Mold Spreads

Toxic-mold claims are spreading to the workplace, and insurance coverage is pricey -- if you can get it.

Once upon a time, mold was a problem at work only if you avoided cleaning the office refrigerator for too long. Lately, though, it’s becoming the hottest topic in property/casualty insurance, as lawsuits claiming health-related damages from toxic mold spread from residences to offices and other commercial buildings. And with insurance coverage already difficult to obtain, and expensive when available, companies may face some unpleasant choices about how to protect themselves.

Some corporate risk managers are closely watching the federal suits filed against IBM Corp. in North Carolina, where several employees allege they experienced mold-related illnesses following an April 2000 flooding incident at the Research Triangle Park campus. Also under scrutiny is a class-action suit by two United Airlines employees alleging that mold constitutes a major health hazard in Concourse B at Denver International Airport.

“I guarantee you this is the last thing the CEO of IBM wants to think about,” says Robert Hartwig, chief economist for the Insurance Information Institute (III). IBM’s problem will quickly entangle other companies as well, he notes, because “a mold suit like this often ignites a chain of litigation,” eventually involving a building’s designer, for example, or the maker of construction materials.

In fact, these lawsuits could make the threat of mold-related litigation more real for just about any company with walls, ceilings, and floors. “It’s not a big stretch from thinking about mold at home to [thinking about] mold in an office,” says Ira Whitman, a former Ohio state environmental-protection official who now runs The Whitman Cos., an environmental-management firm. Mold and other water-damage issues now consume about 60 percent of the indoor environmental group’s time, up from 5 percent in 1998, although so far all of Whitman’s clients have been associated with commercial or public buildings.

Stand-Alone Coverage

What makes this so worrisome for companies is that insurance for mold damages is largely unavailable. After a huge rise in mold-related homeowner claims during the past three years, mainly in Texas, California, and Florida, property/casualty insurers moved to exclude damage from mold, microbial matter, and fungi from environmental policies.

The tipping point in mold litigation is the case of the Ballard family, who eventually abandoned their expensive but mold-filled home in Dripping Springs, Texas, after the husband, an investment adviser, became seriously ill. In the well-publicized case, the family sued Farmers Insurance Group, claiming it had mishandled claims over the years.

The jury found that the insurer had acted in bad faith, and awarded damages of $32 million. Although that amount was recently sliced to $4 million, it raised eyebrows. “If people were being awarded $3,000, we wouldn’t be having this conversation,” says Hartwig. It’s the prospect of big-ticket awards from juries that attracts most attorneys to the issue, he says.

These days, even when companies can get coverage for mold, it’s as a stand-alone policy with a high premium. Whitman himself has had his insurance hiked significantly to reflect mold-related changes in coverage.

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