and reflective of recent monetary settlements and verdicts.