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Minimize the Risk of Mold Claims
By: James H.
Landgraf, Esquire
The preceding
articles have
discussed mold as an
organism and as a
legal cause of
action, insurance
coverage issues,
remediation and,
ultimately, claims
and litigation
pertaining to the
presence of mold.
From these Articles,
it is clear that
best practices in
dealing with mold
issues are to make
every effort to
minimize the
possibility of mold
issues arising and
to be prepared if
they do. Mold is
omnipresent, but its
growth to
unacceptable levels
is a result of
external conditions
including
temperature, a food
source and moisture.
The most effective
preventative actions
would involve
controlling one or
more of those
conditions.
Temperature is a
variable that under
indoor conditions
can certainly be
controlled. The
overriding problem
with controlling
mold through
temperature control
is that many of the
dangerous molds
thrive best in the
same temperature
ranges that we
prefer. Limiting
available food
sources can also
limit the potential
for unacceptable
mold growth.
However, unless we
wish to construct
our buildings using
only inorganic
plastics, steel and
stone and similarly
limit our
furnishings to the
same, preventing
mold through control
of food sources is
again problematic.
This leaves moisture
as the one variable
over which we can
place controls from
design through
construction through
use of a building to
limit and minimize
mold growth and
therefore the future
risk of mold claims.
This article
addresses minimizing
risks of mold claims
from the design and
construction phases
through use,
occupancy and
maintenance to
recording and
addressing mold
issues when they
first arise and
before they become a
source of
uncontrollable
litigation and cost.
A. Design and
Construction
Considerations
Excess moisture
conditions will
almost inevitably
lead to mold growth
and potential mold
claims. In designing
and constructing a
building, potential
moisture problems
may be found in the
design and/or
construction of the
building foundation,
envelope, HVAC
system or plumbing
system.
Implementation of
proper design
measures can serve
to minimize future
mold issues. Whether
the construction
project is new
construction or
renovation, proper
design starts with
proper investigation
including the
following:
§ Existing water
table
§ Requirements for
exterior drainage
§ Requirements for
foundation
waterproofing
components
§ Investigation of
existing
construction
including crawl
spaces, invasive
investigations, HVAC
and attic conditions
§ Applying
appropriate HVAC and
air quality and air
movement standards
for the intended
uses
Once appropriate
investigations of
physical conditions
and use requirements
are made, the
following are design
elements that if
properly addressed
can reduce moisture
penetration and/or
accumulation and
therefore mold
growth and claims,
and if not properly
addressed can almost
guarantee future
mold growth and
claims:
§ Foundation and
Slab
o Under slab
waterproofing
o Foundation
waterproofing
o Surface water
diversion
o Subsurface water
diversion
§ Building Envelope
o Use of exterior
cavity walls
o Curtain
walls/windows
o Stucco and EIFS
o Roofing system
o Roofing hips and
valleys
o Guttering and
drainage
§ HVAC
o Over sizing versus
under sizing system
o Ultimate user’s
intended use –
bodies and equipment
o Accessible and
maintainable
equipment
§ Plumbing
o Accessibility
o Surrounding
materials
If the design
professionals are
instructed and
allowed through
their contract
documents to perform
appropriate
investigations and
are provided with a
full and complete
understanding of the
owner’s intended
usage, they then are
under an obligation
to design the
project consistent
with appropriate
professional
standards. These
would include
appropriate design
features to minimize
or avoid, if
constructed
properly, water and
moisture
infiltration and
accumulation within
the structure.
The best design can
fail, however, to
prevent moisture
penetration or
accumulation if the
project is not
constructed
properly. Each of
the elements
discussed above that
require special
attention during the
design phase require
equal attention
during construction.
It is incumbent on
the owner of the
project to assure
that construction is
going to be
performed in a good
and workmanlike
manner, consistent
with the design.
While that
responsibility
obviously rests with
the contractor,
leaving a contractor
unattended to
construction the
building without
somebody overseeing
and observing the
construction is
dangerous. Whether
the owner uses its
own personnel (if
qualified), hires a
clerk of the works,
engages the
architect to make
observations of the
construction or
hires a part or full
time construction
manager, it is in
the best interest of
the owner to have
some appropriate
form of oversight of
the contractor.
Another source of
moisture during
construction
involves the
handling of
materials. Materials
such as lumber,
drywall and
insulation may
become saturated
while being stored,
or after
installation but
before the structure
is fully enclosed.
They are then
“covered” and simply
remain moist. Once
the appropriate
temperatures are
met, mold behind
sheetrock and other
enclosed areas has
all that it needs to
thrive.
The contracts with
both the design
professionals and
the contractors
should also include
specific insurance
provisions. The
design
professional’s
contracts should
include errors and
omissions policies
which would cover
any errors and
omissions involving
the design or even
the any construction
oversight engaged in
by the design
professional for
damages resulting
from that including
damages associated
with mold.
Contractors, on the
other hand, are
normally covered by
comprehensive
general liability (CGL)
policies that cover
damage caused by
them but will very
likely have
exclusions for mold
damage and may not
cover the actual
improper work by the
contractor but only
damage to other
portions of the
structure. The owner
should nevertheless
require a CGL policy
and particularly one
that covers the work
of subcontractors to
the contractor. The
owner, depending
upon the size of the
project, should also
consider having the
contractor provide a
post-construction
maintenance bond.
That bond should be
written into the
contract as covering
not only faulty work
of the contractor
(which is typically
excluded from the
insurance coverage)
but also any damage
to other areas
caused by the faulty
work that would in
essence include mold
damage. The problem
with a maintenance
bond is that it will
typically cost the
contractor and
therefore the owner
additional sums and
it is typically
issued for a stated
duration. Most
sureties issuing
maintenance bonds do
not wish to provide
them in excess of
one or two years.
That may be enough
time for a moisture
condition to
manifest itself, but
then again may not.
B. The Benefits of
Routine Inspection
and Monitoring.
As discussed above,
during the course of
construction it is
incumbent on the
owner to oversee the
construction
process. This would
include appropriate
inspections and
observations of the
work that is
progressing.
Assuming qualified
persons are
performing such
inspections,
instances where
constructed elements
of the project are
not consistent with
the plans and
specifications as
well as concerns
regarding storage,
handling and other
practices on the
site can be
observed, noted and
hopefully remedied
before the condition
reaches a critical
stage..
Following the
acceptance of the
project the owner
must continue to
make observations
and to develop and
implement a regular
inspection and
maintenance program
for the building.
During the first
year and/or any
specified warranty
periods, such is
required to assure
that conditions that
would fall within
the warranties can
be raised at the
appropriate time and
addressed. For the
long term, such
inspections and
monitoring is for
purposes of assuring
that issues can be
caught before they
become significant
problems, that
maintenance and/or
repair of discovered
conditions can be
properly budgeted
and will be the
least disruptive and
overall that the
occupants and/or
future users of the
building will be
able to make use of
the building as
intended. An
inspection and
monitoring program
focusing on moisture
and mold prevention
does not need to be
onerous. Moisture
and mold in most
instances readily
make themselves
apparent by sight,
smell or feel.
Owners should be
making periodic
inspections
throughout the
building in any
event and to add to
that inspections of
certain hard to
reach areas
including attics and
crawl spaces to
determine if there
is observable
moisture or mold
should not add a
tremendous
additional burden.
Similarly, HVAC
systems should be
routinely inspected
including condensate
lines and pans. In
the event of
observing water
entry through walls,
windows, roofs,
ceiling tiles or
elsewhere, these
should be promptly
addressed. Even if
mold has not yet
taken hold, the
continued moisture
in such conditions
will lead not only
to future mold
growth, but also to
deterioration of the
building elements.
C. Documenting
Actions.
The routine
maintenance protocol
discussed above
should be
documented. The
individual or
individuals
performing such
routine periodic
inspections should
note the date of
inspection of a
given portion of the
building and any
observations. If the
owner holds a
building that is
rented, which is
occupied by the
owner’s own
employees are
present and/or which
is open to the
public, water and
moisture penetration
and accumulation and
the accordant growth
of mold, can subject
that owner to
potential liability
from the tenants,
employees or
patrons. If the
owner shows that
they maintained a
routine maintenance
program and actually
implemented it, this
can both reduce the
potential of such
claims as well as
establish that the
owner was acting
reasonably.
A second scenario
regarding
documentation of
monitoring and
inspections is where
a condition of water
entry is found
resulting in mold
and either property
damage or personal
injury. The issue
may arise as to
whether or not this
was an inherent or
latent defect in the
original design or
construction or,
alternatively
whether it
constituted a
failure on the
owner’s part to
provide proper
maintenance. An
established and
implemented
inspection,
monitoring and
maintenance program
will hopefully avoid
this latter
argument. Where the
owner is leasing the
building, any
conditions existing
in the leased
portions must be
clearly documented
whether they result
from actions of the
tenant, from
inherent problems in
the building and/or
acts or omissions of
the owner.
D. The Due Diligence
Process.
A purchaser of an
existing structure
must be similarly
aware of whether or
not moisture
conditions and/or
existing mold
conditions exist
that could effect
the value and/or use
of the building.
Under New Jersey
law, upon execution
of the deed and the
completion of the
real estate
settlement, in most
circumstances the
purchaser has then
waived any remaining
claims that it may
have against the
seller for
conditions that
existed in the
building at the time
of transfer. Failure
of the purchaser to
perform a proper
inspection can
therefore leave the
purchaser with
tremendous expense
when it is
subsequently
discovered that a
moisture
accumulation and/or
mold problem exists.
In the residential
market, such
inspections are
usually performed by
licensed home
inspectors. They may
or may not make
reference to a
specific mold
condition but would
certainly be
expected to make
reference to
observed conditions
where moisture
exists by way of
commenting on
staining or other
evidence of water or
moisture
penetration. The
home inspector is
not typically
qualified to make a
determination
regarding the
presence of mold
and/or the nature
and extent of mold,
but should simply
provide the
purchaser with a
recommendation that
they may wish to
have certain areas
inspected for the
presence of mold.
Dependent upon the
language in the
contract, this may
provide the
purchaser with the
option of seeking
such an inspection
at the seller’s
cost, attempting to
renegotiate the
price in lieu of an
inspection or
perhaps terminating
the contract.
Commercial real
estate transactions
require no less of
an effort and in
fact, given the
associated costs,
justify a
significantly more
extensive
inspection. This
would include a
thorough visual
inspection by a
qualified individual
and where there is
suspicion of either
mold growth or
water/moisture
accumulation, more
extensive testing
regarding moisture
content in the air
or in building
elements or even
specific mold tests
for the presence of
mold in the area or
surfaces. Purchasers
of commercial
buildings are best
served by including
the potential for
mold remediation and
water entry repairs
as part of the
seller’s obligation
in the event that
they are determined
to exist by an
inspection.
Buyers should
further carefully
review all
disclosure
statements provided
by the seller and/or
realtor to assure
that no history of
water penetration
issues are being
noted. If there is
record of past water
penetration even
where it may
reference that such
has been “repaired”
further inquiry
needs to be made as
to the location of
such water
penetration and then
a determination of
whether or not
residual problems by
way of enhanced mold
growth exist.
E. Review of
Insurance Coverage.
Insurance coverage
for potential mold
problems may
available from
several sources. As
commented upon
above, claims for
mold damage may
under certain
circumstances be
brought against the
designing
architect/engineer
or the contractor
for defective design
and/or construction
that led to the
water penetration
and, thereafter, the
growth of mold. The
design
professional’s
insurance does not
typically exclude
damages associated
with mold since it
is based on the
professional
negligence of the
design professional.
When entering into a
construction
project, an owner
using an architect
or engineering
should assure that
there are
appropriate
professional errors
and omissions
policies in effect
not only for the
period of the
construction but for
a period following
construction. Most
professional errors
and omissions
policies issued are
“claims made”
policies and will
only provide
coverage if a claim
is made during the
term of the policy.
Accordingly, if an
architect drops his
or her insurance
coverage or changes
his or her insurance
coverage following
the completion of a
given project, a
subsequently arising
claim based upon
design of that
project may not have
the full protections
of the insurance
coverage that had
been anticipated. To
the extent that a
design professional
is engaging
subconsultants
(mechanical
engineers,
structural engineers
and the like), the
owner should also
request that the
prime design
professional obtain
and provide proof of
insurance coverage
by those
subconsultants.
With regard to the
contractor, as
described above, the
contractor’s CGL
policy will
typically cover only
damage to portions
of the building not
associated with the
contractor’s work.
These consequential
damages arguably
would include mold
growth on areas not
represented by
defective
construction.
However, many CGL
policies will
include a mold
disclaimer and/or
exclusion within
their terms. That
would also apply if
the damage results
from work by
subcontractors even
if the policy
clearly covers
damages associated
to work by
subcontractors. Many
carriers will not
provide coverage for
mold related damages
to clients under CGL
policies under any
circumstances. While
specific riders may
be purchased, they
would most likely
come with
significantly
increased premiums.
It is typical for an
owner to obtain
copies of the
“Certificate of
Insurance” for its
direct contractors.
That Certificate of
Insurance does not
identify all of the
exclusions. An owner
is better served by
requesting a copy of
the full policy so
that the owner is
aware of what
provisions for
coverage and what
exclusions
(including potential
mold exclusions)
exist. Even if mold
is specifically
excluded, the owner
at the very least
will know that going
into the project.
Alternatively, the
owner may then have
the ability to seek
protection from
other sources
whether it be by a
different contractor
with better policy
provisions or by
including more
specific warranty
provisions,
obtaining a rider on
the owner’s own
policy or taking
other actions.
Finally, the owner
may have the ability
to obtain mold
coverage under its
first party policy.
A significant number
of homeowner
policies currently
include mold riders.
These are beneficial
to the extent that
they cover mold
related damages
including testing
that results from a
covered cause
(typically plumbing
or HVAC leaks or
some of the other
limited coverages).
The downside,
however, is that
these typically have
a relatively small
limit ($5,000 to
$10,000). A
homeowner may look
into the possibility
of obtaining an
increased limit
which would, again,
require additional
premiums. Finally, a
commercial owner
would need to look
at its own property
coverage. Most
commercial property
coverage policies do
not include a mold
rider. Most such
policies do include
exclusions of mold
as an element of
covered damages.
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