Mold claims on the rise, regulation under review

[Guest guest]

http://www.bizjournals.com/twincities/stories/2002/02/18/focus2.html

February 15, 2002

Growing issue raises insurance questions

Mold claims on the rise, regulation under review

Griffith Contributing Writer

Mold is a good thing, if it's used to flavor blue cheese or spawn

penicillin.

It's not so good on walls, where it has been increasingly found in recent

years.

Liberty Property Trust battled mold 18 months ago when a tenant found it

growing on his office walls.

" It was a new building and the assumption was that it was waterproof, but in

reality, the builders had not applied proper sealants to the concrete

block, " said Doug , senior property manager for Liberty Property

Trust's Eden Prairie office. The Philadelphia real-estate investment trust

owns 50 buildings in the Twin Cities.

A heavy rain dampened the drywall, and mold takes to drywall like week-old

bread.

Insurance

Liberty Property Trust hired an environmental consulting firm to help it and

the general contractor clean up the mold. They put up a plastic barrier and

a filter designed to remove small particles and purify the air, removed and

replaced moldy materials and applied new sealant. estimated the cost

of environmental consulting and removal to have been from $5,000 to $7,000.

Liberty now inspects its buildings every year for signs of mold or water

damage. The problem has not returned.

Mold is as old as life itself, but it is a relatively new concern for

building owners and managers. The growing problem is raising liability

concerns and questions about insurance coverage for everyone from general

contractors to building owners.

The problem frequently affects buildings built since the early 1970s, said

Mark Litchke, operations manager for indoor air quality at EnviroBate Metro

Inc., Minneapolis.

" Buildings were built so energy-efficient and airtight that moisture and

humidity are not permitted to escape, " he said. " You have moisture, plus

building materials for nutrients, and you have mold. "

EnviroBate began handling asbestos and lead abatement in 1991, but

introduced its mold-removal division in 2000.

Indoor-air quality has become a topic of concern in the last decade, said

Dana Sawrey, owner and operations manager of environmental contractor Mavo

Systems Inc. in Fridley. Mold is considered part of the general air-quality

problem, due in part to recent media reports on mold-infested homes.

" We're working on mold jobs every day, " he said.

Mold is referred to as " the new asbestos " in some circles, because of its

potential litigable impact, but the presence of mold spores creates a

different situation. Asbestos is a known carcinogen, and laws regulate its

use and removal.

The California State Department of Health Services is investigating whether

permissible limits of exposure to mold can be determined and enforced.

" The rest of the country is waiting to see what happens in California, "

said. " But the problem is, you're trying to regulate an organism. "

Builders and owners also must be aware of the insurance risks involved with

this " new " threat, said Bob Thavis, a partner at Leonard, Street and

Deinard, Minneapolis, who has analyzed coverage for mold situations.

" Before Sept. 11, mold was the hottest issue in the insurance world and we

are starting to see lots of claims, " he said.

Three main issues in mold cases can trigger problems with insurance

coverage. First, a policy might cover physical damage to property, but the

carrier can argue that mold does not constitute physical damage in some

cases.

Second, the insurer could cover only new losses and argue that the mold had

been in the building for years. And third, policies typically exclude damage

from fungus. That means a policy might cover secondary losses if a building

is uninhabitable, but will not cover mold removal.

" Contractors need to look proactively at business insurance and think about

these issues specifically when they are buying insurance, " Thavis said.

Mold usually is discovered in one of two ways, said Slade , senior

project manager for the indoor environmental division at the Institute for

Environmental Assessment, a health and safety firm in Brooklyn Park.

Tenants may complain of allergy symptoms such as respiratory irritation or

eye, nose and throat problems.

" If you know there are some moisture infiltration issues such as roof leaks

or high humidity, and you have ongoing complaints from tenants, there might

be a correlation, " said.

In an unoccupied space, a tenant or manager may notice actual mold growth.

It looks pretty much the way you would expect mold to look:

three-dimensional and fuzzy, black, red, white or green.

If a mold problem is suspected, the first step is a visual inspection of the

building, said Margaret Knowlton, environmental risk manager for Opus Group,

a Minnetonka developer.

Opus has never had to deal with a mold situation large enough to warrant

bringing in an outside specialist, so it has handled cleanup itself.

Knowlton said the company probably would bring in an environmental

specialist for a larger problem, which is common procedure among general

contractors and developers.

These specialists tend to fall into two categories. Industrial hygienist

firms such as the Institute for Environmental Assessment evaluate the

problem, and firms such as EnviroBate handle mold removal.

Building contractors and owners also can take steps to protect themselves

from mold and its consequences.

It begins with good communication on the construction site, said Bob

Torgerson, a partner with law firm Leonard, Street and Deinard.

" You have to address how the elements of a project are controlled, and

everybody should know his or her role in that, " he said. Contracts should

include a provision for dispute resolution.

Vigilant inspections also can prevent problems or catch them early.

Sawrey recommends an annual inspection to make sure the building has no wall

or roof leaks, paying particular attention to windows and flashing. Carpets

and ceiling tiles should be checked for signs of water damage.

If you do have water damage, clean it up immediately.

" Even over a weekend, mold can start to grow, " he said.

agrees. " If you do have water that comes in, take the time to open

up the drywall and dry out the wall, " he said.

" The upfront and ongoing maintenance costs are not an issue, but the cost to

remediate mold gets very expensive. "

Remediation costs are hard to estimate, because the price depends on the

size and length of the job and the amount of materials removed, said

Rau, director of sales and marketing at EnviroBate. He said a commercial job

can cost anywhere from $2,000 to $500,000 or more.

Griffith is a St. -based freelance writer

Copyright 2002 American City Business Journals Inc.