Mold Dangers Are Less Clear but Still Present

Published on: August 22, 2004

Mold continues to frighten homeowners, infuriate insurance companies, and unnerve property managers, despite a raft of studies concluding that the concerns may be exaggerated, if not unjustified.

Several different reports have now challenged the conventional wisdom – made so by media coverage of huge liability judgments – that mold is a health hazard, responsible for many severe and even life-threatening ailments. The most recent of those studies, overseen by the Institute of Medicine (an affiliate of the National Academies), found evidence that mold and indoor dampness may cause or aggravate asthmatic symptoms and other respiratory problems in people prone to those conditions, but “inadequate or insufficient information” to blame mold for cancer, neurological problems, and other serious medical conditions. The study did not reject the possibility that such a connection might exist, but it said more research is needed to establish one.

On that key point, the IOM study confirmed previous research by the Texas Medical Association, the Centers for Disease Control, and Prevention, and the American College of Occupational and Environmental Medicine that mold does not pose a significant health threat to most people.

You would think the weight of this medical evidence would ease the concerns about mold and curtail some of the litigation surrounding it, but apparently, that is not the case. The Department of Housing and Urban Development recently adopted a policy requiring that agreements for the purchase of HUD-owned property include a notice warning buyers, in large, bold lettering, that “radon gas and some molds have the potential to cause serious health problems.” Another section of this notice, in smaller, bold-faced capitals, encourages purchasers “to obtain the services of a qualified and experienced professional to conduct inspections and test regarding radon and mold prior to closing.” Additional provisions, not printed in bold, release HUD and all other entities involve din the sale of the property from any liability related to the presence of mold or radon “in or around” the dwelling.

Home builders, too, are taking steps to reduce their mold-related risks by inserting language in purchase contracts disclaiming any liability for damages caused by mold in the homes they construct. Some critics have suggested that eliminating the moisture that produces mold would provide more protection for the builders (and certainly more protection for their buyers) than a liability disclaimer that may not hold up equally well in all courts.

But the increasing use of these clauses, the exclusion of mold coverage from most standard insurance policies, the consistency with which “mold” and “threat” are linked in media discussions of the issue, and the number of mold cases on court dockets around the country suggest clearly that concerns about mold and the liability related to it are still very much with us.

Litigation Continues

The Alliance of American Insurers estimates that there are more than 10,000 active lawsuits involving mold claims filed by homeowners or tenants nationally. That list includes several suits in Massachusetts of which I am aware, 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. The owners of a subsidized apartment building in San Francisco recently paid $3.8 million to settle a suit filed by tenants of that mold-invested building. Although most mold awards are much lower, averaging around $35,000, juries are willing to up that ante when they conclude that landlords or condominium boards have been negligent or ineffectual in their handling of water problems and mold damage complaints.

That was the case in Stevens v. Fennessy, et.al., apparently the first mold liability claim to be litigated in Massachusetts, in which a Massachusetts Superior court awarded more than $500,000 to a condominium owner as compensation for health problems she claimed resulted from a mold outbreak in her unit. The plaintiff, 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.

Financial Pain

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.

But at least Pirates Lane probably had 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.

Uncertain Legal Ground

Mold litigation is always complicated, in large part because the legal ground surrounding these claims is far from settled. A key question is the nature of the evidence required to establish that mold caused the health problems for which plaintiffs seek compensation. The current legal rule governing the admissibility of expert testimony was established in a 1993 U.S. Supreme Court decision, Daubert v. Merrell Dow Pharmaceuticals. Prior to this decision, 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.

Although the justices declined to offer a “definitive checklist” for judges to use in making that determination, they did offer some “general observations” to guide them. Unfortunately, those guidelines have not proven to be as definitive as the High Court might have hoped. In one recent case (Christopher Roche, et. al., v. Lincoln Property Co.), a federal district court in Virginia refused to allow testimony from a medical expert supporting the damages claimed by apartment tenants, because, the court ruled, there was “insufficient evidence” that mold caused their medical problems. But the Massachusetts Superior Court reached the opposite conclusion in the Pirates Lane case, allowing the expert testimony that produced the judgment for Stevens. The court acknowledged the difference of opinion in the scientific community, but concluded, “Ultimately, 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 was a lower court decision, without precedent-setting power; the state’s highest court, the Supreme Judicial Court, may eventually adopt a view closer to that of the Virginia justices 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.

Managing Liability Risks

There is nothing an association can do to avoid being sued for mold or anything else. But there are some fairly straightforward measures that will reduce an association’s litigation risks and strengthen its defenses if it does become the target of a mold-related claim:

  • Avoid water damage. 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. Even the most famous mold claim of all – the $32 million (sine reduced) awarded to Melinda Ballard for her mold-infested Texas mansion – was based more on the “bad faith” of her insurance company than on the damage the uncontrolled mold was alleged to have caused. Dealing aggressively and effectively with all reports of water infiltration will go a long way toward preventing the spread of mold and the liability claims arising from it.
  • 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 affirmed that all the remediation work was completed and moisture testing verified that affected areas were dry. This won’t bar a future mold damage claim, but it should shift liability to the remediation company.
  • 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.
  • Establish owner responsibility. Mold inside a home is the owner’s responsibility; if it spreads to common areas or to other units, however, it becomes a problem – and a potential liability – for the association. To limit that risk, associations should follow the lead of landlords in Massachusetts and other states, who are beginning to add language to their leases requiring tenants to notify them of water and/or mold-related problems, and holding the tenants liable for damages if they fail to do so. In a community association setting, boards should amend their rules and regulations to specify that owners are required:
    • To maintain their units so that mold does not grow in them, and
    • To report any leaks, or evidence of leaks, immediately to the manager or the board. 

It is best to have the association’s attorney draft this language, which should not simply state a general homeowner obligation; it should specify precisely what owners must do – for example, maintain proper temperature and humidity levels, prevent leaks and repair them promptly when they occur, and properly vent appliances, among many other common sense precautions.

The measures suggested here won’t prevent law suits, but they may short-circuit any litigation, increasing the likelihood for dismissals or summary judgment decisions much earlier in the process, before substantial legal costs have mounted, and shifting liability away from the association if the litigation proceeds.