United States: What to do if Your Insured Fears Liability for Mold Contamination

With the growing focus on mold contamination, the liability insurers of a wide variety of construction and repair contractors are being increasingly placed on notice of situations which have caused their insureds to fear liability for contamination claims. Mold growth is caused by the seepage of water or moisture into buildings, the presence of nutrients off which the mold can feed, and conducive environmental conditions. Water can enter buildings through roofs, exterior walls, gutters, drains, foundations, and numerous mechanical systems, including improperly functioning heating and air conditioning systems. When a building owner or occupant claims personal injury or property damage by reason of mold, an insured contractor may be quick to assume that his work at the site caused the contamination and turn the matter over to his insurer’s claim representative for resolution. It is important for the claim adjuster to investigate and consider each such claim on a "case-by-case" basis and not to assume at the outset that the existence of mold on a premises will give rise to a finding of liability.

The purpose of this article is to provide general guidelines for evaluating casualty claims for mold contamination. Since each such claim is unique, not all of the suggestions will apply to every claim, nor do the suggestions comprise an exhaustive list of the actions which may need to be taken to properly evaluate a claim. Nevertheless, the following guidelines may prove useful in determining the proper response to casualty claims for mold contamination.

• Conduct site inspection to determine source(s) of water/moisture claimed to be the cause of mold and to identify affected areas and materials. Identify alternative sources of water/moisture and consider alternative theories of causation where appropriate.

• Photograph initial inspection and diagram the "footprints" of visible mold infestation. Be aware that there may be separate colonies of mold growth due to different causes.
• Test for and be aware of different growth rates for mold. The presence of mold of a certain age may indicate that it pre-existed and/or is unrelated to an insured event.
• Avoid disturbing mold or moldy items during initial inspection. Follow EPA containment guidelines and guidelines for the use of Personal Protective Equipment.
• Interview insured’s key representatives on the work project to determine specifics regarding the work performed, the project "time line," the conditions at the work site before, during and at the conclusion of the work, and the reasons underlying the insured’s concerns of liability.
• Interview disinterested witnesses who may have been present at the work site or who have knowledge regarding the history and use of the premises.
• When appropriate, interview the party claiming damage to identify facts underlying claim against the insured and historical information regarding the condition and use of the property. Collect documentation supporting any claim for damage, including medical records, in the case of a personal injury claim.
• Identify other contractors who have worked at the site over time in activities that could have caused water/moisture to infiltrate the affected area.
• Identify and obtain documentation regarding pre-existing conditions at the site, including history of prior claims related to seepage of water or mold, prior flooding, prior repairs or additions and historical use of the building (athletic facilities, biological study sites, educational facilities and certain industrial uses may have increased potential for mold contamination).
• Investigate public records for indicia of prior building code violations and installation or removal of mechanical systems or structures potentially causing water seepage, including drainage sumps, sump pumps, fire protection systems, waste disposal systems, hot tubs, saunas and steam heating systems. Through public records, identify previous owners of the property and question them regarding presence of water/mold on premises at the time of their ownership.
• If appropriate, consider weather conditions before, at the time of, and after the claimed date of loss. Obtain weather reports and/or newspaper reports of unusual weather events.
• Investigate changes of occupancy at site or periods of vacancy.
• Engage appropriate consultants. Typically, the initial contact should be with a certified industrial hygienist. Other sources of expert information include microbiologists, toxicologists, ventilation experts and medical experts.

• Obtain and analyze the liability policy at issue. Consider the existence of coverage for the person or entity making the claim, the location of the damaged property, the time and date of loss, the nature of the loss and whether coverage, in whole or in part, was suspended or voided by the application of policy conditions.
• Consider whether the damage was caused by an insured or excluded peril. Some relevant exclusions include water damage, flood, backup or overflow from a sewer, mud slide, dampness or dryness of atmosphere, mold, fungi, bacteria.
• Issue a Reservation of Rights Letter or obtain a Non-Waiver Agreement as appropriate.

• Where liability for water/moisture seepage and/or mold growth is of concern, time is of the essence in taking action to stop, isolate or restrict the flow of water/moisture on the premises. EPA and individual state or municipal guidelines provide good reference sources for remediation action, particularly with regard to action which should be taken within the first 24 to 48 hours to prevent mold growth.
• Through inspection, follow the source of water throughout the building to locate all affected areas, including hidden areas which may need to be reached through tear-out of materials. Assess environmental factors that would support mold growth so that growth can be prevented or limited.
• Seal off affected areas, if possible.
• Consider making temporary repairs to mitigate loss. Temporary repairs might include erecting temporary roof coverings, removing water, draining water systems, installing dehumidifiers, removing undamaged property and emergency demolition of damaged property.
• Remove and/or dry water-affected property. Maintain physical inventory of damaged and unaffected property where circumstances permit.
• Properly control the temperature and humidity in the affected area.
• Depending upon the circumstances, retain the services of an appropriate remediation vendor or select a remediation manager and team. Working with the damage claimant, the insured and the remediation manager, prepare a remediation plan for the particular situation. Re-evaluate the plan as necessary, particularly if hidden mold is discovered.
• Obtain non-waiver agreements and communicate with building occupants throughout the process as appropriate.
• Consider the need to inspect and clean the building’s HVAC/ventilation system to prevent the spread of mold. Engage HVAC/ventilation experts as necessary to identify a proper method to dry the premises and reduce humidity in a manner that will reduce the risk of spreading spores or other fungi during the cleaning process.
• Consider temporary relocation of building inhabitants.
• After remediation, devise plan for follow-up inspection and testing as necessary to check for return of mold problems.