Toxic Mold

Date: Jul 01, 2002

How are insurers and homebuilders affected by toxic mold litigation? 

Until last year when a homeowner won $32 million in a lawsuit against Farmers Insurance, insurers and homebuilders were not worrying about mold.  However, there are now approximately 10,000 cases involving toxic mold throughout the United States and counting.  Plaintiffs can sue under numerous causes of action including: negligence, strict liability, breach of implied and express warranties, breach of contract, fraud, failure to disclose in the sale of property, nuisance and bad-faith insurance claims. 

In Texas alone, there were 37,000 mold claims filed costing insurance carriers $854.3 million in 2001.  Toxic mold is having such an effect on insurers that State Farm Insurance has stopped writing new policies in Texas and California because of the number of mold claims in those states.  The trend will continue as injured property owners bring suit against "deep pockets" in the housing industry including product manufacturers, construction companies, homeowners associations and insurers.  It is important for these groups to take active steps to limit their liability now and prevent future possible claims.

What is toxic mold? 

Toxic mold is a term that refers to the few dozen types of mold that produce chemicals called mycotoxins.  Mycotoxins are transmitted through mold spores and usually enter a person's body through inhalation or contact with the skin.  These mycotoxins are potentially poisonous and have been reported to cause health problems including rashes, seizures, unusual bleeding, respiratory problems, severe fatigue, and neurological problems such as headaches, memory loss and brain damage.  

Scientists and health professionals differ over the extent that toxic mold poses a health risk to people.  Some researchers say toxic mold is not only dangerous but also deadly, pointing to studies that show infant deaths caused by Stachybotrys mold, a common toxic mold.  However, the Center for Disease Control (CDC) has downplayed the connection between mold and serious illness and has yet to issue a report on toxic molds.  The lack of strong medical evidence has not deterred homeowners from engaging in litigation. 

Where is toxic mold found?

While mold has been around forever, even found in homes for centuries, the toxic mold problem is a relatively recent phenomenon.  Scientists attribute this to new construction techniques and cellulose based building materials that have allowed mold to thrive in homes and other buildings.  Mold only needs moisture to survive and can grow on various types of building materials such as wood, ceiling tiles, paint, carpet, sheet rock, insulation, and plaster.  When mold is disturbed, spores become airborne and create a potential hazard.  Toxic molds have been found in schools, police stations, workplaces, hospitals, stores, public housing projects and most pervasively in thousands of homes throughout the country.  

Are there regulations concerning toxic mold?

With the increasing prevalence of toxic mold related issues, from medical causation to insurance coverage, lawmakers in various states and the federal government have proposed regulatory legislation. 

Several states, including Arizona, California, Massachusetts, Michigan, Maryland, New York, and Pennsylvania have passed or now have pending legislation that would establish a task force or review panel to evaluate toxic mold.  These groups review issues related to the financial, environmental and health related effects of indoor commercial and residential mold contamination and recommend exposure limits, assessment standards and avenues for remediation.  Michigan's bill would actually require the Department of Community Health to establish standards for permissible exposure limits for toxic mold.   

The most active state in terms of toxic mold legislation is California.  In addition to establishing a task force, California's law establishes exposure standards and mandates a disclosure requirement for known mold contamination occurring in commercial properties.  California also has pending a bill that would direct the state's insurance department to examine the availability and adequacy of commercial and residential property coverage for mold damage. 

Federal legislation is also in the works.  Representative John Conyers (D-Michigan) has taken the lead on federal policy and is scheduled to introduce the United States Toxic Mold Safety & Protection Act in the 107th Congress.  While the bill is still being formulated its current form would: require the EPA to establish mold exposure guidelines, require states to license and monitor mold inspectors and mediators, mandate the CDC to conduct a long term study of the health effects of mold, allow states to tap federal dollars to clean mold disasters, provide mold insurance and require homeowners and real estate developers to disclose mold problems when they sell a house. 

With many states and the federal government considering regulatory legislation, toxic mold issues will be at the forefront of the housing industry for years.

For more information on how Keller and Heckman can assist your company in evaluating the current state of toxic mold regulation, securing insurance coverage relating to a toxic mold claim or defending your company in toxic mold litigation, please contact Art Garrett, a partner with the firm's litigation department at (202) 434-4248 or garrett@khlaw.com.