Don't Let Mold Claims Creep Up on You

Consider this question: If you were to go to your refrigerator for a healthy snack, and you find a light dusting of mold inside your yogurt container, do you scoop out the visible mold and then happily devour the rest? Probably not. If you are like most people you cringe, quickly place the lid back on the container and toss it in the garbage.

This creepy-crawly feeling many people experience regarding mold partly explains the current wave of litigation involving mold and "sick buildings" that is sweeping the design and construction industry. Feelings about mold tend toward the irrational, and it doesn't take much to tap into those feelings—making mold "black gold" for some aggressive complainants.

The Center for Disease Control and Prevention (CDC) hasn't helped matters much. In fact, the CDC may be substantially to blame for kicking off the current litigation explosion. In 1994, an outbreak of hemosiderosis, or pulmonary hemorrhaging, among 10 infants in Cleveland caused a stir in the scientific community when the CDC reported the outbreak to be associated with Stachybotrys chartarum mold.

Years later, the CDC assembled a team to re-examine its initial conclusions. In March 2000, the CDC produced this group's findings in its journal, which retracted its earlier conclusion, as it could not be proven that the mold actually caused the deaths.

By that time, however, the damage was done. A number of scientists willing to hold themselves out as experts to opportunistic plaintiffs had already brandished the CDC's initial conclusions. As a result, even when testimony concerning any link between mold and disease has been excluded from lawsuits, jury verdicts have sometimes been substantial, as in the case of Ballard v. Fire Insurance Exchange in Texas, where in May 2001, a jury awarded $11,227,525 for the replacement cost of a home, $12 million in punitive damages and $8.9 million in attorneys' fees.

Of the 10,000 lawsuits that have been filed in the last few years, it is estimated that as many as 2,000 involve construction and, presumably, design defect claims. About another 1,000 are against former owners of property; about 2,000 involve claims for improper maintenance of the buildings; and another 5,000 or so are against insurance companies. Target defendants in the construction industry include general contractors, construction managers, subcontractors, architects and engineers. Other defendants—sometimes joined in the same litigation—can include insurers, building owners, building operators, maintenance contractors, product manufacturers, employers, sellers of property and agents of sellers.

Some legal commentators have compared the current wave of lawsuits involving mold/sick buildings to the asbestos litigation phenomenon of the 1980s. While the fact that so many mold/sick building lawsuits have arisen in the last few years lends some credence to that comparison, it does not hold up under the spotlight of a more detailed analysis.

In asbestos litigation, only a handful of companies manufactured the flame-retarding material and they were ultimately driven out of business by litigation. Mold, however, is a naturally occurring substance, so there are no "bad guys" to consistently target as defendants. And, unlike asbestos cases, no companies have profited from the sale of mold nor engaged in a cover-up of "smoking gun" documents to protect their profits.

Additionally, mold injuries are generally not as severe as those caused by asbestos. Science has yet to establish a causal link between airborne mold exposure and serious or long-lasting illness, and there are no governmental or scientific standards which establish unacceptable exposure levels. Of course, if science develops to the point where causation is easier to establish, many of the distinctions between the asbestos litigation and the current wave of mold/sick-building litigation may become unimportant.

Meanwhile, the number of lawsuits continues to mount. Time Magazine recently reported that claims increased by 581% in 2001, and the verdicts have often been substantial.

In the case of Centex-Rooney Construction Co., Inc. v. Martin County, the jury returned an award of $11,550,000 in favor of Martin County for a claim that involved window and exterior wall leaks, mold growth and excessive humidity in the buildings.

In Board of Directors of the Baypoint Condominium Association. v. RML Corp., the manufacturer of an exterior insulation finish system (EIFS) was ordered to pay $2,544,000 to a builder who used the material in a condominium complex where mold complications arose.

In Chicago, students and teachers have filed a class-action lawsuit alleging that mold at a school has made them sick, seeking $50,000 in damages for each of the plaintiffs.

Although much of the litigation has arisen in the warmer regions of the country—Texas and California particularly—it has not been confined to those regions. Recognizing that fact, insurers nationwide have been busy trying to tighten up policy language to exclude mold claims.

For those in the construction or design business, it is prudent to be prepared for litigation. Even in the absence of a claim alleging personal injury, just about everyone will agree that the presence of mold in our homes or work places is undesirable. It doesn't take a toxicologist to establish that the black slime under the sink is unwanted and is having a negative impact on the property value of a building.

There are important lessons to be learned from the wave of litigation that is sweeping the nation. If someone contacts you, naming you or your firm as a potential defendant in a mold or sick building claim, you should:

• Respond quickly, professionally and courteously.
• Promptly investigate the cause.
• Take prompt remedial action, where appropriate, to eliminate the mold and its cause.

Even if you have insurance to cover the claim and notify your insurance carrier promptly, it is prudent not to sit back to wait for your insurance carrier to respond and provide coverage. The insurer is likely to question coverage and perhaps haggle; meanwhile, the water intrusion or excessive humidity that led to the mold in the first place is likely to cause the mold to proliferate and become far more expensive to remove. That is exactly what happened in the Ballard case, where Farmer's Insurance prolonged its investigation and response to the claim, used contractors that were inexperienced in appraising mold claims and refused to pay undisputed items merely to increase its bargaining leverage. As a result, the $11.2 million compensatory damages ended up exceeding the value of the home. While you investigate and fix the problem, however, you should keep your insurer apprised of what you are doing and how much it's costing to avoid issues later relating to "notice" or lack thereof once the dust settles and you want reimbursement.

Because of the need to respond quickly, it is wise to assemble an investigation team before being sued. Consider having an attorney, experienced in handling such claims, assemble an investigation team that will be ready to respond when needed.

It's important that the response time not be dictated by the time it takes to locate a team with the proper scientific credentials. Depending on the nature of the claim or problem, your response team should also include some or all of the following professionals: a mechanical engineer with HVAC experience; an industrial hygienist to evaluate the need for scientific testing; a mold scientist or microbiologist to help evaluate the results of any testing; and a toxicologist or other medical professional if there are personal injury claims being asserted in the suit.

It is invaluable during this investigation for the team of experts to have the opportunity to interview anyone who is familiar with the history of the building and its maintenance and operation—particularly of the heating, air conditioning, ventilation and plumbing systems. If it's new construction and the mold problem developed soon after completion, one place to start is to obtain the "as built" drawings to see if there were any significant deviations from the original design that may explain the problem. If the building has been in use for a longer time, with the problem only recently surfacing and the cause is not obvious, you'll want to explore whether there were any recent modifications to the building, or the way in which it is being used that explains the problem.

One frequent question that comes up is whether to conduct any scientific testing for mold. This is a question that requires input from your attorney, and should be made only after consideration of all the circumstances. Is the amount of mold extensive? Is the mold isolated to a few places or is it spread throughout? Are health claims being made by the occupants? Do the mold colonies appear active and sporulating? Since mold is ubiquitous and buildings are not sterile environments, it is virtually guaranteed that testing will reveal the existence of mold no matter how well the building is designed, built and maintained. Testing is expensive. Once you have tested, identified and fixed the problem, you'll usually feel compelled to do a follow-up test to allow for a "before and after" comparison. Before you test, consider what it is you hope to accomplish by testing. What will you do if the test shows a certain level of mold? What level will you consider acceptable or unacceptable?

It is also useful to fund the initial investigation and diagnosis of a problem so that your team provides an initial, unbiased conclusion and recommended cure. Doing the right thing in response to a potential mold or other sick building claim may convince a potential plaintiff not to sue. Moreover, many mold problems can be fixed simply and inexpensively, and having your team investigate the claim and recommend the remedial action places you in greater control over the ultimate cost of the clean-up effort. If litigation still ensues, you will be in a stronger position.