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ConstructionRisk.com Report
http://www.ConstructionRisk.com
Vol. 6, No. 3, March 04
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Inside
This Issue:
Standards
Needed for Mold Exposure, Testing and Remediation
======================================
SIGN UP NOW FOR THE NEW
SEMINAR by International Risk Management Institute (IRMI):
Proactively
Managing Risks and Claims in Design and Construction
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–
March 31 – April 1
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April 13-14
Attend this New, day and one half, IRMI Seminar to Learn How to
Protect the Bottom Line and Make Construction Projects More Successful!
In this workshop, Mike Loulakis
and Kent Holland, well
known construction lawyers, will describe and explain today’s design and
construction risks, how they are allocated in contracts, and what actions owners, contractors, and design
professionals can take to manage them. The professional
liability insurance options available to the various parties will be
discussed, with particular emphasis on ways to work around any
deficiencies in the coverage they provide. Lastly, the speakers, will
also share valuable advice on what to do when construction claims do
arise, both as to how to present claims and how to defend against them..
If you are a risk manager, business manager or general counsel
for an architectural/engineering or construction management firm; a risk
manager or project manager for a company or public entity with one or
more substantial construction projects planned for the future; or a
construction company risk manager or general counsel, you cannot afford
to miss this focused and intensive seminar.
If you are an insurance agent, broker, attorney, consultant or
underwriter responsible for managing or insuring the risks of
contractors, owners, or design professionals, you are also invited to
participate in this important information sharing exchange.
For
more information and the full agenda go to the IRMI
website, http://irmi.com/seminars/Design/default.asp.
======================================
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ARTICLE #1
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Standards
Needed for Mold Exposure, Testing and Remediation
By:
Richard Zarandona & J.
Kent Holland
Currently, federal or state established standards of safety
thresholds for mold exposure are are non-existent.
Scientific agreement has not even been reached on whether mold
(or various types of mold) are hazardous or injurious to health.
Nor are there standards for mold testing and remediation.
The only authoritative standard we have found for examining,
monitoring and remediating mold was written several thousand years ago.
That’s right. It’s
found in the Bible – Old Testament (or Pentateuch) at Leviticus
14:33-45. With regard to
mold or “spreading mildew,” “The Lord said to Moses,” that if an
owner of a house sees mildew in his or her house this is what must be
done:
“The owner of the house must go and tell the priest, ‘I have
seen something that looks like mildew in my house.’
The priest is to order the house to be emptied before he goes in
to examine the mildew, so that nothing in the house will be pronounced
unclean. After this the
priest is to go in and inspect the house.
He is to examine the mildew on the walls, and if it has greenish
or reddish depressions that appear to be deeper than the surface of the
wall, the priest shall go out the doorway of the house and close it up
for seven days. On the
seventh day the priest shall return to inspect the house.
If the mildew has spread on the walls, he is to order that the
contaminated stones be torn out and thrown into an unclean place outside
the town. He must have all
the inside walls of the house scraped and the material that is scraped
off dumped into an unclean place outside the town.
Then they are to take other stones to replace these and take new
clay and plaster the house. If
the mildew reappears in the house after the stones have been torn out
and the house scraped and plastered, the priest is to go and examine it
and, if the mildew has spread in the house, it is a destructive mildew;
the house is unclean. It
must be torn down—its stones, timbers and all the plaster—and taken
out of the town to an unclean place.”
Today, in a world without standards, we are more likely to get
less consistency and more unpleasant surprises, as described in the
Texas
newspaper report below.
Texas
has been one of the states with a skyrocketing number of reported cases
of mold related claims by homeowners. According to an article in “The
Dallas Morning News,” (
February 16, 2003
, Ed Timms reporting), “Across the state, Texans whose homes were
gutted, or left unfinished, say they are casualties of botched mold
remediation. Some
fly-by-night companies, they say, have abandoned jobs after stripping
the interior of houses to the studs.
Homeowners complain that mold remediators failed to properly
contain mold in their homes, charged for services that were not
provided, forged signatures, falsified claims and walked away with the
jobs unfinished.” The
newspaper reports that one
Dallas
homeowner was billed three times the tax value of his home, and that
numerous others were billed for cleanup costs that exceed their home’s
value. The article goes on
with example after example of homeowners that have had terrible
experiences with contractors they hired to remediate their homes of
mold.
The Dallas Morning News reporter asks rhetorically, “What does
it take to be a mold remediator?” and he answers, “While the state
requires manicurists to complete 600 hours of instruction in an approved
program, the training requirements for mold remediators are not quite so
rigorous: There are none.”
He then quotes Brenda Wells, a University of North Texas
associate professor of insurance and director of the university’s
Financial Services Center as follows: “You’ve got to have a license
in this state to kill bugs, but you don’t have to have a license to
tell an insurance company you need to spend $50,000 instead of $5 to
clean up mold. I literally
can take out a Yellow Page ad tomorrow that says I’m a mold remediator
[and] I don’t know the
first thing about cleaning up mold.”
The Mold Litigation Explosion
Mold is turning to gold for plaintiff’s lawyers.
An article in the American Bar Association (ABA) Journal
(December 2001), interviews Alexander Robertson IV, an attorney in
California
that has earned “multimillions” for his firm handling toxic mold
litigation. When asked how
many cases he had, he answered, “Thousands—I don’t want to count
them.” He explained,
“The use of asbestos isn’t occurring anymore, and most of the
asbestos products were done away with.
With mold, it’s naturally occurring, and the supply is
endless.”
Another attorney quoted in the ABA Journal article, Guy Keith
Vann, says, “I’ve learned these can be terrific cases from the
plaintiff’s perspective, in terms of the percentage of cases that turn
into money vs. vases that don’t.”
He obtained a $1million toxic-mold verdict that was sustained on
appeal in the case of New
Haverford Partnership v. Elizabeth Stroot, 772 A.2d 792 (Del.1999).
From reading through numerous articles in newspapers, magazines
and journals, on the subject of the mold threat, it is apparent that
there are a growing number of law suits and claims alleging that homes
must be remediated or even destroyed because of a mold “problem.”
Yet, many of these same articles and papers quote extensively
from medical specialists and other professionals who state as a general
proposition that mold is not a problem for people other than those who
have allergies, and that even then, it is not nearly the problem it is
made out to be.
It has been estimated that over 10,000 cases related to mold have
been filed in the
United States
. And the number seems to be
growing exponentially. Construction
contractors are brought into these cases on the theory that their
defective means, methods and procedures of performing their work caused
water leakage, condensation accumulation or other conditions that caused
the growth of mold. Design
professionals are being brought into these cases on various theories
such as specifying improper materials for construction, failing to
specify a design to effectively eliminate or minimize mold growth; and
failure to adequately monitor or review construction during the
construction phase of the project.
Suppliers of various materials such as wall and roofing materials
and water pipes and couplings are being sued on theories such as their
materials (a) failed to keep water from infiltrating a building, (b)
failed to allow water to seep back out of a building, (c) were too easy
a source for mold to grow; or (d) in the case of pipes and couplings,
were too subject to leakage inside of wall cavities.
As seen from the newspaper articles cited herein, the remediation
firms that are subsequently hired to repair water damage and remediate
mold are also subject to suit for faulty workmanship during remediation.
As reported in the Corpus
Christi Caller Times (
November 3, 2002
, Joy Victory reporting), “Mold claims filed with insurance companies
have taken off in just the past few years.
Farmers Insurance Group had 11 mold claims filed in 1999 and
10,813 in 2001. The average
cost of cleaning up mold also grew eight times between 2000 and 2001,
going from $17.09 per policyholder in the first part of 2000 to $147.68
in the second quarter of this year, according to the top three insurance
companies in
Texas
.”
Connecting Mold to Adverse Health Effects
According to the Corpus
Christi Caller Times article, the Texas Medical Association’s
Council of Scientific Affairs commissioned a literature review and found
no reputable studies linking health problems to mold.
They concluded that black mold only causes problems in people who
are allergic to it. And for
those who are allergic to the mold, the newspaper cited professional
allergists for the conclusion that “The allergy symptoms probably will
be no worse than a cat or dog dander allergy, causing symptoms such as
congestion, sneezing and water eyes.
In some people, it can cause asthma-like problems.”
The supervisor of health hazard evaluation with the Wisconsin
Department of Health and Family Service, William Otto, was quoted by the
Milwaukee Journal Sentinel (December 13, 2002, Michele Derus
reporting), as saying, “There’s a lot of debate out there about what
symptoms are from mold and what aren’t.
To us, the health effects are allergy-type symptoms.
Maybe 20 percent of the population has some type of sensitivity.
But at what level does someone get sick? That
seems pretty much an individual thing.” Otto was further quoted as
saying, “That doesn’t mean we can’t address the problem.
We emphasize getting at the moisture source, fixing it and
getting rid of the contamination. More
and more state health departments are following that philosophy.”
But there are certainly numerous reported instances where
individuals have asserted that their health was so significantly
impacted by mold that they could no longer work or enjoy a good quality
of life. In the Detroit
Free Press (February 18, 2003, Patricia Anstett reporting), the
story is told of a medical doctor who, after his building was renovated
in 1999, started sneezing, suffering with itchy eyes, nosebleeds,
shortness of breath, skin rashes and fatigue.
Environmental health firms found “foul-smelling black mold
substance blanketing his office—the result of several flooding
incidents that were attributed to a construction flaw.”
Prior to the renovation, it is reported that he hadn’t missed a
day of work in 28 years, but due to his worsening in the months after
the renovation, he hasn’t worked since
November 25, 2000
.
Courts in some jurisdictions have permitted testimony linking
adverse health to mold exposure. See,
for example, Mondelli v. Kendel
Homes Corp., 631 N.W.2d 846, 856 (
Neb.
2001)(plaintiff alleged asthma –related symptoms from mold).
Courts in other jurisdictions, however, have excluded testimony
attempting to make the link between mold exposure and adverse health.
See, National Bank of Commerce v.
Associated Milk Producers, Inc., 22 F.Supp.2d 942 (E.D. Ark. 1998)
Defective Construction is the Alleged Cause of Mold Growth
Some
reasons offered for the recent increase in mold litigation include the
following: (1)
fast construction during the housing boom of the past several
years has led to faulty workmanship; (2) also as a result of the fast
pace of construction, lumber has been used before it sufficiently dried
and materials have been permitted to lay uncovered and exposed in the
weather before their use; (3) complex designs with multiple roof angles
and gables, skylights, innovative angular and tiered wall systems, and
the like have exacerbated the likelihood of leakage; (4) as buildings
have become more air-tight, they may prevent materials that get wet
either by condensation or leakage from drying out; and (5) building
materials that are being used today are more susceptible to mold growth.
The number of theories and potential defendants seems to grow
almost as fast as mold itself.
As with the medical building renovation reported in the
Detroit
paper, it appears that many of the reported cases of mold problems began
following renovation or remodeling of an existing house or office.
In many other cases, the problem is alleged to be caused by
faulty new construction that permitted leaks of water into the building
from roofs or wall systems, or from interior water pipes.
Other cases have alleged that condensation from HVAC systems has
caused or contributed to the growth of mold.
In another article in The
Milwaukee Journal Sentinel (December 29, 2002, Dan Benson
reporting), the reporter
describes the situation of a Michigan family that moved out of their
house into a hotel for two months, and then into a rental home (all at
insurance company expense) following a remodeling job on their home.
They allege that faulty workmanship resulted in leaks and
condensation around light fixtures, causing mold to grow on the roof
sheathing, soffit area, and even in the basement.
Now they are in a dispute with their homeowner’s insurance
company over repairs and damages.
A jury in
one
Texas
case awarded judgment for a homeowner against her homeowners’
insurance carrier in the amount of $32 million, on a claim property
damage, bodily injury and mental anguish, all resulting from water
damage and mold. In
Florida
, a jury awarded judgment
over $11 million to Martin County Florida against a construction manager
and its sureties for water damages and mold caused by construction
defects. There was water
infiltration through the exterior synthetic hard coat wall system and
there were problems with the HVAC system.
A significant part of the County’s monetary damages arose from
its decision to vacate the entire building while construction problems
were corrected and remediation was carried out.
The Insurance Company’s Perspective
Insurance premiums have historically been based upon actuarial
information and underwriting guidelines that were in place before the
massive mold litigation began. Consequently,
the premiums collected have only covered risks and losses from the old
bread-and-butter issues surrounding design and construction.
Insurance companies that are defending against mold-related
claims, and in some instances paying significant damages for
mold-related claims, are being hurt financially because of insufficient
collected premium to cover unforeseen claims on risks for which they
charged no premium.
With new insurance policies for homeowners, and for design
professionals and contractors that are involved in home design or
construction, insurance companies are at significant risk unless they do
something to limit their own exposure to loss resulting from claims
alleging damages arising out of mold-related matters.
For reasons such as those discussed in this newsletter, insurance
companies currently underwriting policies such as these are finding it
difficult, or even impossible, to evaluate the risk of potential
mold-related damages and claims. Without actuarial data and scientific
information to assist the underwriters, it is impossible to know how
much premium is actually necessary to cover the potential risk.
In the absence of standards for mold exposure and for mold
testing and remediation, it is hard to see how this situation will
change anytime in the near future.
In the meantime, some insurance companies are devising ways to
provide limited mold coverage to some of their insureds, while at the
same time protecting the insurance company against the financial
disaster that could ensue from an avalanche of mold claims.
For example, it may be possible to endorse policies to provide a
sub-limit of coverage for mold. A design professional liability policy
or contractor’s general liability policy, for example might include an
endorsement stating that damages related to mold shall be limited to a
dollar amount less than the full policy limit.
Another approach is to limit coverage to property damage only,
and to specifically exclude bodily injury claims.
It is likely that for the foreseeable future, decisions
concerning the terms, conditions and amounts (if any) for granting
mold-related coverage in new policies will be made by insurance carriers
on a case-by-case basis.
Need for Standards
It is clear that there is a need for standards related to mold.
Until standards are established, it will be hard for insurers to
cover design professionals and contractors for this exposure.
Many of these firms may have to operate without coverage or with
limited coverage that may expose them to serious financial risk.
Standards are needed now, and they need to address, at a minimum,
licensing, and certification of mold evaluators and mitigators.
Standard testing methods are needed to enable accurate and
consistent analysis of the potential problems. Establishing criteria and
methodology for clean-up must be accomplished in order to determine a
reasonable standard of care for designing and carrying out mold
mitigation efforts.
Finally, more research needs to be done by the medical community
to develop quantitative exposure guidelines and causal links to health
effects. A cooperative
effort between local, state and federal agencies is needed—and needed
soon—so that we can move ahead from the biblical standards for dealing
with mold in earthen houses to the standards required by a modern
society.
Acknowledgment: This article was originally written for publication in Environmental Risk Briefings, a
newsletter published by Arch Insurance Company. The Briefings are available at the
Arch Insurance website at
http://archinsurance.com/aigu_mkt_environ_index.htm.
________________
About
the Authors:
Richard
Zarandona is a Senior Vice President for the Arch Insurance Group
where he directs and manages the Environmental and Design Professional
operations. Mr.
Zarandona holds and MBA in Finance from the Silberman School of
Business. He also has a
Masters Degree in engineering and is a licensed professional engineer in
numerous states. Mr.
Zarandona has spent more than 25 years working in the environmental and
insurance fields. He has
provided expert testimony for environmental projects and has managed
Phase I and Phase II site assessments, site remediations and numerous
Federal and State clean up actions and studies.
J.
Kent Holland, Jr., is a Risk
Management Services Consultant and is a construction lawyer.
He
formerly served as an attorney in the Office of General Counsel of the
U.S. Environmental Protection Agency, with responsibility for assisting
the Agency in legal and regulatory issues concerning the Superfund
program. Mr. Holland is a frequent speaker for groups such as the
American Bar Association and the International Risk Management Institute
on the subjects of environmental law, insurance law, and construction
law, with a special emphasis on risk management for environmental and
design professionals as well as contractors, and he has written
extensively, including his most recent 300 page book, Construction
Law & Risk Management - Case Notes and Articles,
(available at Amazon.com).
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ABOUT
THIS NEWSLETTER & A DISCLAIMER
This
newsletter Report is published and edited by J. Kent Holland, Jr.,
J.D., a construction lawyer and risk management consultant for
environmental and design professional liability. The Report is
independent of any insurance company, law firm, or other entity, and is
distributed with the understanding that ConstructionRisk.com, LLC, and
the editor and writers, are not hereby engaged in rendering legal
services or the practice of law. Further, the content and comments
in this newsletter are provided for educational purposes and for general
distribution only, and cannot apply to any single set of specific
circumstances. If you have a legal issue to which you believe this
newsletter relates, we urge you to consult your own legal counsel.
ConstructionRisk.com, LLC, and its writers and editors, expressly
disclaim any responsibility for damages arising from the use,
application, or reliance upon the information contained herein.
=====================================
Copyright
2004, ConstructionRisk.com, LLC
Publisher
& Editor: J. Kent Holland, Jr., Esq.
8596 Coral
Gables Lane
Vienna, VA
22182
703-623-1932
Kent@ConstructionRisk.com
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