Massachusetts Court Decision Sends Mold Liability Warning to Community Associations

Published on: January 22, 2004

A Massachusetts court has delivered a clear and not at all welcome message to community associations, in the form of a $500,000-plus award to a condominium owner as compensation for health problems she claimed resulted from a mold outbreak in her unit. The message: If you’re not concerned about mold and the potential liability it creates for your community, you should be.

The suit that produced this award, Stevens v. Fennessy, et.al., apparently represents the first mold liability claim to be litigated in Massachusetts, but it won’t be the last. The Alliance of American Insurers estimates that there are more than 10,000 active lawsuits involving mold claims filed by homeowners or tenants nationally; I’m aware of several in Massachusetts, still in the early stages at the trial court level.

Insurers paid more than $3 billion in mold claims last year, almost double the total from the year before, and up from zero in 1999. Although the average award is a relatively modest $35,000, juries are clearly willing to up that ante when they conclude, as they did in the recent Massachusetts case, that landlords or condominium boards have been negligent or ineffectual in their handling of water problems and mold damage complaints. In her suit, Katrine Stevens contended that the trustees at Pirates Lane Condominium in Salem had known for years about water problems affecting her unit and the common areas, but had not done anything to address them.

The jury actually awarded Stevens $285,000 for the medical injuries she claimed, but interest accumulated during the eight-year court battle added more than $200,000 to that total. That the award itself was considerably less will provide little comfort to the community association found to be negligent, and even less comfort to the association’s insurance company, which will have to pay the award, unless it files (and wins) an appeal.

No Coverage

But at least Pirates Lane probably has insurance, in effect when the suit was filed, that will pay the claim along with the not inconsiderable legal costs incurred in fighting it. Insurance companies in Massachusetts and most other states now exclude coverage for mold liability claims such as this, and they limit coverage for mold-related property damage to $15,000 per policy period — that is $15,000 per year, not per incident or per unit.

It isn’t just the loss of coverage for actual damages that is worrisome, although a $200,000 judgment would represent far more than a minor expense in most associations. But the legal costs of defending a liability suit can easily exceed the damages awarded. Even if you ultimately defeat the claim, you will still have to pay the legal bills, and the insurance policies that no longer cover mold damage claims also exclude coverage for the legal costs related to them.

Managing Liability Risks

In a society in which litigation has become a knee-jerk response to almost any problem, there aren’t any legal vaccines that will inoculate a community association against all suits. But there are some fairly straightforward measures that will reduce the association’s risks of being sued and strengthen its defenses if it is.

Avoid water damage. Mold comes from water. If you don’t have water problems and if you correct any problems you do have quickly and properly, you won’t have mold. With that in mind, associations should deal aggressively with reports of water infiltration from any source. Most of the dramatic mold judgments, including Ms. Stevens’ award, resulted because the insurers, landlords, or condominium associations involved did not respond adequately or at all to water damage and/or the mold outbreak it triggered.

Get it in writing. If you call a disaster restoration company to deal with a water emergency, get a certificate from the technicians who respond verifying that the premises were dry and that all affected areas had been treated appropriately to prevent mold. If you can’t get a certificate, the board or the property manager should send a letter to the company stating that the company has assured that all the remediation work was completed and moisture testing confirmed that affected areas were dry. This won’t bar a future mold damage claim, but it should shift liability to the remediation company.

Establish owner responsibility. Liability concerns for the association will arise in two situations:

  1. If a common area water leak is responsible for a mold outbreak that affects one or more units and/or unit owners;
  2. If a water problem that starts in one unit spreads to others.

If an owner’s washing machine hose leaks and the resulting damage, including mold, is confined to that unit, it is the owner’s problem entirely. But if the mold infiltrates the walls and spreads to common areas and other units, the potential liability will spread to the community association as well.

To respond effectively to a water problem, the board must know about it. Many apartment owners are now adding language to their leases specifying that tenants are required to properly maintain their units so mold doesn’t grow in them, and are required to report any leaks immediately to the owner or the building manager. Community association boards should adopt resolutions or amendments imposing similar requirements on unit owners. These provisions, which we add regularly to the new condominium documents we draft, won’t eliminate law suits, but they may short-circuit them, increasing the likelihood for dismissals or summary judgment decisions much earlier in the process, before substantial legal costs have mounted.

Consider insurance. Although most insurers now exclude mold coverage from their standard policies, some are beginning to offer specialized coverage for mold-related property damage and liability. The coverage is scarce and premiums are extremely high – probably prohibitively so for many communities. But associations should at least shop for the coverage and seriously consider buying it if they can afford to do so.

Uncertain Legal Ground

It is possible, of course, that even with reasonable risk management procedures in place, you may have to fight a mold liability action, and the legal ground surrounding these claims is far from settled. One key question is the nature of the evidence required to establish that mold caused the health problems for which plaintiffs seek compensation.

In a recent case (Christopher Roche, et. al., v. Lincoln Property Co.), a federal district court in Virginia refused to allow testimony from a medical expert who was prepared to support the damages claimed by apartment tenants, because, the court ruled, there was “insufficient evidence” that mold caused their medical problems. Absent that clear “causation,” the court said, the expert testimony “failed to adhere to the principles enunciated in Daubert.”

Daubert refers to a 1993 U.S. Supreme Court decision, Daubert v. Merrell Dow Pharmaceuticals, in which the court established a more flexible standard for admitting expert testimony than had existed previously. Under the old rule, expert testimony had to be “generally accepted” as reliable in the relevant scientific community. But the high court concluded that general acceptance should not be the only test; trial court judges have the ability and should have the discretion to determine whether the reasoning or methodology underlying an expert’s testimony is “scientifically valid,” the court said.

The Daubert Test

The justices declined to offer a “definitive checklist” for judges to use in making that determination, but they did offer some “general observations” to guide them. Those guidelines identify three standards for assessing the validity of an expert’s theory or conclusions:

  • Can it be (or has it been) tested?
  • Has it been published and subjected to peer review?  (This consideration is “relevant, but not dispositive,” the court said, because some new theories may be valid, even if they haven’t yet been published.)
  • Does the theory have “general acceptance?”

The court’s discussion of this last point is particularly important. While general acceptance “is not a necessary precondition to the admissibility of scientific evidence,” the court said, “the rules of evidence do assign to the trial judge the task of assuring that an expert’s testimony both rests on a reliable foundation and is relevant to the task at hand. Pertinent evidence based on scientifically valid principles will satisfy those demands.”

As it turns out, the Daubert standards are not as definitive as the High Court might have hoped. The Virginia court found that the testimony linking mold and health problems did not pass the Daubert test, but a Massachusetts Superior Court reached the opposite conclusion, and allowed the expert testimony that resulted in the judgment for Stevens in the Pirates Lane case.

Attorneys for the condominium board argued that Stevens’ expert, Dr. Eckardt Johanning, had made “an improper leap to causation” in concluding that mold in her unit was responsible for her medical problems. But the court found that “based on the extensive process Dr. Johanning used to come to his conclusion and certain evidence offered in exhibits, his conclusions pass the [Daubert] threshold.”

The court acknowledged a difference of opinion in the scientific community about the link between mold and health problems, but cited a 1994 Supreme Judicial Court decision (Commonwealth v. Lanigan), holding that “unanimity of opinion among the relevant scientists is not essential, even under the general acceptance test.”

“Ultimately,” the Superior Court concluded in its Stevens decision, “the finders of fact are empowered with the ability to either accept or reject the evidence as it is given at trial.”

It is important to emphasize that this is a lower court decision without precedent-setting power; the SJC may eventually adopt a view closer to that of the Virginia court, and conclude that the scientific basis for mold-related health claims is inadequate. But unless and until the Massachusetts courts say they will not allow expert testimony supporting these claims, community associations will remain vulnerable to mold liability suits, and they won’t have a slam-dunk defense against them.