Editor’s Note: This is the first of a two-part series dealing with the rising issue of toxic mold claims.
These days, an Internet news search on the word “mold” will bring up numerous articles testifying to the fact that mold is becoming a major concern across the U.S.
Headlines such as “Black Mold Plagues Local School,” “Mold Infestation Turns Carmel, Ind. Family’s Life Upside-Down,” or “Haunted by Mold,” reflect the level of attention veering towards hysteria on the subject. A particularly stunning headline appeared on June 4, 2001, when Melinda Ballard and her family were awarded $32.1 million by a Texas jury in a mold-related lawsuit against Farmers Insurance Group.
While plaintiff and defense attorneys lock horns in court, insurers and their regulators ponder what will come next and how to deal with it. The situation isn’t helped by the fact that there have been conflicting reports from the medical community as to the relationship between certain molds and health problems.
According to a California Department of Health Services’ (DHS) Indoor Air Quality (IAQ) Info Sheet, “Mold in My Home: What Do I Do?,” the question as to whether one should be concerned about mold found in the home is, “Yes, if indoor contamination is extensive, it causes very high and persistent airborne spor exposures. Persons exposed to high spore levels can become sensitized and develop allergies to the mold or other health problems.” It is also noted that some molds are more hazardous than others (see Figure 1).
According to some mold case experts, the health effect issue presents a vast assortment of variables. For example, a pre-existing condition might be exacerbated. Also, mold can act as both an allergen and a toxin; consequently, there are two completely different pathologies that may affect different people with exactly the same exposure. Mold can also create or promote conditions that have a certain level of occurrence in a general population; in many instances, the reaction or the disease is something that also occurs without the presence of mold.
Q. Are some molds more hazardous than others?
A. Allergic persons vary in their sensitivities to mold, both as to the amount and the types to which they react. In addition to their allergic properties, certain types of molds, such as Stachybotris chartarum, may produce compounds that have toxic properties, which are called mycotoxins. Mycotoxins are not always produced, and whether a mold produces mycotoxins while growing in a building depends on what the mold is growing on, conditions such as temperature, pH, humidity or other unknown factors. When mycotoxins are present, they occur in both living and dead mold spores and may be present in materials that have become contaminated with molds. While Stachybotrys is growing, a wet slime layer covers its spores, preventing them from becoming airborne. However, when the mold dies and dries up, air currents or physical handling can cause spores to become airborne.
At present there is no environmental test to determine whether Stachybotrys growth found in buildings is producing toxins. There is also no blood or urine test that can establish if an individual has been exposed to Stachybotrys chartarum spores or its toxins.
Source: California Department of Health Services’ Indoor Air Quality Info Sheet, “Mold in My Home: What Do I Do?” (revised July 2001)
Insurers ask questions
The insurance issues tagged on top of that are myriad. For example, what is the action of the disease? Is it one in which somebody builds up a reaction, so there’s no disease until a certain point in time? Should it be treated as a continuous injury type of situation? Is an allergy bodily injury?
Not surprisingly, carriers are increasingly searching for answers amid all the uncertainty. Such steps range from bringing mold experts and specially trained personnel on board; retaining legal consultants who specialize in mold cases; and evaluating possible changes to policy language and adding mold exclusions.
Dave Dasgupta, an Insurance Services Offices (ISO) spokesman, noted that the current policy language under the commercial general liability (CGL) form contains a pollution exclusion. He noted that while the number of court decisions regarding the application of the pollution exclusion with regard to mold claims is quite small at this point, it appears some courts are hesitant to apply the pollution exclusion in such scenarios. Industry sources have said there is surprisingly little case law on that issue across the country and reportedly none at all in California.
Dasgupta said a major point regarding the CGL policy’s pollution exclusion is the interpretation of mold, which is determined by carriers who use the forms, and/or the courts if a claim is legally contested. In other words, whether or not mold is interpreted as a pollutant will determine whether or not it is covered.
Under commercial property, coverage for fungus-related damage claims only happens in the immediate aftermath of a covered cause of loss, and the special causes of loss form excludes loss caused by fungus as part of an exclusion that also addresses other damages. In the homeowners dwelling policies, mold is not covered, with the exception of hidden mold that results from, for example, accidental discharge of overflow water or steam that’s hidden behind a wall. However, it is also the responsibility of the insured to take reasonable care and precaution to preserve and protect the property at all times, both as a basic maintenance issue and especially after a loss occurs.
“ISO has what are called insurance panels, which include insurance representatives, and ISO experts,” Dasgupta said. “Basically, the industry can tell us what they’re hearing and feeling—what some of the hard issues are. Right now, nothing has been done, but there are some discussions going on in terms of some revisions in the commercial lines and personal lines policy forms, including some specific endorsements or exclusions related to mold. But nothing has been finalized.”
Carriers ‘circle the wagons’
It would seem that a number of companies, if they haven’t already, will start requiring the addition of mold exclusions to policies. It has even been rumored that London reinsurers are running in so much fear of mold that some say they won’t reinsure any new business in California without a mold exclusion.
There are those that believe that, particularly in certain areas of the country, it would be foolhardy not to have a mold exclusion in that the exposure is too hard to quantify and too expensive to undertake. But that in itself releases a flood of questions. Once a mold exclusion is in place, should there be a sick building exclusion because there could be viruses and bacteria? In a sick building, is the problem mold or bacteria, or both? Or is it the toxins released by dead mold, and is this something an insured has a right to expect coverage for?
Another take on the issue is the belief that tort law often follows insurance coverage. Under this reasoning, it is held that if for some reason mold-related injuries were not covered by insurance, the development of the case law would be greatly curtailed.
Adding fuel to the fire
One element contributing to all the furor is that once a building lived in or frequented by a large numbers of individuals has been identified as sick, it creates the opportunity for many people to bring lawsuits.
Accordingly, mold cases are extremely complicated and expensive cases to try. On the medical side alone, a veritable army of experts can be involved, including mycologists, microbiologists, industrial hygienists, occupational environmental doctors, toxicologists, immunologists, allergists and neuropsychologists.
And when construction defect gets thrown into the mix, things can really get interesting. In fact, the fusion of mold claims with construction defect claims is looked upon by some as the part of the issue that is truly affecting premiums and reinsurance.
Another major difficulty in the cases is the issue of what constitutes appropriate expert testimony and what does not. The medical expert testimony that was excluded in the Ballard case might very well have been admissible in a California court, where a different standard for admissibility of evidence is employed. In fact, the very same medical experts who were excluded in Ballard were reportedly allowed to testify in a Delaware case during the same time period.
Even for carriers who do their utmost to take preventive and remedial action to undermine any potential side effects from mold—how much is “good enough”? How much mold is required to actually sicken a person susceptible to the adverse effects of a certain species? Once you remove that susceptible person from the source of mold exposure, what are, if any, the long-term health effects?
In March 2001, the U.S. Environmental Protection Agency released an article, “Mold Remediation in Schools and Commercial Buildings,” which promulgated guidelines to remediate known mold growth in those settings. However, it must be noted that what is suggested there are guidelines, not standards.
And perhaps the most difficult conundrum is—how can you be absolutely sure that a person’s symptoms are caused directly by exposure to mold?
Taking it to the courts
While no major mold-related judgements have yet been handed down in California, the first few big mold cases tried in the state should prove important with regard to how the industry will confront the mold issue.
An interesting case in point originated in March 2000 in California’s San Joaquin Valley. At that time, Superior Court Judge Elisabeth Krant filed a lawsuit against the County of Tulare, alleging that a variety of ongoing medical problems she experienced stemmed from mold contamination in her chambers in the County courthouse located in Visalia. One of the mold types found in the Visalia courthouse was Stachybotrys.
This suit was followed by a flurry of both workers’ comp and government tort claims, predominantly by employees of Tulare County working in the Visalia courthouse. At one point, the number of claims filed against the County, on behalf of the individual employees and two judges other than Krant, soared to approximately 275. All such government tort claims—alleging that exposure to toxic mold in the courthouse sickened employees—were rejected, opening the door for those claimants to file personal injury claims. Similarly the workers’ comp claims of the employees of the County were denied.
“[The employees] made workers’ comp claims last year and the County denied all of them,” said Alexander Robertson IV, of the Woodland Hills law firm Robertson, Vick & Capella. “[The County says] these claims ought to just be treated as comp claims, and that’s their exclusive remedy. But the County is self-insured…While they’re saying [the employees] shouldn’t be allowed to be in civil court with a liability lawsuit, the [employees] don’t have any workers’ comp benefits because the County’s denied it all…Most of the employees have hired workers’ comp attorneys, and they’re going through the state workers’ comp appeal board process trying to appeal the County’s denial of their claims.”
But Michael Woods, an attorney from McCormick, Barstow, Sheppard, Wayte & Carruth LLP in Fresno, who was retained by the Tulare Board of Supervisors to defend the County, noted that the denial of the workers’ comp was to be expected because the County has consistently maintained that employees in the courthouse suffered no injury as a result of being exposed to toxic mold.
Mold cases in the spotlight
Currently, there are seven lawsuits pending, involving claims alleging personal injury arising out of exposure to toxic molds in three different courthouses: Visalia, Tulare and Dinuba. Of the 115 plaintiffs involved, all but two are represented by Robertson. Of those plaintiffs who are not county employees (technically Krant is an employee of the State of California), some are vendors, and a few are attorneys who have had occasion to use the Visalia courthouse.
Robertson indicated that he represents about 1,000 plaintiffs in mold cases throughout California. One of Robertson’s current clients is Erin Brockovich, whose Los Angeles home has allegedly been stricken by mold contamination, and he also worked on the Texas case for Melinda Ballard. Additionally, Robertson will soon be filing a complaint on behalf of approximately 100 sheriff deputies who are alleging personal injuries as a result of exposure to toxic mold and lead dust in the old court holding facility in the Salinas courthouse in the County of Monterey.
“Most of my cases involve large buildings with multiple occupants,” Robertson said. “I do have some homeowner clients, but I’m trying to devote my time to the biggest problems, which are buildings that have high occupant exposure, like courthouses.”
The plaintiffs in the Tulare County cases are seeking damages for personal injury as a result of exposure to alleged microbiological contamination in the courthouses. They contend that the Visalia courthouse conducted an investigation but did not disclose the results of that investigation to Krant or to the other employees for a long time.
Woods explained that on April 6, 2001, the defense was successful in its demurrer challenging several causes asserted in a complaint filed on behalf of more than 100 plaintiffs. That complaint, Woods said, alleged many theories the defendants believed were precluded by the workers’ comp exclusive remedy doctrine.
Woods said the court agreed with the defense’s argument that the employees suing the County can only sue for the alleged fraudulent concealment of the mold and are only liable for aggravation of injuries that resulted from the concealment.
“In other words, the county is not liable for the initial exposure of its employees to the mold,” Woods explained. “They’re limited to workers’ compensation for that claim. As to the other claims, the only damages, if they prove liability, are those damages associated with aggravation.” Woods noted that all the complaints filed on behalf of County employees were amended to reflect that plaintiffs are seeking damages against the County for the alleged aggravation of their injuries resulting from fraudulent concealment of the mold by the County, and several causes of action were dismissed.
“Really the focus of the lawsuit changed rather dramatically,” Woods said. “The significance of that ruling is really key because before our demurrer, the plaintiffs’ position was the County had fraudulently concealed the presence of the mold while knowing that the plaintiffs were suffering as a result of the mold. The County, according to plaintiffs, was then exposed to unlimited liability to its employees.
“The effect of [the success of the demurrer] is that now if the plaintiffs want to recover for initial exposure to the mold and all damages that occurred from initial exposure to the mold, if any, they have to look to somebody other than the employer,” Woods explained.
Find out more in “Mold: Fear of the Unknown, Part II”
– Determining Causation
in the September 10th issue of Insurance Journal.
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