Copyright Federation of Defense & Corporate Counsel, Inc. Summer 2006I.
INTRODUCTION
A new toxin is aggressively framing the next wave of tort litigation. It supposedly killed Ed McMahon's sheepdog, Muffin.1 Even Erin Brockovich has sued her contractor with allegations that it took over her new home.2 And a teacher in Piano, Texas, sued her school district because she claimed that it violated her constitutional rights.3 The "it" is toxic mold, and some believe that it represents the next big toxic tort. If mold becomes an unsightly growth on the underside of the legal industry, then perhaps the Bollard lawsuit4 in Texas was the initial spore.
Plaintiff Melinda Ballard, along with her family, had purchased a twenty-two-room mansion in Dripping Springs, Texas (an ironic site for incipient claims of water damage). Soon after moving in, they noticed mold when a hardwood floor buckled due to a water leak. Ballard and her family then began to suffer a variety of ailments. It was not until Ballard discussed her situation with a fellow passenger on an airline light - who happened to be a mold expert - that she became aware that mold might be the culprit behind her family's health problems. The family then hired a mold expert who found that the house was infested with "black mold." As a result, Ballard and her family moved out immediately and sued Farmers Insurance Group to recover for the damage done to their home and their health. The case became known nationwide5 when the jury returned a verdict against Farmers for $32 million.6
The Ballard case has had a profound impact on mold litigation. According to the Texas Department of Insurance, mold complaints proliferated in 2000, shortly after the jury reached its verdict in the Ballard case.7 By the year 2002, the state of Texas hosted approximately seventy-five percent of all mold claims nationwide, though it holds only eight percent of the nation's population.8 As a result of a unique confluence of events-the Ballard case, weather conditions conducive to the growth of mold,9 and a standard homeowners' insurance policy that made it much easier to locate mold damage within the terms of the policy10-Texas has found itself at the forefront of mold litigation.
As the result of cases such as Bollard, mold (viewed earlier as the most ordinary of household nuisances) became a potential cash cow for plaintiffs' lawyers. However, given their position as the primary target of most of the initial lawsuits, insurers moved quickly to ensure that mold did not become the next asbestos. State governments also have become involved in this issue. As a result, the landscape for future mold litigation has changed a great deal since the Bollard case was decided.
II.
BACKGROUND
A. The Basics about "Toxic Mold"
Much has been made of "toxic mold" - a mold that supposedly can sicken and even kill people if it appears in their homes or businesses. However, as the Center for Disease Control and Prevention ("CDC") explains, "[t]he term 'toxic mold' is not accurate."" Although certain molds can produce toxins (such molds are known as toxigenic molds), molds themselves are not toxic.12 Molds are common in buildings and homes and will grow anywhere there is moisture.13 In fact, the CDC believes that there may be as many as 300,000 or more discrete species of mold and fungi.14 The most common indoor molds are CIadosporium, Penicillium, Aspergillus, and Alternaria.14 While the notorious Stachybotrys chartarum (a.k.a. "black mold") is not as common as these molds, it is not rare.16
Although mold growth is common in homes and buildings across the nation, mold litigation has grown more prevalent in Texas in part because of the moisture and warmer weather, which provide ideal conditions for the spread of mold. The question that predominates across Texas and nationwide, however, is what constitutes an acceptable level of mold. Unfortunately, standards for judging what is an acceptable, tolerable, or even normal quantity of mold have not been established at the federal or state levels.
B. The Full Story Behind the Bollard case
While the large jury verdict awarded in the Bollard case received national attention, the actual basis for the award, and its subsequent reduction on appeal, were not widely publicized. In fact, the basis for most of the Bollard award was the finding that the insurance company acted in bad faith.17 More importantly, the appellate court reduced the verdict because it disagreed with many of the jury's findings. While the appellate court held that there was sufficient evidence to support a finding that the insurer had breached its duty of good faith and fair dealing, causing damage to Ballard, it disagreed with the jury's findings of unconscionability, fraud, and "knowing violations" of the duty of good faith on the part of the insurer.18 As a result, the court dismissed the punitive and mental anguish awards,19 and Ballard's $32 million total award was reduced to just over $4 million.20 The decision was appealed to the Texas Supreme Court, but the parties reached a confidential settlement before the court reached a decision.21
The Ballard case, which brought national attention to the issue of mold damage and is blamed by some for inciting a wave of litigation, actually had little to do with the issue of whether water or subsequent mold damage would be covered by homeowners' insurance policies. As Ballard herself pointed out, her lawsuit was not actually a mold case; it was a bad-faith lawsuit against her insurer.22 The other aspect of the Ballard case that causes difficulties for those hoping to capitalize on the mold panic is that the trial court refused to allow the plaintiff to present expert testimony on the allegedly dangerous health effects of the mold.
The Ballard case itself would have had little impact on the legal landscape for mold litigation, were it not for events that occurred in the wake of the jury's decision: the numerous remediation businesses that responded to the panic caused by the case, the resulting lawsuits, and the changes in insurance policies following the mold litigation boom. The Ballard case, as well as a few other high-profile mold cases and problems, dramatically raised public awareness of mold issues, but they also raised awareness of the potential damage to the insurance and other industries if mold litigation continued unchecked. As a result, insurers and legislators have been actively implementing changes that will impact mold litigation in the future.
III.
INSURANCE COMPANY EFFORTS TO COUNTERACT MOLD LITIGATION
A. Standard Insurance Protection before the Mold Panic
Traditional homeowners' insurance policies are "all-risk" contracts. They cover all physical loss to the insured property, subject to many exceptions and exclusions. To cite one of the more common, many homeowners' policies exclude such things as "loss from wear and tear and 'repeated or continuous seepage or leakage.'"23 However, mold still may be covered by homeowners' policies if it is "proximately caused by a 'covered loss.'"24 For example, if mold develops as the result of a burst pipe instead of a slow leak, a court could rule that the resulting mold damage is proximately caused by the burst pipe, which would be covered by the insurance policy.25
In 2001, ninety-six percent of Texas homeowners had HO-B insurance policies.26 These policies provided broad coverage for water damage and ensuing mold or fungi losses, so long as the water damage was not caused by flooding.27 These Texas policies offered greater protection than most homeowners' policies nationwide, since they did not limit coverage to "sudden and accidental" events such as burst pipes.28
B. Changes to Standard Homeowners 'Insurance Policies Due to Mold Panic
In reaction to the wave of mold litigation, insurers have rewritten their policies to exclude mold coverage. "By 2004, at least 44 states allowed [insurance] exclusions for mold and some other water[-]related events."29 The Insurance Services Office30 ("ISO") proposed a mold limitation for homeowners' coverage which has been approved by at least thirty-five states.31 As noted earlier, mold damage is excluded from coverage unless the mold resulted from a covered peril.32 In some states, policyholders may add a separate limited coverage option of $10,000 per year "for loss caused by fungi, wet or dry rot, or bacteria," which would include the cost of mold removal and the expenses involved in "tearing out and replacing any part of the property to gain access to the mold."33 Under the terms of the ISO limitation, coverage for mold-related damage is excluded unless it results "from a covered peril of water damage such as accidental discharge or overflow of water or steam or windstorm, and is covered under policy limits."34 The ISO claims that these changes allow insurers to use "these options to cap potentially high claims and to ensure that insurance coverage at competitive prices is available in the marketplace."35
Reacting to the dramatic increase in mold claims after the Ballard case, some Texas insurers in the summer of 2001 took the drastic step of refusing to issue HO-B policies to new homeowners.36 Other insurers refused to write new policies for homeowners who had previously filed a claim for water damage.37 In response to these decisions, the Texas Department of Insurance ("TDI") permitted insurers to offer the less-extensive HO-A policy, which did not provide coverage for water damage caused by slow and continuous leaks.38 Insurers were still required to pay for repairs to property damaged by water, but they would not have to pay for the testing or remediation of resulting mold.39 The TDI order "did not provide a specific limit on damages," instead permitting "insurers and consumers to determine how much coverage they thought was appropriate."40 Policyholders also would have the option of buying back twenty-five, fifty, or one hundred percent of their original mold coverage.41
As a result of the TDI 's changes, many insurers began selling their "national" policies in Texas. For example, both 
USAA and State Farm received permission from the TDI in 2002 to begin offering their national policies in Texas.42 The primary difference between the Texas form previously used and the national form was the more limited water damage protection offered by the national form.43 In particular, the new USAA policy would provide coverage for damage caused by sudden and accidental water leaks, but would not cover slab, foundation or mold damage caused by constant water leaks or sewer backups.44 However, homeowners would be able to purchase additional coverage for mold and water damage resulting from continuous leaks if they chose.45 As a result, homeowners' insurance policies in Texas are now more closely aligned with homeowners' insurance policies in other states. The former, expansive coverage of water damage under Texas homeowners' insurance policies has been blamed in part for the mold and insurance crisis in Texas.
IV.
RESPONSIVE LEGISLATIVE ACTION FOR MOLD LITIGATION
The Texas legislature became involved in the mold litigation issue in 2003. Texas passed legislation banning insurers from refusing to insure a homeowner who had made a previous mold claim, so long as the problem had been fixed.46 The legislation also articulated standards for mold remediation licensing and provided for regulation of the mold remediation industry by the Texas Board of Health.47 The creation of standards and regulations was perceived as hugely beneficial by many in the insurance industry, owing to the fact that much of the blame for the mold panic and expense of remediation claims was laid at the feet of a largely unregulated industry of inexperienced mold remediators who had surfaced in Texas.48 Moreover, public adjusters and mold remediators are viewed as working together against insurers. Typically, the adjusters hire remediators before insurers have even had a chance to inspect or investigate the nature and extent of damage.49
Texas is not the only state taking action to quell extensive mold litigation. In 2003, at least fifty-six mold-related bills were filed in twenty-one states.50 For example, California "passed a bill establishing a separate trigger for the two-year statute of limitations" for a personal injury civil action based upon "exposure to a hazardous material or toxic substance other than asbestos."51 Indiana, Louisiana, and Montana passed legislation regarding mold concerns related to real estate transactions.52 Meanwhile, Louisiana, like Texas, enacted a law requiring that those working on mold assessment and remediation be licensed.53 Lastly, Illinois, Oklahoma, and Rhode Island legislators passed resolutions creating task forces or commissions to investigate and offer recommendations regarding mold issues.54
More recently, South Carolina passed a law limiting realtors' liability for mold problems, and Virginia has instituted a law requiring landlord disclosures to prospective tenants about mold in the building.55 Oklahoma, on the other hand, no longer allows one person to conduct both the mold assessment and the mold remediation on the same property.56 This same law requires the distribution of educational materials regarding mold infestation by mold assessors and remediators.57 Finally, Louisiana immunizes contractors who work on
manufactured homes from any liability related to mold or mold damage, unless such liability is contractually agreed to in writing.58
V.
THE FUTURE OF MOLD LITIGATION
A. Disputes over Mold Exclusions in Homeowners ' Insurance Policies
1. Homeowners' Policies Continue to Change
The extent to which mold damage is covered under insurance policies is still an issue, even with the insurance industry's attempts to dramatically reduce their liability for mold. As courts debate the language of insurance policies, insurers continue attempting to develop policy language that will limit mold coverage and still win approval from state insurance commissioners as being adequate for homeowner coverage. Insurers are even attempting to limit their liability for mold caused by situations otherwise covered by the insurance policies.
Meanwhile, consumers in Texas are often unable to afford the cost of coverage for water damage.59 Florida has now allowed several insurance companies to limit payments for mold damage to $10,000 per incident and only $20,000 total.60 Florida also has allowed insurers to write policy provisions that exclude mold damage resulting from covered perils.61 On the other hand, California, which is second to "Texas in mold related first-party insurance claims in the United States," has required "insurance companies to provide mold coverage when the mold damage" results from a covered peril.62 At the other end of the spectrum, New York has decided against allowing a specific mold exclusion and instead has developed a system of insurance protection designed to provide coverage for mold that arises from covered perils already present in the homeowner's policy.63
2. Questions Remain Regarding Whether Mold Damage Is Covered
An issue yet to be resolved is the extent to which insurers must provide coverage for mold damage that resulted in some way from a peril covered under the insurance policy. Generally, a basic insurance contract requires the insured property to be directly damaged as the result of a covered peril. As discussed above, most basic insurance policies now refuse to include mold as a covered peril. Thus, the homeowner must show that the mold growth directly resulted from a covered peril.
Various state courts have treated this issue differently. Some plaintiffs have argued successfully that an "ensuing loss" clause overrides the mold exclusion in the insurance policy. Ensuing loss provisions generally permit coverage for further damage that follows as a result of the original cause of damage.64 Plaintiffs therefore could argue that mold damage is an ensuing loss of a covered damage. This argument may have potential. For example, the Fifth Circuit Court of Appeals recently held that the plaintiffs' expert testimony regarding mold was sufficient to raise a genuine issue of material fact about the amount of mold that was attributable to covered causes.65 The court certified to the Texas Supreme Court the question of whether the "ensuing loss" provision of the plaintiffs' policies provided coverage for mold damage. On the other hand, some courts have refused to allow the ensuing loss provision to override the mold exclusion.66
Other courts have applied an "efficient proximate cause" test to mold claims. For example, in Shelter Mutual Insurance Co. v. Maples,61 a frozen pipe burst in the homeowner's basement, and mold grew as a result. Despite the fact that the homeowner's insurance policy contained a mold exclusion, the Eighth Circuit Court of Appeals held that there was a genuine issue of material fact as to whether the "efficient proximate cause" of the property damage was mold or the flood itself.68 California also uses the "efficient proximate cause" test, which some insurers have tried to avoid by using language in their insurance policies that specifically denies coverage for certain risks, such as mold, even if such risks combine with a covered risk to cause the injury at issue. California courts have held that such insurance language is unenforceable to the extent it conflicts with California's statutory requirement that an "insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss."69
B. Disputes over the Connection between Mold and Personal Injuries
1. The Ballard Court's Refusal of Testimony
Plaintiffs' efforts to link physical injuries or problems to mold so far have produced only limited success. As noted above, the Ballard court refused to allow the plaintiffs' experts to testify about the connection between mold growth and health problems experienced by the plaintiff's family. The Texas Supreme Court has held that the trial court, when meeting the Daubert-required role of "gatekeeper," must "determine how the reliability of particular testimony is to be assessed."70 In toxic tort cases, proof is required of "both general and specific causation about the effects of the toxic substance."71 In Ballard, the appellate court examined the expert's own admissions when reviewing the district court's decision to exclude Ballard's causation expert's testimony. The expert had admitted that the "calculation of a confidence interval for the results of the study was 'premature.'"72 It was also premature to calculate the risk factor.73 In addition, the expert "could not say whether the techniques used were generally accepted."74 As a result, the court held that the causation expert's testimony was not based on a reliable foundation, as required by the Texas Supreme Court in Havner.75 Consequently, "[i]f an expert relies on unreliable foundational data, any opinion drawn from that data is likewise unreliable."76 The court determined that, because the expert "did not establish a reliable foundation for the admission of general causation evidence," it did not need to address evidence relating to specific causation.77 As a result, the appellate court held that the trial court did not abuse its discretion by refusing to admit the causation expert's testimony.78 Because the causation expert's testimony regarding plaintiffs' personal injuries was properly excluded, the district court's decision to dismiss plaintiffs' personal injury claims also was proper.79
2. Disagreement over Safe Levels of Mold Exposure
Though the Bollard court refused to admit expert testimony regarding the alleged connection between mold and the plaintiffs' injuries, other courts have permitted such expert testimony.80 Contradictory court rulings have evolved because there currently is a great deal of confusion about the role that mold exposure plays in causing health problems. While "the causative role of fungi in individual cases of respiratory allergy and asthma has been known since the eighteenth century, their overall significance in respiratory health is still debated."81 Medical research has shown a potential link between some mold growth in buildings and resulting human disease. These lack specific "dose-response" data, however. Many other indoor air pollutants (e.g., chemicals, dust mites) make it difficult to link mold growth directly to health problems.82
The CDC has stated that a causal link between the presence of toxigenic molds and rare health conditions such as pulmonary hemorrhage or memory loss has not been proven.83 Hazards presented by toxigenic molds should be treated the same as hazards posed by other common molds that can grow in the home.84 The CDC directed the Institute of Medicine ("IOM") to review the scientific literature regarding the relationship between mold growth and damp buildings and adverse health effects. The IOM committee found that existing research did not show sufficient evidence of a causal relationship between mold and the physical symptoms it reviewed. However, the committee found an association between mold and symptoms such as asthma in sensitized persons, wheezing, coughing, and upper respiratory tract symptoms. It also found limited but suggestive evidence of a relationship between mold and lower respiratory illness in otherwise healthy children. The committee found insufficient evidence to link mold to problems such as dyspnea, airflow obstruction, chronic obstructive pulmonary disease, asthma development, acute idiopathic pulmonary hemorrhage in infants, skin symptoms, cancer, neuropsychiatrie symptoms, and rheumatic and other immune diseases.85
An expert testifying before a U.S. House of Representatives committee explained the challenges he saw in creating standards for acceptable mold exposure. The expert explained that there currently are no accepted standards for the sampling of mold or for analyzing or interpreting the data in terms of its impact on human health.86 Since no one is sure what quantity of indoor mold is acceptable, studies have concentrated on environmental data rather than data related to dose-response.87 In addition, individuals experience different sensitivities to molds. Of course, the effort to find appropriate standards also is complicated by the fact that standards may vary depending on which of the numerous mold varieties is examined. As a result of all these factors, "setting standards and guidelines for mold exposure levels is difficult and may not be practical."88
Only a few states or cities have begun to explore the possibility of creating guidelines for "safe" levels of mold, and the various federal agencies responsible for determining safe exposure levels to toxins in the workplace or environment have yet to reach any agreement on mold. For example, while New York City proposed indoor air quality guidelines for fungi in 1993, it did not establish a safe exposure standard specifically for mold.89 In 2001, California passed a Toxic Mold Protection Act requiring the creation of a task force to attempt setting permissible exposure limits for mold in indoor environments.90 Once limits were set, the bill would require written disclosure regarding the presence of mold in excess of those limits by sellers or lessors of property, in most cases.91 California also established a Department of Heath Services mold program, which is charged to study and publish findings on "fungal contamination in indoor environments."92 Texas likewise created a task force to investigate the potential for standards regarding mold exposure.93
3. Different Standards for Determining Admissibility of Expert Testimony
As a result of the issues discussed above, there is much disagreement in the medical and scientific community over the "toxicity" of the various molds and the safe levels for each variety of mold. Given this disparity, a key battle in present and future litigation is determining whether a plaintiff's expert will be permitted to testify about the physical injuries caused by mold. Recall that even though Ballard claimed that the mold in her home was responsible for serious injuries suffered by her family, the court refused to allow expert testimony regarding her medical injuries at trial. In reaching this determination, the court invoked the Daubert test articulated by the Supreme Court.94
To pass muster in a Daubert jurisdiction, a plaintiff must show a general causal link between mold and the alleged injuries. Such a showing is difficult since, to date, "[t]here are few epidemiological investigations of inhaled mycotoxins and disease in indoor air settings. Although some purport to show an association between inhaled mycotoxins and health effects, none has had sufficient data or experimental design to support this claim."95
Once general causation is demonstrated, the plaintiff still must show specific causation. The specific causation criteria required in mold lawsuits include: 1) the presence of mycotoxins in the building; 2) a showing that the plaintiff was exposed to the mycotoxins; 3) proof that the plaintiff was exposed to the mycotoxins for long enough, at a high enough dosage, to cause the injury; and 4) evidence that the plaintiff was injured.96 Because it is difficult to prove the nature of a plaintiff's exposure, it will be difficult for a plaintiff to successfully meet the specific causation test.
Not all jurisdictions use the Daubert test in determining whether an expert may testify, however. Despite the Supreme Court's ruling in Daubert, many jurisdictions continue to use the Frye test,97 while still other states use their own individual tests to determine whether expert testimony may be admitted.98 The Frye test is much simpler than the Daubert test, merely requiring that a scientific theory or methodology be generally accepted in the relevant scientific community.99 Because the Frye test is not as stringent as the Daubert test, plaintiffs may be more successful in asserting their personal injury claims in those jurisdictions that apply the Frye test. For example, in Mondelli v. Kendel Homes Corp.,100 the Nebraska Supreme Court applied the Frye test (as well as its own factors) to determine the admissibility of a physical injury causation expert's testimony in a mold case. The court held that the expert witnesses had satisfied the Frye standard in part by showing that "the issue of mold as it relates to health concerns has been addressed in scientific publications."101
While the Frye test is clearly an easier hurdle for mold litigation plaintiffs with personal injury claims, some courts also have admitted physical injury causation testimony under the Daubert test. In New Haverford Partnership v. Stroot, the Delaware Supreme Court was asked to determine whether plaintiffs' experts could testify about the causal link between mold in their apartments and their subsequent health problems.102 The court subsequently found the defendants' arguments about the assigned flaws in the experts' testimony unpersuasive,103 finding instead that the following evidence was sufficient to admit the experts' testimony:
Although no "extensive" baseline testing was undertaken, Yang did test an outdoor air sample and found that the mold level in Haverford Place was more than ten times higher. In addition, Johanning testified that the mold level inside the building was so high that it overloaded the machine used to test samples. Given these facts, we conclude that the failure to conduct extensive baseline testing goes to the weight of the experts' opinions, not their admissibility. The same is true for the asserted failure to eliminate other possible causes of plaintiffs' health problems. Johanning testified that he followed the scientifically accepted procedure of obtaining a medical history and a detailed questionnaire from the plaintiffs. He then ruled out other possible causes of plaintiffs' health problems by reviewing that information together with the blood test results and the data collected from the apartment buildings. The foundation for an expert's causation opinion need not be established with the precision of a laboratory experiment. The facts here support the trial court's decision to admit the causation opinions.104
While this decision supports the admissibility of expert causation testimony over defendant's objections in a Daubert jurisdiction, defendants will likely be more successful making a Daubert challenge if they emphasize the lack of a general consensus on the role of mold in causing most physical ailments. Plaintiffs, on the other hand, will likely be more successful in Frye jurisdictions, since that test more easily allows the admission of expert testimony even when there is lack of agreement on the issue.
C. Disputes over the Extent to Which Third-Party Insurance Covers Mold Damage
In addition to first-party claims against the insurance industry, other targets of mold litigation include those in the construction, real estate, and property management industries. Even prior to Bollard, some lawsuits targeted contractors for mold problems associated with construction defects. However, those lawsuits occurred at a time when no panic existed about mold and its allegedly dangerous health implications.
As insurers continue finding ways to exclude mold coverage from homeowners' policies, it is likely that homeowners increasingly will look to hold other parties responsible for mold problems in their homes.105 While first-party lawsuits are still the primary source of litigation, third-party lawsuits, which require insurers to defend the third-party policyholders, are on the rise.106 The threat of such lawsuits could make contractors more careful about the materials used in their buildings and the actual construction of the buildings; it could also drive up costs for the contractors. In addition, their insurance costs could escalate as well as their costs in construction time.
Given the increase in public concern about mold resulting from cases like Ballard, and given the increasingly limited options available under their own insurance, contractors and other parties holding potential liability for mold growth in buildings will become more involved in mold litigation. The application of liability insurance coverage, such as traditional commercial general liability ("CGL") policies, will be at issue in these homeowners' lawsuits against their contractors.107 These CGL policies are insurance agreements purchased by commercial entities for protection against claims brought by third parties. This practice of targeting other defendants once again could draw liability insurers into mold litigation. Instead of defending claims as the result of a "first-party" insurance policy between the homeowner and the insurer, the insurance company would be involved under a third-party insurance dispute. In other words, once the homeowner sued a contractor or subcontractor, supplier or realtor, that defendant would then look to its liability insurance coverage for protection.
Under such third-party insurance, the insurer still may be able to avoid liability for mold damage through the common "Business Risk Exclusion" provision included in most CGL policies. Such an exclusion precludes indemnification and defense of an insured (such as a contractor) by the insurance company if the damage resulted from the insured's own negligence.108 While this exclusion bars coverage for the cost of repairing or replacing the insured's own work product, it may not bar coverage for claims made by third parties for damage resulting from the insured's negligent work.109
A similar situation arose in the asbestos context. In those cases, some courts have rejected insurers' claims that a business risk exclusion permits them to deny coverage for property damage caused by asbestos.110 Courts have construed business risk exclusions to bar coverage for "damage associated with the repair or replacement of the insured's work," but have been unwilling to bar coverage for "damage resulting from the insured's work."111 Such a rationale requires the contractor to bear its own replacement or repair losses, while the insurer is responsible for damage to the property of third parties. This same reasoning could be applied to mold damage as well.112
Mold plaintiffs also may be able to seek coverage under a contractor's CGL policy if the mold damage was caused by the subcontractor's negligent work or materials. Generally, the business risk exclusion provides an exception for work done on the insured's behalf by a subcontractor.113 Therefore, the repair or replacement of defective work performed by a subcontractor may be covered.114
Insurers also may argue that the standard "pollution" exclusion included in most CGL policies would permit them to deny coverage for mold-related problems. The insurers reason that if mold is a pollutant, as alleged by many plaintiffs, then the pollution exclusion should bar coverage. At least one court has found that, while the term "pollutant" in a CGL policy could be interpreted to include naturally occurring substances, it was ambiguous enough that the clause should be construed against the insurer.115 As a result, the insurer was required to provide coverage for the mold damage.116
It is not clear how other courts would resolve this issue. Many courts have been unwilling to apply the pollution exclusion "outside of traditional environmental or industrial pollution cases."117
Opinions on interpretation of the absolute pollution exclusion to non-traditional pollutant claims are far from uniform in their definition of the term "pollutant," as well as whether there has been a "discharge, dispersal, release, or escape" of the pollutant. Therefore, it is difficult to predict how courts will rule on application of the pollution exclusion to mold claims.118
Courts that have refused to extend the pollution exclusion beyond traditional pollutants often have relied upon a statement made by the Seventh Circuit Court of Appeals in Pipefitters Welfare Education Fund v. Westchester Fire Insurance Co.119 The court there stated that, "without some limiting principle, the pollution exclusion clause would extend far beyond its intended scope, and lead to some absurd results."120 Therefore, this issue will remain for debate in future mold lawsuits involving third-party insurance policies.
Over the past several years, some insurers have begun to specifically exclude coverage for mold damage or at least cap payments for mold claims.121 The ISO has even released a special endorsement to CGL policies titled, "Fungi or Bacteria Exclusion," effective May 1, 2002. The endorsement excludes "bodily injury" or "property damage" that "would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any 'fungi' or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage."122 The exclusion also bars coverage for the costs of testing, analyzing and remediating any mold.123
D. Disputes over Employers ' Responsibility for Workplace Mold
Employers also could be targeted for litigation by employees who claim that they have suffered physical harm as a result of exposure to mold in the workplace. Under both federal and state laws, employers generally are required to provide their employees with a workplace that is reasonably safe and healthful. If an employer fails to provide and maintain such a workplace, it could be liable for violating its duty of care to its employees. However, applying this general principle to the issue of mold is difficult at the present time.
As noted earlier in section V.B.2., there currently is no agreement about a "safe" level of mold or the actual physical dangers posed by exposure to that mold. Neither the Environmental Protection Agency nor the Occupational Safety and Health Administration ("OSHA") have issued standards for mold or fungi. While some states have begun to investigate standards for mold exposure, no such standards have yet been established. Without such standards and a better understanding of the physical risks associated with mold exposure, employers have little guidance on this issue. OSHA has issued a mold bulletin designed to assist those responsible for building maintenance.124 This bulletin does not create liability under OSHA's regulations but articulates guidelines for dealing with mold and its removal.125 Nevertheless, employees alleging problems from exposure to mold could argue that an employer's failure to comply with the bulletin created an unsafe workplace.126
In addition to the lawsuits and workers' compensation suits that have begun to surface, employers also will bear additional costs resulting from mold growth in the workplace. These additional costs might include the expense associated with mold remediation, the expense of finding temporary workspace for employees while the mold is remediated, and lost productivity from employees who suffer mold-related illness. Some workers also have claimed that health problems allegedly caused by mold exposure in the workplace are covered under the Americans with Disabilities Act.127
The few court cases that have addressed this issue provide little guidance for employers uncertain about what to do in the absence of state or federal guidelines. In Alien v. IBM,128 the federal district court found that the employees could not avoid North Carolina's workers' compensation bar on an action against their employer for mold in the workplace. The court held that no evidence existed indicating that the hazards posed by the "toxic mold" were obvious to the employer, nor was there any evidence that the employer intentionally opted to forego critical safety precautions.129 On the other hand, in Kloepper v. Unemployment Appeals Commission130 the Florida appellate court was asked to review an employee's complaints about illnesses allegedly caused by mold and mildew in her workplace. Although the employer had taken some steps to correct the problem, the court found that those steps were inadequate.131
These cases seem to imply that an employer is protected so long as it is not aware of the existence of mold. Once awareness exists, however, the employer is responsible for taking adequate steps to rectify the situation. Of course (as noted earlier), without a better understanding of the dangers of mold exposure and the creation of mold exposure standards, employers are left with little guidance as to what would constitute an adequate remedy.
E. Other Potential Targets for Mold Infestation Litigation
While the issues discussed above are some of the more prominent current and future issues affecting mold litigation, there are many other sources of potential mold litigation. For example, homeowners are not the only potential plaintiffs in mold litigation. In May 2002, a North Carolina owner of a 1999 Cadillac Escalade sport utility vehicle sued General Motors Corporation for mold damages. The owner alleged that defective weather-stripping permitted water to seep into his vehicle, creating a mold that made the owner sick.132
Other litigants may include tenants who experience or claim mold problems. Currently, the maintenance systems used by many landlords to sustain their buildings do not successfully ensure that mold damage will be prevented or quickly remediated. Many landlords have reduced their maintenance responsibilities by writing leases that include dEductibles for maintenance and repairs.133 These deductibles provide a disincentive to tenants for reporting minor problems such as small leaks that could lead to mold problems.134 In addition, many tenants may not bother to report small leaks or other possible water or mold damage that occurs near the end of a lease period. In both situations, landlords may be responsible later for more costly repairs and remediation.
Landlords also must be aware of the possibility that some tenants, familiar with the mold crisis, may claim injuries from newly-discovered mold in an effort to otherwise shorten their leases. One owner of a Texas property management company reported that ten tenants in one year had sought early release in just that situation, often threatening to file mental anguish claims if their leases were not suspended.135 Landlords who fear such fraudulent behavior must take steps to ensure that their maintenance plans remain current so that new mold growth can be efficiently remediated.
VI.
CONCLUSION
Much has changed since the Bollard decision issued. Actions taken both by insurers and state legislatures have slowed the surge of this new wave of toxic tort litigation - at least to some extent. However, this area of litigation is relatively new, and several issues remain before the tide ebbs entirely. Despite the best efforts of some insurers, many courts continue finding ways to cover mold damage. If insurers are successful in foreclosing much of the first-party insurance litigation, attention will likely move to third-party liability insurance coverage. Under those circumstances, contractors may see renewed interest in their liability for mold problems, which will translate to insurer liability for the negligence of contractors or subcontractors. Employers also face potential litigation from employees who are exposed to mold in the workplace. Finally, if more conclusive scientific evidence regarding mold problems and health issues surfaces in the future, the floodgates will open once again.
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| [Author Affiliation] |
| W. Stephen Benesh is a partner with Bracewell & Patterson, L.L.P., and has extensive experience handling mold, toxic tort and indoor air quality matters. In addition to serving as Managing Partner of the firm's Austin office, he also acts as a co-chair of the firm s products and premises liability team. In 2004, Mr. Benesh was named "Best in Business Law "for products liability in Central Texas by the Austin Business Journal. |
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