Toxic Mold: Are You Ready for the Next Litigation Epidemic?

Before 1990, claims of mold or fungal contamination were rarely reported in the United States. Just a decade later, all you have to do is pick up a newspaper or turn on the television to be confronted by "the mold problem." Whether you are a builder, property manager, developer, broker, bank, landlord, tenant, or in any other way associated with the real estate industry, you cannot afford to ignore potential problems. While economic damages alleged in black mold claims may at first appear deceptively small, verdicts and settlements in these claims can be substantial. For example, in 2001 alone, a California condominium owner reached a $250,000 settlement with her homeowners association; a California homeowners association settled with developers and contractors of their project for $1.3 million; and, just this month, Oregon homeowners settled for a confidential amount in a suit alleging $8 million in damages against various construction contractors. As one experienced plaintiffs' attorney in this area has stated, "A thousand dollars' worth of water damage can cause a hundred thousand dollars' worth of personal injuries."
  

Seeing More Days in Court

When black mold is discovered, real estate entities may find themselves faced with evaluating whether, and to what extent, they have insurance coverage to pay for mold-related property damage and to defend against ensuing claims. This area of law remains unsettled. During a trial in December 2000, a Texas family was able to reach a $1.5 million settlement with their homeowners' insurer which had denied coverage for mold and mildew problems. However, in that same trial the jury found that no coverage existed for mold damage under a wind storm policy. This past June, a Texas jury awarded a family $32 million after finding that their insurance company had not fairly handled a water damage claim which led to substantial mold damage to their home.

Real estate entities are often named in such coverage suits. In addition, builders, landlords, and others in real estate can find themselves as both defendants and third-party plaintiffs in suits involving multiple parties that seek to allocate damages arising from mold contamination. These suits can become very complex and time-consuming and may involve substantial damages.
  

Are You at Risk?

The causal relationship between molds and their effects on human health is not well known. Even if a toxic mold is confirmed, there are currently no markers that identify how much exposure, if any, a particular individual has had to mold or another type of microtoxin. Further, while studies suggest that exposure to mold may be the cause of disease, there is no research as yet that demonstrates the minimum level of exposure required to cause harm nor are there any known methods for correlating the amount of a particular exposure to the probable types of harm that could result. Because of the lack of established standards in this area, businesses have no way of evaluating the safety level of existing air quality. Very few laws and regulations have been designed to address indoor air quality concerns.
  

What Can You Do Now

The bottom line is that mold and air quality litigation is on the rise. Owners, developers, managers, landlords, tenants, and buyers and sellers of property can count on being future targets of such suits. These suits are expected to involve exposure to substantial damage awards and should be taken seriously. Begin now to educate management personnel as to the existence of such claims. Prepare your staff to appropriately address mold or other air quality conditions or claims as they arise. Evaluate ongoing relationships with third parties, such as building and service contractors, to determine the respective rights and responsibilities of each party and to establish clearly defined procedures to address mold-related matters, should they arise. Finally, evaluate the provisions of your current insurance coverage (and certainly coverage proposed upon renewal) to determine availability and probable exclusions to coverage for mold or other potential air quality conditions.

     
STRASBURGER & PRICE, LLP  •  DISCLAIMER
Articles contained within this newsletter provide information on general legal issues and are not intended to provide advice on any specific legal matter. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel.