Mold Proves Toxic for Insurers, Clients

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Mold Proves Toxic for Insurers, Clients

Mold -- as old and as common as dirt -- is spreading trouble everywhere.

The lowly organism is goading insurers, real estate professionals, lawyers,

lawmakers and interest groups into action.

And particularly in the past six months, insurers are excluding mold from

general liability and other coverages, often forcing contractors and

building owners into pollution policies that cover mold -- but with higher

premiums. As a result, mold prevention has become a hot topic between

brokers and clients.

" It's an awareness thing, " said Cam Dickinson, vice president of the

construction and real estate division of Woodruff-Sawyer & Co. in San

Francisco. " We're trying to make contractors aware that there's this

potential problem, here's how to spot water intrusion and here's how to

mitigate it. "

Airtight case

If mold has been around forever, why is it such a big deal now?

Ironically, part of the reason for the problem stems from an advance in

construction technology -- the development of super-energy-efficient

buildings. Homes in the last 10 to 15 years have been built so air-tight to

conserve energy that if leaks develop, there's little draft to dry out the

water.

" Once water gets in there, it's trapped, " said Whitney , a partner in

the Sacramento law firm Charter .

The firm handled 100 mold cases in the late 1990s, but that climbed sixfold

by last year, said , who represents both plaintiffs and defendants.

Most of the cases wending their way through the courts involve residential

real estate property, but lawsuits involving commercial property have been

filed, too.

Such cases have caused insurers, already socked by billions of dollars in

losses from incidents surrounding

Sept. 11 and rising reinsurance costs, to shy away from anything that smacks

of a potential loss.

So now property owners and contractors must buy such protection as pollution

liability coverage, which could start at $25,000 to $50,000 for every $1

million in coverage, said Kneis, executive vice president for Willis

Insurance Services of California's global project risk advisers.

" If you're the owner of a property and you don't catch it, the risk is not

the (higher) premium, it's defending yourself in court, " said Kneis, also

managing director of Willis' San Francisco construction practice.

Fungus among us

To thrive, mold needs three things: food (such as wood, paper or dirt),

moisture, and a place to grow. Flooding, leaky roofs and bad plumbing can

all lead to mold growth in homes.

California has the second-highest number of insurance claims in the United

States for mold contamination, behind only Texas, according to the Insurance

Information Network of California, an industry-funded group in Pleasant

Hill.

Insurance companies don't have separate policies for mold. Coverage depends

on the cause. Flood insurance, for instance, would cover mold contamination

if flooding prompted mold growth.

" As an industry we have concerns because of the complexities and

uncertainties involved in this issue, " said Mahrt, Western

spokeswoman for the American Insurance Association. " There's really an

information void on this issue, and sometimes where there's a void, personal

injury lawyers see that as an opportunity. "

Preventing problems

Mold indeed is a murky issue. Even scientists don't agree on how dangerous

mold is. Health effects vary according to people's sensitivity. A level of

exposure that's harmless to one person may cause severe allergic reactions

in another.

Until recently, no government agency regulated mold and there were no

standards on what levels of mold were hazardous. A new state law, however,

is setting standards on what constitutes dangerous levels of mold.

The Toxic Mold Protection Act of 2001 was signed by Gov. Gray in

October. It requires the state Department of Health Services to create a

task force to develop permissible exposure limits to mold. If it turns out

to be feasible to develop the limits, the department is supposed to report

its progress by July 1, 2003.

The new standards would not take effect for several years, but have the

potential to impact even more real estate transactions.

Some builders have taken steps to prevent mold in their buildings, reducing

the amount of water they use in making concrete slabs, for example, or using

only fiberglass insulation, instead of cellulose insulation, which mold can

eat.

They also are installing exhaust fans in the shower areas of bathrooms and

using only vinyl windows, which have less condensation than other types.

Insurance brokers also are trying to educate their clients on the potential

problems. And the good news about mold is that it can be cleaned away and

the problems are treatable.

Woodruff-Sawyer, for example, had conducted three seminars over the past

year, including one last month for a construction industry group.

" The last thing you want to have is a bunch of kids in a school getting sick

because there's mold in the room, " Dickinson said, " and the same thing with

an office building or a residence. "

Source: Barbara Marquand, San Francisco Business Times

Date Posted: March 22, 2002