Canadian Insurers and Other Industries Learn from U.S. Experience

Ontario, Canada – Apprehension in the real estate, construction and insurance industry about hazardous materials such as asbestos and radon has given way to a relatively new risk – mold. Since the late ’90s, mold-related litigation and insurance claims have exploded in North America. Bruce Stewart, vice-president of Pinchin Environmental Ltd., sees the growth in his business as proof of increasing mold awareness in Canada. “That side of our business has grown tremendously in the last five years,” says Stewart, whose company, in addition to its core services, provides training to contractors, consultants, realtors and insurers. “In our Mississauga office, we have 12 consultants who do nothing but mold and we have a lab of five people dedicated to just that area. In each of our outside offices we have at least one or two people who spend most of their time doing mold and indoor quality work.”

Elvira DeGasperis of Pinchin Environmental inspects mold in a basement bathroom in Hamilton, where the homeowner discovered the problem a month after buying the house. Stewart says anxiety over mold as a potentially serious health and liability risk began in the United States, where “mold” is truly a four-letter word. There, high-profile cases have spawned enormous damage awards and thousands of insurance claims.

A Texas jury awarded $32 million US to Melinda Ballard, age 48, a marketing representative, in 2001 after her insurance company failed to identify promptly and remediate mold in her house. Her knowledge of marketing apparently paid off as she played to the media and sought the attention of many people who saw her as a victim of the insurance game.  She actually became the loser as she made the insurance companies suddenly take notice and write waivers regarding mold.  Ballard?s award was appealed and she settled for a small fraction of that amount.  She had borrowed money to file the case, and the award basically paid for most of the costs. Therefore, the statement was a somewhat wasted event since this made it allegedly difficult for others who filed suit thereafter once she set this sad precedence. The U.S. emergency agencies also took notice as they decided to ignore citizens who came to them for help.  This was all in the name of economics.  In this regard, everyone lost.

Construction defect is the major reason for mold claims in the United States.  This is either due to sloppy labor or shoddy materials.  The Tonight Show’s Ed McMahon and Erin Brockovich, a legal secretary and subject of a fictional Hollywood movie, have each filed similar suits. According to U.S. insurance industry statistics, the number of mold claims rose by more than 1,300 per cent between the beginning of 2000 and the end of 2001 and total loses from mold claims increased to $1 billion from $14 million during the same period. In Canada, however, not only is mold spelled differently (mould), it has also lacked the same sting in real estate and related industries.

By contrast with the United States, Canada had only 20 mold-related cases go to court up to 2002 and approximately 30 cases between 2002 and 2005. David Way, Coordinator of the standards and practices committee for the Insurance Bureau of Canada (IBC), says credit for averting a similar experience to that of the United States lies in the speed with which Canadian industries proactively confronted the issue.  “We couldn’t turn a blind eye to what was happening in the States,” Way says. “It could have been blown out of proportion. For the insurance companies, the large damages awarded in the States served as a wakeup call.” Way says the insurance industry took a two-prong attack to the problem. In 2002, IBC recommended that its members clarify policy wording concerning mold-related damages and most insurers have since introduced mold exclusions to their policies.

“In addition, most insurance companies now are treating water-damage losses with a lot more respect,” Way says. “They are treating a lot faster than they used to, thereby eliminating, as much as possible, the likelihood of mold claims occurring.” Currently, there is sound evidence linking the neurological and immunological damage that some molds can cause that is becoming harder to dispute in a court of law.

In the absence of an official building code provision related to mold prevention, Morrison says the CCA took a leading role in 2003 by developing national guidelines that spell out best practices for minimizing mold in new construction and remediation of mold during renovations. In addition to its guidelines, the CCA also provides standard contract forms for its members that, as of this fall, will include legal language spelling out the rights and responsibilities of both parties regarding mold. These measures won’t indemnify contractors against litigation, Morrison says, but they can minimize its potential impact.

“We always say to builders, if you can show a judge or mediator that you did everything you could, if you show proper due diligence, then you know that you’re going to be fine,” he says. “It’s when you don’t and you can be proved to be negligent in something – that you should have been more careful – that’s when you might run into trouble.” While mold-related litigation has not exploded here, Canada is not immune, either. Toronto’s Steve Steiber and his firm, Steiber Berlach Gibbs, are at the epicentre of Canadian mold-related litigation. The firm is in the midst of one of Canada’s highest-profile cases, a potential class-action suit involving a Newmarket courthouse.

In 2000, the Ontario government paid $19 million to remediate mold damage following health complaints by courthouse workers. Still, in 2001, a police constable who worked at the courthouse filed a class-action suit on behalf of 300 people suspected of suffering health problems due to toxic mold exposure. The defendants in the case include not only the owner and building manager, but the architect, contractor and mechanical engineer as well. The case is awaiting a certification judgment. “Mold litigation is not something (professionals) can protect themselves against other than through their own skill – through proper design, through proper construction of buildings,” Steiber says. “You can’t really say to them as a lawyer you should protect yourself by getting a disclaimer; it just doesn’t work that way.” Perhaps we are doing a great job at being proactive, thus reducing lawsuits already. We don’t have nearly the problem that the U.S. has but the Canadian government acknowledges the problem and serves the citizens accordingly.