Two years ago we in the insurance industry were preparing for what was predicted to be an event of momentous import. The changes in our advanced technology were exposing our industry to significant damages and numerous coverage questions. Planes were going to fall from the skies, traffic lights would be inoperable, hospitals would lose power, there would be a worldwide economic depression, etc. People were hoarding supplies and running to the mountains. Law firms created dedicated departments, seminars were held, policies were amended, all in anticipation of the dreaded Year 2000 problem. And what are we talking about today? Mold.
The headlines have moved from high tech to low tech. There has been much publicity about mold recently, both in the general press and industry periodicals. Consider the following: “The Mold in Your Home May be Deadly”, “Is Your Office Killing You?”, “Toxic Shock”, “Buildings that Stink”, “Is Your School Infected?”, “Mold Busters”. Farmers Insurance, with 7% of the U. S. homeowner’s insurance market, estimates that mold claims will cost it $85 million this year (this figure does not include the $32 million bad faith verdict it took in the Ballard matter in Texas). State Farm, which has a third of the homeowners’ market in Texas, had 1,200 mold claims in the first half of this year. Carriers are pulling out of the homeowner’s market in those states that have a high incidence of mold claims.
What is behind the sudden mold epidemic? Experts point to modern construction, including materials used, such as fake stucco (great mold food when wet); the way insulation can trap moisture behind walls, and the fact that today’s offices and homes are more airtight, with air-conditioning and heating systems recirculating contaminated air.
Some plaintiffs’ lawyers are comparing mold to asbestos and lead paint. Are we facing a crisis or a passing fad? This article will address some of the issues involved with mold claims and attempt to put them into a rational perspective.
What is Mold?
Mold is everywhere, indoors and outdoors. There are more than 100,000 species of mold. At least 1,000 species of mold are common in the United States. Mold needs water to grow. It can grow almost anywhere there is water damage, high humidity or dampness. Outdoors, many molds live in the soil and play a key role in the breakdown of leaves, wood, and other plant debris. Without molds we would all be struggling with large amounts of dead plant matter.
Molds produce tiny spores to reproduce, just as plants produce seeds. Mold spores waft through the indoor and outdoor air continually. When mold spores land on a damp spot indoors, they may begin growing and digesting whatever they are growing on in order to survive. They can grow on wood, paper, carpet, foods, etc. When excessive moisture or water accumulates indoors, mold growth will often occur, particularly if the moisture problem remains undiscovered or unaddressed. The Environmental Protection Agency estimates that the actual amount of pollutants indoors can range between 100 to 200 times the actual amount of pollutants found in outdoor air.
Indoor moisture can come from a variety of sources: flooding, backed-up sewers, leaky roofs, humidifiers, damp basement or crawl spaces, plumbing leaks, the watering of house plants, shower steam, etc. A U. S. census found that in 1993 13% of homes had leakage from interior sources and 21% from exterior sources.
Some species of mold, such as Aspergillus, Fusarium, Penicillium and Stachybotrys can produce a wide variety of mycotoxins. It is these mycotoxins that may affect people’s health. The degree of harm that mycotoxins can cause is open to debate. Farmers are continually battling mycotoxins in their livestock feed. The Soviets are alleged to have used neurotoxins from Stachybotrys (“black mold”) as a biological weapon in Afghanistan. There are horror stories of children in Cleveland dying from “bleeding lung disease” due to exposure to Stachybotrys (this was never scientifically proven). But the actual toxicity of certain molds in the indoor environment is uncertain. Some experts claim that high levels of Stachybotrys are toxic for all individuals. Others state that the scientific data does not support this idea. What is known is that mold is an allergen that can affect allergy sufferers who have a predisposition to react to environmental triggers. The most common symptoms of overexposure are cough, congestion, runny nose, eye irritation and aggravation of asthma. Note that these symptoms disappear when the individual is no longer exposed to the mold.
It is important to note that the health effects of mold are open to question. The Center for Disease Control’s website contains the following statement: “There are very few case reports that toxic molds (those containing certain mycotoxins) inside homes can cause unique or rare, health conditions such as pulmonary hemorrhage or memory loss. These case reports are rare, and a causal link between the presence of toxic mold and these conditions has not been proven.” In addition, there are no acceptable, or unacceptable, limits for mold in the indoor environment and there are no guidelines for proper remediation.
Most of the claims to date involve first party homeowner’s coverage. ISO 1991 HO-3 insures against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to property except if caused by smog, rust or other corrosion, mold, wet or dry rot. It is an open perils (formerly known as “all risks”) policy; thus there is coverage unless otherwise restricted or excluded. The industry consensus is that if the mold is a result of a covered loss, such as a burst water pipe, there is coverage. The mold is a result of the direct physical loss (water damage), not a cause of it. If the mold is the result of an excluded peril (e.g., flood), there would not be coverage. The National Association of Mutual Insurance Companies presents the following statement on their website:
The costs of cleaning up mold caused by water from a burst pipe are covered under the policy because water damage from a burst pipe is a covered peril. But mold caused by water from excessive humidity, leaks, condensation, or flooding is a maintenance issue for the property owner, like termite or mildew prevention, and is not covered by the policy.
Also note that the types of loss included in the exclusion (rust, corrosion, dry rot) naturally occur over a period of time; arguably the intent of the exclusion is to bar coverage for damage that occurs gradually, not a fortuitous event such as water damage.
Note that once the mold is discovered, the insured needs to take reasonable steps to remediate the damage. See Exclusion 1 (e): “Neglect, meaning neglect of the “insured” to use all reasonable means to save and preserve property at and after the time of loss”.
Commercial First Party Coverage
Coverage from mold damage under a commercial property policy is a bit more complicated. Exclusion 2 (d) in the CP 10 30 Special (“all risk”) form states:
We will not pay for loss or damage caused by or resulting from any of the following:
- Wear and tear;
- Rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself;
- Settling, cracking, shrinking or expansion;
- Nesting or infestation, or discharge or release of waste products or secretions, by insects, birds, rodents or other animals;
- Mechanical breakdown, including rupture or bursting caused by centrifugal force. But if mechanical breakdown results in elevator collision, we will pay for the loss or damage caused by that elevator collision;
- The following causes of loss to personal property: Dampness or dryness of atmosphere; Changes in or extremes of temperature, or; Marring or scratching.
But if an excluded cause of loss that is listed in 2.d. (1) through (7) results in a “specified cause of loss” or building glass breakage, we will pay for the loss or damage caused by that “specified cause of loss” or building glass breakage.
This exclusion is broader than the one in the homeowner’s policy as there is no coverage for damage “caused by or resulting from.fungus..” However, fungus is grouped with other perils that involve long-term wear and tear type losses. Thus an argument could be made that fungus resulting from a covered peril, such as a burst water pipe, would not be excluded.
Another relevant exclusion is 2 (f): “Continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more”. Any mold damage caused by such seepage would not be covered.
Note that the broad form (“named perils”) CP 10 20 does not contain a fungus exclusion. Certain water damage is covered; thus if mold is a result of the covered water damage, the same analysis we used for the homeowner’s policy would apply.
Commercial General Liability
Mold in the CGL context will be, in many cases, another variation of construction defects. Thus there will be issues of allocation, triggers of coverage, causation, other insurance (additional insureds), etc.
Some exclusions may also be applicable, such as the Business Risk exclusions (damage to Your Property or Your Work). For example, if it is alleged that a contractor sealed up areas that contained excessive moisture, thus creating an environment leading to toxic mold in the area where the work was done, the exclusion regarding Your Work may apply. Note that damage to other property would be covered.
The Absolute Pollution exclusion may also apply. The issues will be whether mold is a pollutant as defined in the policy (“any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste”) and whether there has been a “discharge, dispersal, seepage, migration, release or escape of pollutants.” A good argument can be made that mold spores are a solid irritant that are released. There are many decisions on whether such toxic torts as lead paint and carbon monoxide poisoning are excluded and at this time the courts are evenly divided. For an in depth discussion of the Absolute Pollution exclusion see the Winter 2000 (Volume III, Issue III) issue of IN FOCUS.
Causation is a key issue in mold cases. In the first party context, it will be a determinative regarding the existence of coverage. It will play an even greater, and expensive, role in third party liability cases in which bodily injury is alleged. As stated earlier, except for relatively minor allergic reactions, there is no definitive scientific evidence that mold can cause serious harm to humans. Thus, many mold cases will boil down to a battle of the experts. These will include industrial hygienists, engineers, epidemiologists, oncologists, microbiologists, immunologists, toxicologists, neurologists, etc. The admissibility of this expert testimony will be critical to the outcome of these cases. The $32 million verdict in the Ballard case in Texas has received much attention in the media, but what has been largely overlooked is the fact that the court excluded expert testimony as to plaintiff Ronald Allison’s alleged cognitive dysfunction. Mr. Allison, an investment advisor, alleges that he can no longer handle complicated tasks due to his exposure to mold. This issue is important enough to warrant further discussion.
The standard for the admissibility of scientific evidence in the federal courts and most state courts for much of this decade has been the general acceptance test in the relevant scientific community as outlined in Frye v. United States, 293 F. 1013 (D.C. Cir. 1923). Frye was overturned in 1993 by the U.S. Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The issue in Daubert was whether the drug Bendectin (prescribed for pregnant women with morning sickness) caused birth defects. The court rejected the Frye standard, stating that it had been superseded by Federal Rule 702:
If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.
The court noted that “general acceptance” is not mentioned in the Rule and then went on to state “Many factors will bear on the inquiry, and we do not presume to set out a definitive checklist or test. But some general observations are appropriate.” Some of the factors to be analyzed are:
- Whether the theory or techniques can be or has been tested.
- Whether the theory or technique has been subjected to peer review and publication. Publication is not required, but is relevant.
- Whether there is a known, acceptable rate of error.
- Whether the theory or technique is generally accepted.
Daubert applies only to federal courts; the states are free to set their own standard. Texas followed Daubert (and then some) in Merrell Dow Pharmaceuticals, Inc. v. Havner, 953 S.W.2d 706 (Tex. 1997). Havner also involved the drug Bendectin and birth defects. Here the Texas Supreme Court laid out the following factors that should be considered in evaluating the admissibility of expert testimony:
- The extent to which the theory has been or can be tested.
- The extent to which the technique relies upon the subjective interpretation of the expert.
- Whether the theory has been subjected to peer review and publication.
- The technique’s potential rate of error.
- Whether the underlying theory or technique has been generally accepted as valid by the relevant scientific community.
- The non-judicial uses that have been made of the theory or technique.
The Havner decision goes into great detail in discussing statistics and epidemiology and the problems they present for the court. Some of their comments are worth repeating:
Causation in toxic tort cases is discussed in terms of general and specific causation. General causation is whether a substance is capable of causing particular injury or condition in the general population, while specific causation is whether a substance caused a particular individual’s injury. In some cases, controlled scientific experiments can be carried out to determine if a substance is capable of causing a particular injury or condition, and there will be objective criteria by which it can be determined with reasonable certainty that a particular individual’s injury was caused by exposure to a given substance. However, in many toxic tort cases, direct experimentation can not be done, and there will be no reliable evidence of specific causation.
In the absence of direct, scientifically reliable proof of causation, the finder of fact is asked to infer that because the risk is demonstrably greater in the general population due to exposure to the substance, the claimant’s injury was more likely than not caused by the substance.
Since epidemiological studies cannot establish the actual cause of an individual’s condition, a difficult question for the courts is how plaintiffs can raise a fact issue on causation and meet the “more likely than not” burden of proof. There is a “strong” and a “weak” version of this preponderance rule. The “strong” version requires a plaintiff to offer both epidemiological evidence that the probability of causation exceed fifty percent in the exposed population and “particularistic” proof that the substance harmed the individual. The “weak” version allows verdicts to be based solely on statistical evidence.
A claimant must do more than simply introduce into evidence epidemiological studies that show a substantially elevated risk. A claimant must show that he is similar to those in the studies. This would include proof that the injured person was exposed to the same substance, that the exposure was comparable or greater than those in the studies, that the exposure occurred before the onset of injury, and that the timing of the onset of injury was consistent with that experienced by those in the study. If there are other plausible causes of the injury that could be negated, the plaintiff must offer evidence excluding those causes with reasonable certainty.
The Havner court adopted the “strong” version of the preponderance rule requiring that there be a “doubling of the risk”. The court gives a simple illustration. Assume a condition naturally occurs in six out of 1,000 people even when they are not exposed to a certain drug. If studies of people who did take the drug show that nine out of 1,000 contracted the condition, it is more likely than not that causes other than the drug are responsible. If more than twelve out of 1,000 contract the condition, it may be statistically more likely that the drug caused the condition. The court also required a confidence level of 95%. In other words, if the studies were duplicated, 95% of the scientists duplicating the study would obtain the same results.
Therefore, in Texas, an expert must establish through reliable and relevant evidence that mold generally causes personal injuries and that mold caused the specific injuries involved in the case. There are currently no epidemiological studies nor peer review articles tending to show a causal connection between mold and the illnesses allegedly associated with it. There are also no means presently available to measure the level of toxin to which a plaintiff has been exposed. Thus the trial court in Ballard excluded the evidence related to Mr. Allison’s alleged cognitive dysfunction.
Daubert’s reception at the state court level has been mixed. For example, California uses the Kelly/Frye test as enunciated in People v. Kelly, 17 Cal.3d 24 (1976). New scientific evidence is only admissible on a showing of scientific reliability demonstrated by substantial agreement and consensus in the scientific community. The factors that the court established include:
- Whether the new scientific method is shown to be reliable;
- Whether the witness is qualified as an expert in the field;
- Whether the theory or method in question was implemented according to proper scientific procedures.
The Daubert standard is the more rigorous test as it changed the standard for admitting expert testimony from one of general acceptance in the scientific community to one of proven scientific reliability. A 1998 study of federal district court judges found that they were more likely to scrutinize expert testimony before trial and less likely to admit expert testimony post Daubert. 59% of judges said they allowed proferred testimony without limitation compared to 75% of judges in a similar study done in 1991. These results probably understate the impact of Daubert because they reflect only those cases that actually went to trial. Several commentators report that federal judges are increasingly skeptical about plaintiffs’ expert witnesses in civil cases.
Although Daubert is not binding on state courts, Rule 702 has been adopted by thirty-eight states, thus it is likely that most of them will be required to re-examine their standards for admissibility of scientific evidence.
What is the answer to the question: Is mold the next asbestos? The answer is “not likely” for a number of reasons: weak medical causation evidence, lack of published exposure standards, lack of target corporate defendants (e.g., Johns Manville), mold related diseases are less severe and less permanent than asbestos related diseases and they manifest relatively quickly (thus people are exposed to mold over shorter periods of time).
At this time much of the exposure arises from first party property polices. Bodily injury mold claims are in their infancy and we need to be aware of the changing landscape. Plaintiffs will certainly seek to buttress their scientific evidence. The plaintiff in the Ballard case has already threatened to use some of her $32 million recovery to fund scientific research. There is pending legislation in several states to study the effects of mold and to set mold exposure levels. Insurers may seek to more explicitly exclude mold or add sub-limits; this will undoubtedly lead to litigation.
Although not the perfect analogy, mold may be closer to breast implant litigation than to asbestos. If we do not panic, treat each case on its merits, and aggressively attack plaintiffs’ experts, we can win most of these cases and force the plaintiffs’ bar to embark on a different crusade.