Three Years Later, Industry Puts Toxic Mold into Perspective

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Three Years Later, Industry Puts Toxic Mold into Perspective

February 9, 2004

Whatever became of mold? Only three years ago, newspaper headlines,

fueled by overzealous trial attorneys and misguided scientific

information, trumpeted mold as " the next asbestos. "

Since then, however, mold has reverted back to what it has been for

centuries: a naturally occurring organism, easily prevented and

eradicated in most cases, posing little or no threat to healthy

people. That such a simple organism could lead to such a complex

issue is a testament of what hype, hysteria and junk science can do.

What kept mold from becoming " the next asbestos? " In retrospect,

insurers' aggressive public policy response to the brewing crisis—

combined with a dose of common sense from the medical community and

state regulators—helped restrict what could have been a runaway

problem.

Prior to 2001, insurers viewed mold as primarily a maintenance

issue. They traditionally excluded it on property forms, providing

coverage only for mold that was part of an otherwise covered claim.

Covering mold in its own right would make insurance prohibitively

expensive for policyholders. It was less expensive for property

owners to budget for the proper maintenance that would keep

buildings dry and prevent mold from growing in the first place.

In recent years, mold began showing up as an alleged health concern

within liability claims stemming from water damage. Plaintiff

attorneys found some traction in courtrooms where they could

introduce spurious information as if it was fact. This gave the

pioneers of the mold economy—including plaintiff attorneys,

mold " remediators " and professional expert medical witnesses—useful

experience they could apply when opportunity was thrust upon them.

This finally happened in 2001, when a $32 million judgment in a

Texas claim handling case that included mold, made the topic a

national issue. The dollar amount got a lot of attention, especially

from plaintiff attorneys and businesses that make their living from

insurance claim dollars. Ironically, this mega-judgment came in what

was actually a homeowners policy claims handling case where mold was

present—an important distinction in light of what happened next.

As fate would have it, a tropical storm hit Texas just days after

the big judgment, giving creative opportunists the perfect

opportunity to foment hysteria over what they were now

calling " toxic " mold. The news media, always searching for colorful

visuals, seized upon the rare worst-case scenarios provided by these

opportunists to transform a ubiquitous, naturally occurring organism

into a major health threat.

Spurred by the media and the trial lawyers, and assisted by the

Internet, an entire mold industry burst into being. Plaintiff

attorney firms created " mold information " Web sites. Self-styled

mold remediation " experts " advertised on the Internet and linked

with the attorney sites. Both groups descended on the area of Texas

where the tropical storm struck. The situation became so bad that

the Texas insurance commissioner asked the attorney general to

investigate claim fraud in the area.

The insurance industry faced a decision: allow mold to become like

silicone breast implants, where true science arrived too late to

save a number of companies from bankruptcy through litigation; or

help mold become another radon, where science overcame hysteria in

time to eliminate the fear and the threat. While the hypesters

predicted that mold would turn into another asbestos, insurers went

to work gathering facts and educating regulators, legislators and

the public.

Aside from one discredited study that the Centers for Disease

Control (CDC) retracted shortly after its 1994 publication,

scientific studies consistently reinforced the fact that beyond

acting as an allergen or irritant, mold did not cause problems in

normally healthy people. Official publications from such creditable

sources as the Environmental Protection Agency (EPA), the

Occupational Safety and Health Agency (OSHA), the Center for Disease

Control, the Texas Medical Association and the Texas Health

Department showed again and again that mold was just mold. It was

not a monster that threatened man's existence, but a necessary part

of the ecosystem whose purpose was to break down dead organic

materials. Most importantly, it was easily prevented and handled in

most cases.

The insurance industry helped disseminate this information, which

helped defuse the " toxic " mold hype. Gradually the media feeding

frenzy began to die down and the number of " toxic " mold headlines—

and court cases—lessened.

However, politics would not be as simple to handle. California,

always one of the most environmentally conscious states in the

country, passed a law in 2001 instructing health officials to

develop exposure standards for mold. This law was written in such a

way that the pulmonary-compromised individuals covered by the law

would require a zero tolerance standard for mold. In essence, the

state passed a law requiring eradication of a living organism that

exists everywhere.

Citing budget shortfalls, the California Health Department has yet

to begin the study, which would be redundant in light of the

scientific literature published in the last three years.

Eventually, however, some common sense returned to the public policy

process. The growing body of scientific evidence presented by

insurers and others convinced policy makers in other states that the

California example did not make sense. Other states concentrated on

gaining scientific knowledge without predetermining the outcome,

disclosure requirements in real estate transactions and regulating

mold assessors and remediators.

Using factual statistics from the early mold claim experience in

Texas, insurers helped most state insurance regulators see the need

to allow reasonable limitations on mold following a covered loss.

Claim data showed that mold alone would add 40 percent to homeowners

insurance rates if insurers covered mold claims arising from a

covered loss at the full value of the policy. Regulators realized

when something became as predictable as mold, homeowners and

commercial property owners would not be able to afford the coverage.

While market-based solutions would have been the best approach to

take, politics often resulted in regulators requiring some minimum

level of coverage. Yet, insurers found room to develop competitive

options and allow consumers to decide which options they preferred.

At the same time, they made it harder for the profiteers to feed at

the insurance trough.

State legislators and regulators also worked to rein in the

profiteers. Again, Texas took the lead, successfully prosecuting

several " remediators " for insurance fraud in the aftermath of the

2001 tropical storm. The Texas legislature enacted licensing,

training and professional requirements for mold contractors. Other

states continue to consider such requirements to protect consumers.

Mold profiteers also are running into better-educated consumers.

Respected governmental agencies such as EPA, OSHA, the Texas

Department of Health and the Texas Office of Attorney General have

published common-sense guides for preventing the water damage that

is always the root cause of mold growth. These publications stress

the importance of quickly dealing with water problems to prevent

mold growth, handling mold before it becomes a major problem, and

choosing qualified professionals to clean up the rare cases that are

too big for property owners to handle.

Finally, mold profiteers are running into better-trained insurance

professionals who know what tools are required to handle each unique

mold situation. Claim adjusters know which mold contractors are

professional and when to use them. Insurance claim professionals

work to minimize disruption for their insureds and keep costs down.

The insurance industry's proactive stance on mold helped prevent it

from becoming " the next asbestos " that opportunists hoped for. For

homeowners insurers, mold is headed toward becoming a controllable

exposure. For insurance consumers, mold is an exposure they can

cover for an appropriate price, depending on which insurance

products they choose to buy.

However, mold is still attractive as an income source, especially in

the commercial liability arena, where it continues to play a

significant part in class action litigation against building owners

and builders.

Moving forward, insurers must continue to use the tried and true

methods of public policy advocates—gather all the facts, build

strong coalitions of organizations and individuals that may be

damaged by these unfounded claims, and speak with one clear and

unambiguous voice to legislators, regulators, the news media and

consumers.

Golden is director of commercial lines for the Property

Casualty Insurers Association of America (PCI). At PCI, he

concentrates on general liability and commercial auto issues. Prior

to joining PCI, Dave had nearly 20 years experience in commercial

lines underwriting, marketing and management.

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