Mold Litigation: Is it Growing?

Gary Auman

Gary Auman (www.dmfdayton.com) is a Partner in the law firm of Dunlevey, Mahan & Furry in Dayton, Ohio. He graduated with an electrical engineering degree from the University of Louisville in 1969, and a law degree from The Ohio State University in 1976. Since then, his practice has focused on defending employers in workers’ compensation and OSHA cases. In 2002, Mr. Auman was awarded the Distinguished Service to Safety Award by the National Safety Council. He has worked with OSHA in its development of safety and health standards, and he has defended OSHA cases in several federal appellate courts. Mr. Auman also represents 4 national and regional trade associations in the construction industry. He can be reached at gwa@dmfdayton.com.

February 1, 2006

In 2001, a jury in Texas awarded damages to a husband and wife in the amount of $33 million for claims related to the development and existence of mold in their home. With this decision, known as the Ballard case, mold became a new item of concern for the insulation industry. Following Ballard, insurance claims and court cases involving mold has increased significantly. The number of these cases slowed somewhat in 2004 and 2005, but there is still significant interest in this area of litigation.

Articles have been written about mold in national publications, most meetings of trade organizations have had at least one presentation on their agenda concerning mold, and both the defense and plaintiff’s bars have held seminars concerning how attorneys should begin to address the mold issue.

Areas of Mold Liability Are Better Defined

The number of mold cases appears to be on the increase, and the areas of potential mold liability have become better defined. There have been both personal injury and workers’ compensation verdicts rendered concerning liability for mold across the United States. In addition to the Ballard decision in Texas, there have been other decisions involving the bad faith handling of insurance claims arising out of the existence of mold in California and other states.

In the construction industry, contractors face liability for mold damages from a variety of potential plaintiffs. First, there is a potential for claims filed by workers who claim that they were exposed to mold spores on the job and, as a result, developed various forms of lung conditions or aggravated pre-existing lung conditions for which they are entitled to receive workers’ compensation benefits. In states where the concept of intentional tort exists, a separate lawsuit could be filed by an allegedly injured worker because of his or her company’s failure to take action to protect against exposure to mold spores. In addition, there is potential liability from the families of employees if they develop illnesses because contaminated clothing was brought home from the work site, exposing family members to the same mold spores the worker was exposed to on the job.

A client could be a plaintiff because of the liability he or she may face as a result of mold purportedly resulting from the installation of insulation. Then, of course, there is potential for third parties who are allegedly exposed to mold spores because they visited the location where insulation was installed, which allegedly developed mold. Companies also could be named as a third-party defendant in litigation brought against a general contractor for whom they worked on a construction project. In addition, there are potential liabilities to the Occupational Safety and Health Administration (OSHA) for general duty clause violations because of the alleged exposure of employees to a recognized hazard that is causing, or is likely to cause, death or serious physical harm. Finally, there is exposure to liability for construction delays brought about by steps taken to make sure dry materials are being installed to dry pipes.

Unfortunately, mold cannot easily be engineered out of existence. Mold is naturally occurring and can develop on virtually any material if the appropriate conditions are present. Where asbestos can be replaced by other forms of insulation, mold growth cannot be eliminated in a similar fashion.

Many states are addressing the mold issue through legislation, which runs from mold disclosure acts to limitations on mold exposure and guidelines for enforcing those limitations.

Taking Steps To Avoid Litigation

In 2006, industry players cannot put their heads in the sand and claim that they are not aware of a mold problem. The best ways to minimize exposure to mold liability are eliminating, as much as possible, the potential for mold development; providing indemnification and other protections in contracts with either the owner or general contractor of a business; and maintaining scrupulous records to demonstrate what is being done to protect the customer and the work product from mold development.

Of course, since one of the key elements necessary for mold development is moisture, all necessary steps should be taken to keep the materials being worked with dry. Materials should be inspected when they are delivered and prior to installation to ensure that they are dry. These inspections need to be recorded in the foreman’s daily log so that records of the inspections and the results of those inspections are maintained and can be produced if necessary.

When ready to install insulation, be sure that the procedure for installation cannot potentially introduce moisture onto the product. Also, make sure that the equipment or pipes being insulated are dry at the time the insulation is installed. If it appears that the equipment to be insulated is wet or contains any type of additional moisture, make sure that it is dried prior to the installation. Again, scrupulous record keeping needs to be maintained with all of these points to demonstrate that steps were taken to protect the work site from potential mold development.

When developing contracts for product delivery, negotiate clauses that permit refusing delivery of and returning any material that is wet when delivered to the job site. It also is beneficial to have indemnification clauses in contracts with material vendors to be able to recoup any contractual damages suffered later because of being forced to return materials that were delivered wet.

When negotiating the contract with a general contractor or owner, try to get indemnification language into the contract to protect from liability if due diligence is exercised in keeping materials dry. Before signing any contract that may require insurance coverage for the potential damages that may occur if mold does develop, check out how easy (or difficult) it will be to get such insurance and determine that coverage can be obtained before signing the agreement. Try to negotiate language in the contract that permits scheduling flexibility, which may be needed if material is either delivered wet or becomes wet while being stored pending installation. This way, wet material will not have to be installed, even if replacing that material causes a delay in contract performance.

Overview

The bottom line is that mold needs to be treated as a potentially serious issue in any job. Detailed records should be kept of not only the installation process, but also the receipt of materials to be installed and due diligence in making sure that they are maintained in a dry condition until installation takes place. Exercise care in negotiating contracts to ensure sufficient flexibility in case, in spite of due diligence, the material to be installed is either delivered wet or becomes wet prior to installation. The keys to successfully avoiding mold liability are to ensure control over the material to be installed, negotiate safeguards into all contracts, and maintain sufficient records to demonstrate that exercise of due diligence in preventing mold development.

** Readers are advised to contact counsel before embarking on any of the options discussed in this article.