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November - December 2003

Legal ease

Toxic Fight
Standing Up To Mold Litigators

by Steven Haber

33The LORD said to Moses and Aaron, 34 “When you enter the land of Canaan, which I am giving you as your possession, and I put a spreading mildew in a house in that land, 35 the owner of the house must go and tell the priest, ‘I have seen something that looks like mildew in my house.’ 36 The priest is to order the house to be emptied before he goes in to examine the mildew, so nothing in the house will be pronounced unclean. After this the priest is to go in and inspect the house. 37 He is to examine the mildew on the walls, and if it has greenish or reddish depressions that appear to be deeper than the surface of the wall, 38 the priest shall go out the doorway of the house and close it up for seven days. 39 On the seventh day the priest shall return to inspect the house. If the mildew has spread on the walls, 40 he is to order that the contaminated stones be torn out and thrown into an unclean place outside the town. 41 He must have all the inside walls of the house scraped and the material that is scraped off dumped into an unclean place outside the town. 42 Then they are to take other stones to replace these and take new clay and plaster the house. 43 “If the mildew reappears in the house after the stones have been torn out and the house scraped and plastered, 44 the priest is to go and examine it and, if the mildew has spread in the house, it is a destructive mildew; the house is unclean. 45 It must be torn down-its stones, timbers and all the plaster-and taken out of the town to an unclean place. 
- Leviticus Chapter 1

Proliferation of Mold Claims
While mold has been around since Biblical times, only since the 1990s has there been a substantial increase in the number of insurance claims filed by homeowners for damage related to mold contamination. Internet websites now include sites such as “the mold lawyer” for claimants looking to file bad-faith claims and personal injury actions against insurance companies, landlords, construction companies and product manufacturers. 

What is Toxic Mold?
Mold is a fungus. Some is beneficial, some more predatory. Although not a predator of humans, these molds secrete toxins designed to give them a competitive advantage over other organisms like bacteria, etc., in their environment. 

The biggest offenders are strachybotrys chartarum, certain species of pencillium and certain species of aspergillus. Toxins secreted by these molds become airborne as spores, and can be inhaled or absorbed through skin and mucous membranes. Adverse health consequences include allergic reactions (rhinitis, sinusitis), respiratory distress, gastro-intestinal distress, rash, intestinal hemorrhage, pulmonary hemorrhage, tremors, cognitive impairment, kidney damage, immune system suppression and carcinogenic effects on various organ systems. Scientific “proof” of adverse health effects remains a major issue in mold litigation, with courts arriving at varying conclusions.

Texas, Florida and California
Ballard v. Farmers Insurance

The Ballard house, located in Dripping Spring, Texas, was contaminated with strachybotrys and pencillium after a pipe burst. A Texas jury awarded the homeowners $6 million for damages to their house, $12 million in punitive damages, $5 million for emotional distress and $9 million for attorneys’ fees. The defendant, Farmers Insurance Co., failed to respond to and address repairs for water damage in the home adequately, thereby allowing mold to proliferate. In this case there was no award for personal injury because the court excluded medical testimony as unreliable. On appeal, the Texas Court of Appeals reversed the finding of punitive damages, but affirmed the award of actual 

Centex Rooney Construction Co. v. Martin County, Florida
A courthouse constructed by Centex-Rooney was contaminated by mold due to ongoing leak problems from the windows, EIFS system and HVAC system. Numerous individuals suffered adverse reactions, resulting in evacuation of the courthouse. An investigation revealed contamination by toxic mold and other defects. A $15 million verdict was entered against the general contractor for failure to supervise (breach of contract). The negligence claims were dismissed under the economic loss doctrine.

Spectrum Condominiums
This case involves 1,500 residents of the Spectrum condominiums, in Santa Ana Calif., built in 1992. In 2000, the homeowners association sued the developers, alleging defects in construction and mold problems. The Orange County Register reported that the complex is dilapidated, in part, because many owners have refused to pay their monthly dues. The homeowners are seeking $35 million. 

Involved Parties Respond
The March 26, 2002, New York Times reported increases of to 20 to 40 percent in homeowners’ insurance premiums across the country. Costly claims for toxic mold exposure fuel this response; Texas alone saw a 137-percent increase in amounts paid out for mold claims in 2001. In most cases of toxic mold, remediation requires demolition of the property and rebuilding, a cost which most insurance companies cannot sustain repeatedly.

Many insurance companies are excluding water damage and subsequent mold contamination from policies, leaving homeowners to file suit against contractors, builders and building product manufacturers.

Supervision seems to be a key issue. The Centex case in Florida is a perfect example. The general contractor was found liable for $15 million for failure to supervise the construction of the courthouse.

The AAMA has suggested the following guidelines for product manufacturers:

1. Control shipping and handling;

2. Test products at the site frequently;

3. Prepare maintenance information for owner; and

4. Control installation.

Typically a manufacturer can’t disclaim personal injury in an express warranty, because the courts consider that “unconscionable.” Litigation must focus on proofs. Manufacturers must use testing information to demonstrate the integrity of their window systems.

Economic Loss Doctrine
In the absence of personal injury claims, use of the economic loss doctrine is a viable defense. The courts have ruled repeatedly that damage to wallboard and surrounding building is “damage to the product itself” and therefore a warranty issue; consequential damages disclaimed under an express warranty may then be given effect.

Steven Haber is a partner at Obermayer Rebmann Maxwell and Hippel LLP, in Philadelphia. You can e-mail him at Steven.Haber@obermayer.com


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