The Toxic Mold Protection Act of 2001 and its Effect on Personal Injury Claims

July 1, 2002

Mold is not a new phenomenon to insurers. It has always been an issue (albeit in the background) in the handling of water claims, a topic that insurers know a lot about. Following a recent wave of litigation on the issue of toxic mold, the California Legislature passed the Toxic Mold Protection Act of 2001. This was the first legislation of its kind in the United States to address toxic molds in indoor environments. The Act raises many potential new problems and may affect industries that, to date, have not felt the financial impact of the rising wave of mold litigation and claims. In particular, building owners, tenants and insurers will each feel the consequences of the Act.

The Act seeks to address threats to human health caused by mold in indoor environments. The health effects of mold exposure vary widely from individual to individual, based upon each person's sensitivities, allergies, immunities, tolerances and other health issues. Some individuals seem to have no reaction at all, while others seem to become virtually incapacitated. Unsurprisingly, the combination of potentially high costs of abatement, publicity and health concerns is conducive to, and has resulted in, considerable litigation and a growing number of claims for insurance coverage, including first-party building coverage.

The Act directs California's Department of Health Services (DHS) to establish a task force that will work with the DHS to evaluate the following four issues and to develop standards for each:

 

1. Permissible mold levels in indoor environments;
2. Practical standards to assess the health threats posed by the presence of mold;
3. Scientifically valid methods to identify the presence of mold; and
4. Practical guidelines for the remediation of mold.

Civil lawsuits are, and will remain, the primary enforcement mechanism for building occupants seeking damages for illnesses related to allegedly poor indoor air quality. Ideally, the standards that are developed by the DHS will provide guidance to the courts in adjudicating liability and any appreciable damages and limiting exposure where the acceptable levels of mold have not been exceeded. At a minimum, the development of standards for identifying and responding to mold claims should assist claimants, defendants and their insurers. Until that time, in the absence of any specific standards, building owners and their insurers are vulnerable to any and all water and mold claims, however meritorious (or not) the claim may be.

Currently, any landlord of a building who knows of either the presence of mold or of a chronic water intrusion or flood condition is obligated to conduct "any necessary remedial action" within a reasonable time. So then the question becomes; what means, methods and procedures should insurers implement for responding to mold claims? Well, mold claims present unique challenges for claims handlers due to (a) the lack of standards regarding the investigation and collection of mold;(b) the lack of standards for the interpretation of the data collected;(c) disputes among the medical experts regarding the public health consequences posed by the presence of mold and by particular kinds of mold; and (d) factual issues regarding causation.

The successful handling of mold claims (or potential mold claims) requires that insurers go back to basics. Claim specialists must be educated about the subject matter. They must learn what mold is, how it grows, how it spreads and how to stop it from growing and spreading. Each water damage claim must be treated as a potential mold claim.

Rapid response to these claims is crucial because mold grows quickly after water is introduced into an environment that will support its growth. If the insurer is able to react to a claim quickly, assess the damage, correctly determine the scope of the problem and set the wheels in motion to have it correctly remediated there should be little concern. Therefore, it is imperative that any coverage issues receive prompt attention followed by rapid investigation, assessment and remediation.