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Contractors, Insurers Struggle with Growing Mold
Problem
According
to Policyholders of America, a Texas-based group monitoring the explosive
growth of the mold liability issue, mold-related insurance claims have
increased by 8,000 percent in the past three years.
Mold-related lawsuits also are on the rise, and juries in California and
Texas already have handed out multi-million-dollar
awards. Extensive media attention is contributing to the problem.
Why the sudden explosion in claims? Some theorize that the recent emphasis on
making buildings more energy efficient has made them so air-tight that
moisture cannot dry, making conditions ripe for mold growth. Others believe
the prevalence of complex building designs means more chances for water to
infiltrate structures.
Still others believe that there has been no significant increase in the
occurrence
of mold or any related health problems, and that the claims are the result of
media frenzy, junk science, and excessive litigation.
Am I Covered?
Whatever the reasons, mold claims are increasing exponentially. For
contractors, then, the questions are these. First, what is my potential
liability? Second, am I covered by insurance? The answer to both,
unfortunately, often is unknown.
There are more than 60,000 separate species of mold. Molds that release
mycotoxins, such as aspergillus, penicillium, and stachybotrys, are
considered toxic molds. Many other species are considered allergenic.
Sufficient exposure to either category has been linked, though by no means
definitively, to a variety of health problems, ranging from respiratory
complaints to skin rashes to eye irritation.
Initially, mold complaints were associated with public structures, such as
schools. Now, residential complaints also are on the rise. In short, almost
any contractor could find itself facing a mold issue. With no regulatory safe
harbor, no clearly established legal defense, and no sure-fire contractual
safeguards yet available, the potential liability is enormous.
If your company does face a mold complaint, you may, or may not, be covered by
insurance.
Increasingly, insurers are including mold exclusions in policies. That does
not mean, however, that a policy without such an exclusion automatically
provides protection against mold claims.
Insurers have contended that other exclusions — pollution, faulty
workmanship, seepage, and contamination — serve to bar claims related to
mold. The law on such attempts to bar mold claims is unsettled.
For example, two recent cases in two different districts involving similarly
worded pollution exclusions resulted in contrary decisions. In Lexington
Insurance Co. v. Unity/Waterford-Fair Oak, Ltd., a Texas court found that
a pollution exclusion meant no coverage for a contractor facing a bodily
injury claim. In California Capital Insurance Co. v. Sacramento Partridge
Pointe, a California court ruled the insurer must pay on a similar claim.
Another issue complicating insurance in the mold arena is the difference
between the duty to defend and the duty to indemnify. In some jurisdictions,
such as North Carolina, an insurance company still must pay the cost of the
insured’s legal defense, even if it is not required to pay for damages
related to the action.
Two Suggestions
So what’s a contractor to do?
First, contractors can secure insurance coverage specifically designed to
protect against mold claims, either as a rider to a policy or as a separate
policy. The catch? Contractors often face tight limits on coverage, steep
premiums, or both.
Environmental policies offering coverage against mold-related claims are
available from a variety of insurers. They are expensive, though, and even
these policies are tending toward tighter caps on coverage.
Second, contractors that have not adopted an ownership structure that
insulates their personal assets from liability should certainly consider such
a step now. Given the expense of insurance coverage and the possibility that
it may not cover a claim, contractors that leave their personal assets at
risk are asking for trouble.
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