Mold Claims - A New Threat?

Clients of Plews Shadley Racher & Braun, on both the plaintiff and defense side, have recently experienced a substantial increase in indoor air quality and toxic-mold claims. For a variety of reasons, such as faulty construction, insecure water resistant areas, faulty HVAC systems, and closed-in work spaces in modern office buildings, such claims are arising in both the residential and workplace environments. Water-damaged cellulose-based materials - including the wallboards common in new-home construction and the renovation of older homes - provide a good breeding ground for potentially problematic organisms. The remediation of buildings, furnishings and personal property affected by these molds and their spores and mycotoxins is a rapidly evolving field.

One reason mold claims are on the upswing is the tremendous media attention these claims have attracted. For example, The New York Times Sunday Magazine’s cover article on August 12, 2001, is titled "Haunted by Mold." A moon-suited investigator peers out from the magazine’s cover. This and comparable articles note multi-million-dollar verdicts and settlements from mold cases in Texas, California and Florida. The real-life subject of the Academy-Award-winning movie "Erin Brockovich" has filed suit in California over mold problems at her home. Comparable stories in numerous local and national newspapers and trade journals are heightening the public’s awareness of and potential for these types of claims.

The culprits in mold litigation typically include organisms called Stachybotrys, Aspergillus and Penicillium. Some molds emit mycotoxins that poison competitor organisms. Various scientific and medical literature asserts that exposure to certain mold spores and mycotoxins, which can occur through inhalation, ingestion or dermal contact, can cause a variety of acute short-term and chronic long-term adverse health effects, including but not limited to damage to kidneys and liver, asthma, chronic respiratory problems, chronic fatigue and impaired or altered immune system functions. Symptoms may include cold and flu symptoms, sore throat, and severe headaches to name a few. Properly and promptly addressing these types of claims generally requires the use of several highly specialized experts. Extensive re-mediation may be needed. Investigation and/or remediation efforts can be very expensive.

Insurance coverage for indoor air quality and toxic mold claims is being disputed and litigated just as hotly as the claims themselves. Securing coverage to protect you from potentially staggering defense and indemnity costs is of critical importance for all clients. For both defense and insurance coverage purposes, it is important early on in the handling of a claim to determine if there is a causal link between the indoor environment and the alleged illnesses.

Rules that Indiana courts have established for the interpretation and application of insurance policies provide considerable assistance to policyholders seeking coverage for mold claims in this State. Insurance policies are construed in a manner which promotes the policies’ basic purpose of indemnity. Masonic Acc. Co. v. Jackson, 164 N.E. 628, 631 (Ind. 1929). Ambiguous policy terms are construed in favor of the policyholder and of coverage. Eli Lilly and Company v. The Home Ins. Co., 482 N.E.2d 467, 470 (Ind. 1985). An exclusionary clause must "clearly and unmistakably" bring the excluded condition within its scope to be effective. Ashbury v. Ind. Union Mut. Ins. Co., 441 N.E.2d 232, 237 (Ind. Ct. App. 1981). Insurance policies must be enforced in a manner which protects the reasonable expectations of the policy-holder. City of Lawrence v. Western World Ins.Co., Inc. 626 NE2d 477, 480 (Ind. App. 1993).

Persons or businesses who discover or have been notified of an indoor air quality or toxic-mold claim will need to promptly notify their liability insurance carriers. Home-owners and businesses should look to their first-party property insurance policies for coverage. Such policies sometimes have exclusions that specifically reference "fungus" or "mold." While the wording of policies varies and always should be carefully examined in a coverage analysis, these "fungus" or "mold" exclusions often do not bar coverage where other causes that are covered by the policies have acted concurrently or in sequence with the colonization of mold to result in damage to or abandonment of a building or personal property. These "fungus" or "mold" exclusions also may not apply for other reasons more specific to the wording of the particular exclusions.

The policyholder who receives notice of a mold claim by another person or business should work to establish that its liability-insurance carrier or carriers are responsible for both defense and indemnity costs. It is important that the policy-holder and its counsel immediately and carefully examine the applicable policies to maximize the policyholder’s ability to secure defense and indemnity coverage. An insurer’s contractual duty to defend, which is broader than the insurer’s duty to indemnify, is very important in mold cases. Because these claims rely substantiallyon expert analyses and opinions they can be expensive to defend even if no damages ultimately are paid. Some insurers will assert that the standard "absolute" pollution exclusion as a defense to coverage of mold claims. Indiana appellate decisions have found this exclusion ambiguous and unenforceable in cases that involve gasoline, recycled solvents and electroplating wastes. See American States Insurance Company v. Kiger, 662 N.E.2d 945, 948- 949 (Ind. 1996); Seymour Manufacturing Company, Inc. v. Commercial Union Insurance Company et. al. 665 N.E.2d 891, 892 (Ind. 1996); Travelers Indemnity Company et al. v. Summit Corporation of America et al., 715 N.E.2d 926, 935 (Ind. Ct. App. 1999). It is unlikely that insurers who deny mold claims based on the "absolute" pollution exclusion will fare any better in their efforts to avoid coverage than the insurers in these prior decisions.

The recent proliferation of mold claims and related litigation has and will continue to affect many persons and businesses in our community. Careful science and good lawyering will help the initiators and defenders of such claims. Plaintiffs and defendants should look to their own and their opponents’ first party and third party insurance policies for coverage. To maximize the client’s ability to obtain both indemnity and defense coverage from the insurer to address these potentially expensive claims, the client’s coverage analysis that must be undertaken upon receipt of a claim should be consistently followed in the policyholder’s documentation, including but not limited to, the notice of claim and related correspondence to the insurers, any pleadings filed with the court, written and oral reports from witnesses and experts, and communications with the opposing party. Once coverage is secured, the policyholder can proceed with addressing the claim with the comfort of knowing that the protection it sought when the insurance policy was purchased is in place.