Why Mold Losses Aren't Covered (And What to do About It)

Posted: August 23, 2007

By now, everyone providing water-damage restoration has surely faced the uninsured mold loss. The old joke, "No insurance? No mold!" isn't funny anymore. The lack of coverage for mold losses has become commonplace. What happened?

More than 8,000 articles warning of the dangers of toxic mold hit the mainstream media several years ago. A "48 Hours" program featuring Melinda Ballard, a lawsuit filed by Erin Brockovich over mold in her home and Ed McMahon's dog supposedly dying after being sickened by mold all helped fuel public concern. Claims for mold contamination rose dramatically during this same period. As the public's awareness of the dangers of mold heated up, insurers cooled on extending coverage. Insurers in every state reduced or eliminated coverage that paid for mold cleanup - even that resulting from certain water-damage losses.

According to the Insurance Information Institute, mold claims were $10 million for the first quarter of 2000. One year later, first quarter mold losses shot up to $80 million. During 2002, mold loss payouts exceeded $1 billion, and the following year they approached $12 billion! To combat this, insurers mailed out universal exclusions or claim limit caps to nearly every policyholder in the country.

While the media's focus on health-related issues was the primary cause of public hysteria, there were other reasons for the dramatic increase in mold claims, including:

* More energy efficient buildings with less fresh air infiltration * Changes in building materials such as particle board, OSB, and "synthetic stucco" or Exterior Insulation Finish Systems (EIFS) * Lawyers' awareness of billions won in bad faith or personal injury litigation * Mold exposure scientifically linked to adverse health effects

The public is still concerned about the health hazards of mold, and rightfully so. The medical industry is mixed about the dangers of mold with some practitioners warning of a serious health threat, while others claim there is no hard evidence to support this. Amid the confusion, a paralysis has set in and nobody wants to take a stand on the issue.

The Centers for Disease Control (CDC) agrees that individuals with chronic respiratory disease may experience difficulty breathing. But they dispute certain medical studies, alleging flawed or inconclusive data. OSHA and the EPA agree that mold is an allergen and can irritate some people, but they don't go as far as to say that mold will make you sick. However, most doctors believe those people with suppressed immune systems have an increased risk of infection from molds. To date, there have not been adequate clinical studies confirming a positive link between toxic mold and serious health effects. Further, because mold affects people differently, there are no government or industry standards setting exposure limits.

While there are still no guidelines for how much and what type of mold you can safely be exposed to, the restoration industry has responded to the crisis with the IICRC S520 Standard and Reference Guide for Professional Mold Remediation, which provides recommended best practices for handling such losses.

Mold is a fungus. It grows by generating microscopic reproductive "seeds" or spores that need moisture to grow. Mold can grow almost anywhere there is water, high humidity or dampness, and an organic food source such as building materials.

Some species are beneficial to us and most are considered benign presenting no threat to humans. There are over 100,000 identified species, with only a handful commonly found in the United States. Of the roughly two-dozen ubiquitous molds in the U.S., only a few are toxic or infectious and have the potential to pose a serious health threat.

Mold spores and microscopic mold fragments are always present at low levels in the air both indoors and out. At these levels, mold isn't a problem for most people, but it is an allergen, which can cause health issues for some. At high levels indoors, mold contamination will adversely affect most people exposed to it, and some may even suffer life-threatening illnesses.

Because of the potential health risks, cleaning up mold can be expensive. With the threat of personal injury claims and the cost of remediation, it is no wonder insurers have a problem extending coverage.

An insurance claim for a mold loss usually occurs when a property owner finds mold around a long-term water leak that went unnoticed. Another cause of mold is an improperly restored flood from a toilet overflow or a burst water line. The first 24 to 48 hours after a water intrusion can be critical in preventing or containing mold growth. Neglected water damage nearly always results in mold contamination.

Clean up of the majority of mold losses costs only a few thousand dollars. The real problem, though, is not the cost of remediation but the huge payouts resulting from lawsuits. Mold litigation has already bankrupted more builders than any other form of casualty loss in history. The Insurance Information Institute reports that there are thousands of lawsuits working their way through the court system at more than $10 million per suit.

Owners sue builders for construction defects because of damage caused by water or moisture coming into the building. These suits often include claims for personal injury resulting from mold resulting from that water infiltration. Property managers and their insurance carriers are also being sued for negligence. It appears there will always be plenty of fodder for litigation. At some point, one wonders if policyholders will start suing agents for failing to protect them?

By JOSEPH R. LaPLANTE, Valley Breeze & Observer Managing Editor SMITHFIELD - Christine DelNero hears all the stories about "contractors from hell" who don't live up to their promises, let alone, a contract.

She has a story to tell, however, about "Contractors from heaven," she said.

"On March 8 my husband and I were just about to leave for a trip to Ohio to see our son, and my husband, Vincent, went back inside to check one more time," she told The Valley Breeze and Observer. "He went into our finished basement and he saw raw sewage pouring out of our washing machine and it continued coming out of the shower and the washing machine for two hours."

The sewer line outside their home at 5 Lawnacre Drive, backed up with sludge and grease, had burst. Their home is at the low point of the line, so that is where the flow went.

Their home of 35 years, a colonial ranch with a garage, was being inundated with sewage.

She called Roto Rooter first and the company responded.

"They came out and he took one look at the basement and walked out to the sewer cap and told us the problem was coming from the sewer line," she said.

DelNero called Water Out of Rhode Island on Cedar Swamp Road, part of Insurance Recovery Services.

"They were here in 10 minutes and told us they would get a cleaning crew, but that we would have to leave our home," she said.

After staying in a Boston hotel and returning home, they got the bad news from Jesse Koslow, general manger of Water Out: "This is a black water disaster."

"He said we had no choice but to demolish that area of the house, the family room, my husband's study, and the laundry room."

The DelNero family had finished the basement in 1975 and added a bathroom in 1982.

The couple has two sons, one of whom has undergone three kidney transplants. His doctors told them that he could not return to the house because he is immuno-deficient.

"We love living in Smithfield, we didn't want to move," she said.

Instead they spent more than $120,000, financed with a home equity loan, to tear down the flooded and contaminated area to the studs, with even six inches of those studs removed, and had it all rebuilt.

Water Out, Enviro Clean and Tech Builders all part of Insurance Recovery Services, got the job.

"They walked in here wearing space suits like astronauts and sealed off the entire area, which allowed us to live upstairs," she said. "Beginning on July 18 at 6:45 a.m. every day they were here until they finished in September.

"Every single person who walked through our home treated it as if it was their home," DelNero said. "They showed us respect."

The DelNeros lost furniture, linens and towels, but few personal items. They moved out for six days while the crews "shocked the house" to sanitize it.

The couple has filed a lawsuit against the town's sewer maintenance contractor, Veolia Environmental Services, in Superior Court.

When the work was finished, the DelNeros promised to invite all the workmen back for a party to thank them for their work and consideration.

The party was Friday night, Nov. 9 and every single one of the workmen showed up with their wives, having received a formal invitation from the DelNeros.

"We had a wonderful time. I thought we'd have it from 5 to 7 p.m., but they didn't leave until 10 p.m. It was great."