In
February 2000, a Texas grand jury found reason to continue a
criminal investigation of child endangerment charges against an
insurance company for its handling of a water damage claim. This
investigation was prompted by a criminal complaint filed by the
policyholder and follows the filing of a $100 million lawsuit in
1999 against the same insurance company for its handling of the
claim. The policyholders say that the insurance company did not
act properly or in a timely manner following the water damage
claim. The allegation is that the house is now uninhabitable.
The
family claims that, following the water damage, and while they
were still living in the house during repairs, they were
coughing up blood. The husband, the family claims, is now
suffering from a cognitive dysfunction, among other injuries.
The
problem? Mold. Stachybotrys chartarum (a.k.a. atra) to be
specific. The mold developed following a water damage loss in
1998. The policyholders allege that neither the insurance
company nor the company's expert informed the family that the
home contained the deadly mold until their health was
irreversibly damaged.
Is
the Texas case merely an extreme example? Or is it a harbinger
of things to come?
Many
lawsuits have been filed and are being filed around the country
involving the improper handling of covered water damage losses
that have resulted in mold growth so extensive and severe as to
present potentially serious - and in too many cases, actual -
health hazards, not only to the occupants of the building
involved but possibly to anyone who unwittingly enters the
structure. Furthermore, mold growth can cause damage to building
materials, such as paper and wood products. Mold contamination
and growth may also pose a disclosure issue during a real estate
transaction.
According
to the Insurance Information Network of California and the
Western Insurance Information Service, both sponsored by
insurance companies, water damage from frozen and broken water
pipes ranks second, behind hurricanes, in terms of the number of
homes damaged and the amount of claim costs in the U.S. Damage
from water is the most prevalent, yet least recognized,
catastrophe. In addition to broken and frozen water pipes, we
have to include losses from flood, rain, leaks and surface
water, as well as water damage from putting out fires.
Some
of these losses are covered, some are not. If the water damage
is the result of a covered loss, the resultant damage, mold
(including fungi, mildew, etc.), is probably also covered and
must be considered in preparing the scope of damages and costs
of repair.
The
consensus of opinion from the EPA, FEMA, the Centers for Disease
Control (CDC), mycologists and microbiologists is that mold may
start to grow and spread within 24 to 48 hours in structures
damaged by water. Mold can grow exponentially, given the right
conditions of temperature, moisture and food sources, such as
sheetrock.
Know
your enemy
Fungi are a group of organisms with nuclei and rigid cell walls,
but without chlorophyll. They may be unicellular or in
multicellular filaments. The filaments are called hyphae. A
fungus may produce a system of branching filaments, called the
mycelium. The filamentous fungi are sometimes called molds.
Unicellular fungi are often called yeasts. Some fungi may
produce both yeast and mycelial mold phases. Mildew, in
layperson's terms, describes the staining, and likely the
degradation of the materials, caused by fungi or molds. Mildew
is also used by plant pathologists to identify plant diseases,
such as "powdery mildew," caused by fungi.
Mold,
mildew and fungi are hardly new problems. In the book of
Leviticus, chapters 13 and 14, there is reference to a plague,
also called mildew in some translations. The description seems
to fit that of a toxic mold. In Leviticus, the solution was to
try cleaning: "Watch the plague and if the plague spreads,
the unclean item or property must be removed and
destroyed."
Stachybotrys
chartarum was first identified and described by a scientist
from wallpaper collected in a home in Prague in 1837. The toxic
effects of Stachybotrys have been reported as early as
the 1920s.
Reports
and surveys on mold in homes have been published since at least
the late 1970s. In 1986, the injurious effects of trichothecenes
- a mycotoxin produced by Stachybotrys chartarum and a
few other molds - were reported from a study of a family in
Chicago. That report, by W.A. Croft, said that Stachybotrys could
be commonly found in homes with water damage, could grow
undetected behind walls and could grow profusely on sheetrock.
In
1993, the New York City Department of Health's Bureau of
Environmental & Occupational Disease Epidemiology convened a
panel of experts to study a growing and noted problem. Their
report, "Guidelines on Assessment and Remediation of Stachybotrys
Atra in Indoor Environments," was issued in 1994. An
updated report, "Guidelines on Assessment and Remediation
of Fungi in Indoor Environments," was issued in April 2000.
The scope of the report was expanded to include all mold or
fungi.
These
guidelines serve as the accepted standard on how to deal with
mold. The initial 1994 report focused on Stachybotrys, but was
revised in 2000 to include all mold (fungi). The authors highly
recommend that concerned readers download and print out copies
for reference, which run about 17 printed pages. (For more
information, contact he N.Y.C. Department of Health at (212)
788-4290.)
Mold
& medical problems
A wide variety of symptoms have been attributed to the toxic
effects of different molds. The medical problems may be caused
by toxic gases produced by the molds or by reactions to the mold
particles themselves. Many allergies are also attributable to
mold and fungi.
Commonly
reported symptoms include runny noses, eye irritation,
congestion, aggravation of asthma, headaches, dizziness and
fatigue. More severe symptoms may include reports of profusely
bloody runny noses, the coughing up of blood, severe headaches,
fibrous growth in the lungs and - at least in one reported
instance - cognitive dysfunction and loss of memory.
In
the previously described water damage and mold claim in Texas, a
mold expert in the case underestimated the danger involved. The
expert found himself throwing up for hours after spending just
30 minutes in the house. He has a severe hearing loss in one ear
from his exposure to the mold.
In
1993 and 1994, a doctor from the Cleveland area attributed 37
cases of pulmonary hemorrhage and hemosiderosis in young infants
to Stachybotrys. Twelve of the infants died. A recent CDC
report questions the scientific validity of the doctor's
conclusions and the causal linkage of the infant deaths to the
toxic effects of Stachybotrys. However, the CDC does
recognize that moldy homes are unhealthy for human occupancy.
Other reports claim to confirm the linkage of Stachybotrys to
instances of infant deaths in other locations.
Some
of the most extreme cases of mold-related health problems, the
so-called "yellow rain" attacks in Southeast Asia
during the late 1970s, and the Iraqi attacks on some Kurd
villages in the 1980s and 1990s have been attributed to use of
mycotoxins produced by molds.
The
conclusion to be reached from all of these dramatic cases is
that molds are potentially dangerous and cannot be ignored. All
molds should be removed. If the mold is attributable to a
covered loss, it is the responsibility of the adjuster to
include removal of the mold as part of the loss.
Immediate
response required
While all claims should be responded to and handled promptly,
timeliness on covered water damage claims is especially
critical. A prompt response and an immediate commencement of
cleanup and drying is essential in reducing or eliminating
further damage, particularly by mold. The sooner the water is
removed and the property properly dried out, the less property
damage there will be and any related claim will also be
correspondingly minimized. Water damage that is not addressed
within 24 to 72 hours may result in the growth and spreading of
mold which could be toxic. (See "Wringing
Out Excess Costs From Water Damage Claims" for proper
drying procedures.)
A
visual inspection is the most important step in identifying
possible mold contamination. The inspection should include any
areas damaged by water, e.g., behind cabinets, in attics, under
carpets, inside wall cavities and any area with porous material
or soft goods exposed to high humidity (over 60 per cent) or
water for a period in excess of 72 hours.
The
general rule of thumb is very simple: If you can see mold or
smell mold, you have to remove it. Once you find and start
removing the mold-damaged or contaminated materials, such as
sheetrock, you should keep on removing the material until you
find no more mold, either on the face of the sheetrock or on the
back side of the sheetrock next to the studs. If the studs have
mold contamination, you must consider the edge of the stud on
which the other or exterior wall is attached.
Since
the N.Y.C. Department of Health's panel of experts concluded
that it was not possible to determine safe or unsafe levels of
exposure for people with varying degrees of susceptibility, the
guidelines essentially call for the removal of all visible mold.
The
New York City guidelines state that in looking for mold
following water damage, bulk sampling or air monitoring is not
required. Remediation of all visibly identified mold
contamination should proceed without further evaluation.
However, if mold is not visible but is suspected because of
circumstances such as water damage and unexplained illness, it
may become necessary to test in order to rule out mold or to
verify its presence. Porous materials, such as ceiling tiles,
insulation and wallboards, with more than a small area of mold
contamination should be removed and discarded. A small isolated
area is defined as 10 square feet or less. A small area may be
cleaned safely if done properly, without problems, and a check
reveals no more mold.
Removal
of the mold-contaminated material is only the first step. A
certified mold remediation specialist should then remediate or
decontaminate the structure and personal property involved.
Depending
on such variables as the length of time from the initial water
damage, the amount of water in the structure, the cleanliness of
the water and the type of property involved, it may be necessary
to remove carpets, pads and any other wet items (especially
clothing and other soft goods) from the premises for proper
drying, cleaning and treatment. Damp or wet carpets, pads or
other items may provide a medium for potentially dangerous mold
growth.
Flooding
of property, pipe breaks in ceilings or walls, or standing water
necessitates removing sheetrock that has been water-damaged, up
to at least a foot or more above the high-water mark. Removal of
at least some sheetrock may also be necessary to allow the wall
cavities to drain and dry properly. Wet insulation, in the
ceiling or walls, must be removed and replaced. Wet or damp
insulation, especially in dark places like wall cavities is a
breeding ground for mold. The insulation value is also reduced.
Prompt
response and appropriate action is necessary to minimize damage
in a water loss. A quick response will also allow the adjuster
to determine if the mold is pre-existing or a result of the
water damage. If the adjuster can inspect the loss within 24 or
48 hours of the initial damage, it is likely that any visible or
detected mold may be the result of a pre-existing water problem,
possibly a long-term leak. However, if the loss is not inspected
or properly dried within 72 to 96 hours, it may be more
difficult to determine if the mold was a pre-existing problem or
a result of the covered loss, and thus also covered. The longer
the delay in inspecting the loss, the more difficult it becomes
to prove the mold was not caused by the covered loss.
Roles
of adjusters, experts
As the expert in claims handling and policy coverages, it is the
adjuster's responsibility to seek out and identify any and all
damage covered in the loss - either alone or with the assistance
of the contractor - and then to extend to the insured any and
all benefits available under the policy. This responsibility
means including in the scope of damage any visually identifiable
mold in a covered loss as possibly a part of the loss. Unless
the adjuster can determine that the mold in a covered loss
either pre-existed the loss or is not a result of the covered
water damage, the mold has to be considered as part of the loss.
Denial of the mold contamination as being excluded under the
policy, either subject to the standard mold exclusion or as not
being part of the covered loss itself, requires that the
adjuster prove and document the basis for the denial.
Relative
to the insured, the adjuster is operating from a position of
superior knowledge on what should be expected in the way of
damage, and what damage is or is not covered under the policy.
Many adjusters see water damage claims on a frequent basis and
have a much better idea than the insured on what might be
damaged and where to look for hidden damages. If the adjuster is
in doubt or lacks sufficient experience, he or she should work
closely with the insured's contractor and make sure the scope of
damage is complete.
If
the water damage is more than a few days old, be sure and check
for mold as a possible hidden damage in wall cavities or other
areas damaged by water. Adjusters are not expected to be experts
on determining whether or not the mold is dangerous; however, an
adjuster is expected to detect visible mold, to look for mold in
certain areas (such as water-damaged wall cavities), to include
the mold in the scope of damage and to call in the appropriate
experts to assist and advise. The job of the experts is to
advise the adjuster concerning the mold and how to handle the
mold.
A
professional restoration consultant should be contacted when
more than a small area of mold contamination is involved. Even a
mid-sized isolated area - say, 10 to 30 square feet - requires
special handling. Areas of 30 to 100 square feet require
professionals, preferably certified in mold remediation and
trained in handling hazardous materials. Areas of more than 100
square feet require special containment procedures and negative
pressurization. Such areas may require asbestos-like remediation
procedures; the removed material must be treated as hazardous
waste.
During
and after removal or remediation of the mold, it may be
necessary to conduct sampling to determine if remediation has
been successful.
The
future of mold claims
The Cleveland Plain Dealer, in August 1998, quoted Dan
Zielinski, of the American Insurance Association, as saying,
"Insurance companies will not take note of [Stachybotrys
atra] until they are faced with numerous losses because if
it."
One
of the reasons may be the high cost of mold remediation, which
should be done only by trained and experienced professionals.
Some studies have shown that proper remediation and removal of
contaminated building materials is about 10 times as expensive
as regular tear-out and replacement. In some cases the
remediation cost is more than $150 per square foot.
Insurance
companies and adjusters should, however, be taking note of the
dangers of mold contamination now. The insurance industry is
being faced with numerous losses and lawsuits, some of them far
more expensive than any remediation cost. In the last seven
years in California, there have been a number of lawsuits
involving mold following water damage. Many have settlement
figures of more than $500,000. In one suit, the policyholder
recovered more than $2.5 million. In another, the policyholder
recovered over $9 million.
The
case in Texas was filed demanding $100 million. Hardly a figure
to sneeze at.
The
examples cited above do not even touch on the liability,
construction defect and "sick building syndrome"
cases. In 1992, for example, a courthouse in Florida developed
mold problems due to construction defects. A jury recently
awarded more than $40 million in personal injury claims. There
were over 200 workers' compensation claims and at least 180
separate lawsuits. In New York City, more than 300 tenants in an
apartment complex with mold problems have filed a class action
lawsuit in excess of $10 billion.
Previously,
such lofty figures were seen only in asbestos or drug-related
class actions. Now, we are starting to hear 11-digit figures
mentioned in litigation concerning the lowly mold fungi.
While
mold does not develop in every water damage loss, the adjuster
must be aware of the potential for mold and its inherent costs.
The adjuster must look for mold when the circumstances warrant
and must call in appropriately qualified experts for guidance as
needed. Mold remediation may be expensive, but failure to
remediate a covered damage may be even more expensive, in terms
of health as well as dollars.
Everette
Lee Herndon Jr. is a claims consultant and expert witness,
working primarily in bad faith cases. Based in Rancho Murieta,
Calif., Herndon was an adjuster for more than 25 years and is
also a member of the California Bar.
Chin
S. Yang, Ph.D., is the president, director and chief
microbiologist of P&K Microbiology Services, based in Cherry
Hill, N.J. Yang, who has worked extensively with allergists,
industrial hygienists, and health professionals on
microbiology-related problems in buildings, was also a contract
consultant to U. S. Public Health Service, Division of Federal
Occupational Health.
Courtesy
of Claims Magazine
