Mold concern growing for building, insurance industries

Mold is not a new issue for the construction industry. In fact, it is one of the oldest issues for the construction industry. It is incredibly easy to grow (needs only humidity, warmth, lack of ventilation and some source of food), virtually impossible to avoid in nature, but generally not very hard to kill.

Contractors, their sureties and the insurers have adequately dealt with the risks associated with moisture for a long time. So, what's the big deal?

The big deal is that now personal injury claims have been added to the equation. Mold (particularly the stachybotrys strain) is accused of causing everything from burning eyes and headaches to brain damage and cancer.

The chances of serious illness are extremely rare, but the mere allegation of it could lead to a building being labeled as a sick building (defined as one in which 20 percent or more of the occupants have suffered from one or more of the typical effects for 20 days in a year).

This could lead to the building having no commercial resale value.

In August, the Hilton Waikiki Village Hotel in Hawaii had to indefinitely close its new, $95 million, 453-room building due to mold. It will spend at least $10 million to remediate the problem.

Marin County, Fla., sued its construction manager for HVAC problems that it said forced it to evacuate the county courthouse and got an $11,550,000 verdict against the construction manager and its surety. Centex-Rooney Construction Co. vs. Marin County, 706 So.2d 20 (DCA 1997)

Causes of sick building syndrome mold are naturally occurring, but to grow to the level where it can do damage, it needs food, moisture and temperature. Since the Arab oil embargo of the 1970s, we have focused on designing "tight buildings" that inhibit air flow and increase in temperature when not in operation.

Any wood-based natural material (cellulose, wallboard, insulation) becomes food. All the spores need now is moisture. Failure to control the "moisture envelope" the roof, walls and foundation is the usual source of moisture for mold.

The potential ways that moisture can be introduced into a building are too many to count. Some of the more obvious sources include roof leaks, window leaks, plumber defects, drainage problems, grading problems and other sources of water intrusion.

From the general contractor to the supplier of the water sealant that was applied to the exterior basement wall, the potential number of parties responsible not just for the water damage, but also for the resulting personal injury claims that may arise from mold growth, can be numerous.

How will this affect construction long-term? Because virtually all private construction is financed by third-party lenders, and much public construction is financed through the issuance of bonds, these lenders and bond underwriters will not be allowed to finance construction unless they see that adequate insurance is in place to cover mold-related personal injury claims.

Lenders are more likely to require surety bonds to assure that there is recourse available if the construction itself should develop mold problems. Some insurers are declining to provide coverage for mold and have even pulled out of states that are not allowing specific mold exclusions. There are some "specialty markets" that sell mold insurance as a type of environmental coverage, but this is still limited in coverage and is not easy to get.

There is an increasing trend toward developing "best practices" in design and construction. Associated General Contrac-tors, as well as other design and construction groups, is working to develop a protocol, describing steps to be taken in construction to decrease the chances of mold contamination.

The intent of the undertaking is to develop something that insurers will feel comfortable insuring. Ideas are expected to include:

avoidance of vulnerable products;

protocols for inspection of installations of windows, grading, drainage;

required specific review of HVAC designs;

recommendation for increased airflow in occupied spaces;

recommendation for decreased temperatures in occupied spaces; and

more routine scheduled maintenance.

Developers, contractors, designers and vendors should expect to see more language in contracts in which the risk of claims will be shifted from one of them to the other. Much of this will be at the insistence of lenders. Look out for:

Insurance requirements for mold-caused damage coverage, both for property damage and third-party claims. Such requirements on sealed bid projects could significantly lessen competition and may be unattainable.

Indemnification requirements. Note that many equipment vendors will not furnish such indemnification and give only limited warranties.

Strict installation specifications, including requirements for indoor air quality standards in specifications or requiring special consultants.

Without doubt, we will all see more claims before this mania subsides, but if the industry responds rationally, it can develop techniques to deal with this problem just as it has with countless other challenges in the past.