Don't Be A Victim of TOXIC MOLD

Aug. 1, 2002
By William Atkinson Special to CONTRACTOR Toxic mold is being compared to the asbestos problem of the late 1970s and early 80s. Of the 100,000 species of mold in the world, about 1,000 are common to United States, and while most of these are not dangerous, some contain mycotoxins, which are believed to be toxic to humans to one degree or another. The three mycotoxin-laden molds of most concern are

By William Atkinson


Toxic mold is being compared to the asbestos problem of the late 1970s and early ’80s. Of the 100,000 species of mold in the world, about 1,000 are common to United States, and while most of these are not dangerous, some contain mycotoxins, which are believed to be toxic to humans to one degree or another. The three mycotoxin-laden molds of most concern are stachybotrys (commonly called “black mold”), aspergillus and penicillium.

Mold can occur when water comes in contact with cellulose-rich building material. It can begin forming within 24 hours following water damage. It also can grow in dampness and high humidity, especially behind bathroom walls, on the cardboard backing of Sheetrock, in subflooring and in crawlspaces. Common causes of mold growth include burst pipes caused by freezing, flooding, storm damage and sewage backups.

“However, the insurance industry says the biggest problem has been inferior construction materials and construction practices used from the 1960s to 1980s, such as the use of pressed wood, gaps that allow moisture to enter the home and leaking roofs,” says one expert who wishes not to be identified.

Another group of causes can be defective plumbing or HVAC installations or repairs.

“From 1985 to 1989, for example, a lot of Western states contractors installed defective drain-waste-vent pipe,” says Steve Lehtonen, executive vice president of Sacramento-based Plumbing-Heating-Cooling Contractors Association of California. “Over the last five years or so, a lot of it has been breaking, resulting in leaks. This has led to several cases of mold formation, including stachybotrys.”

In addition, mold can form as a result of excess humidity caused from improperly sized A/C units that do not remove sufficient humidity.

Health concerns

While it has always been known that molds can cause property damage and that such damage can be expensive to repair, the primary reason for the torrent of publicity in the past two or three years has been an increasing number of claims that toxic molds can cause health problems. Among these are coughing, congestion, shortness of breath, respiratory infections, nausea, headaches and skin rashes. Of even greater concern are claims that toxic mold can cause the coughing up of blood, lung damage, chronic fatigue, and even brain, kidney and liver damage.

Despite these claims, the specific relationship between toxic molds and adverse health conditions is still unclear, and there is no generally agreed definite cause-effect relationship among scientists between these illnesses and toxic mold.

Insurance claims

Of the 9,000 toxic mold claims filed in the United States two years ago, 5,000 were against insurers for bad faith (failure to cover claims), 2,000 against homeowner associations for improper maintenance, 2,000 against builders for construction defects and 1,000 against former homeowners (for failure to disclose existing mold infestations).

But these numbers are only the beginning. In 2001, Texas alone had more than 50,000 active mold claims, and California had more than 2,000 plaintiffs in mold-related lawsuits. Farmers Insurance Group, the country’s third largest property/casualty insurer, handled 12 mold claims in 1999, 400 in 2000, more than 8,000 the first nine months of 2001 and 2,500 in January 2002 alone. The Texas Department of Insurance reports that insurers in that state paid $1 billion in mold-related claims in 2000 and 2001.

“There are so many mold claims in Texas that one insurer approached me three times about opening up a mold remediation company to help them with all their claims,” says Sam Dowdy of S&D Plumbing in Taylor, Texas.

As the public’s fear of mold has increased and insurers are backing off coverage, lawsuits are increasing, both for structural damage and personal injury. In one Texas case, a jury awarded $32 million to the plaintiff, a homeowner, including $12 million in punitive damages, $8.9 million in legal fees, $6.2 million to replace her 22-room mold-infested home and possessions and $5 million for mental anguish.

Due to the skyrocketing number of claims, most homeowner insurance companies are either increasing premiums for mold coverage or excluding it from coverage altogether. In fact, the top three homeowners insurance companies in Texas - State Farm, Allstate and Farmers Insurance - have stopped writing new business covering water-related damage.

Contractor concerns

The situation poses four potential work-related problems for contractors:

  1. Faulty installations that begin to leak. Many insurance companies that are forced to cover mold-related claims by plaintiffs are suing contractors for faulty installations. “At a recent meeting I attended with about 50 plumbing contractors, at least three of them already had multimillion-dollar lawsuits filed against them for faulty installation,” Dowdy says.
  2. Faulty repairs that allow leaks to continue.
  3. The release of toxic mold spores during repair work. This could occur, for example, if a contractor cuts into a mold-infested wall and releases spores into the air.
  4. Improper clean-up and remediation work. This happens in cases where contractors agree to engage in mold clean-up and remediation, but either release mold into the air during clean-up or fail to remove all the mold, allowing it to continue to grow.

Another concern for contractors relates to the ability to get coverage for mold-related claims.

“Because of the number of claims, insurance companies are not wanting to renew general liability policies for plumbers,” Dowdy says. Since state law requires that plumbing companies carry these policies, Dowdy is concerned that it will come to the point where some contractors will go out of business because they either can’t get coverage or the coverage is too expensive.

“I know three or four plumbing contractors whose insurance rates have increased 50%,” he says. “They have to purchase a ‘mold binder’ with their policies” (to guarantee coverage).

Take action

Contractors, however, can take steps to protect themselves so that they do not become victims of mold themselves.

“First, review your existing general liability policy to make sure you currently have coverage for mold-related claims,” suggests Burton Fried, president of New York-based LVI Services Inc., an environmental remediation firm.

In terms of performing new work, consider these six steps:

  1. “Do the job right the first time,” suggests Joel Appelbaum, assistant vice president/U.S. Construction Operations for CNA Insurance. “Go beyond what the code requires, because the code tends to focus only on minimum requirements.”
  2. Use high quality materials. “Don’t cut corners with inexpensive materials to save money that could cause problems later, such as low-quality cut-off valves,” Dowdy advises.
  3. Be proactive about addressing potential problems. “We replaced a cut-off valve under a sink,” Dowdy says. “It leaked and got water on the base of the customer’s cabinet. We replaced the cut-off valve and also paid to replace the cabinet base. It would have been a lot more expensive if mold had formed underneath the cabinet and turned into a lawsuit.” Such good-faith actions also are good for customer relations, he adds.
  4. “Offer a warranty, and if a homeowner experiences a problem, fix it quickly to prevent lawsuits,” Appelbaum says.
  5. When you install a new system, monitor it for the first two weeks for moisture problems. If problems exist, fix them and make sure to clean up the water as quickly as possible to prevent mold growth.
  6. “HVAC contractors should understand moisture control in a building, including relative humidity, dewpoint and condensation,” suggests George Benda, chairman and CEO of the Chelsea Group, which performs indoor air quality work in facilities and also provides marketing information to companies that provide products and services for IAQ activities.

Here are six recommendations for protecting yourself from mold claims and lawsuits following repair work:

  1. “First, someone in the organization should become knowledgeable about molds and share the knowledge with everyone else,” Benda suggests.
  2. Next, establish a protocol when you identify mold as a problem in a building. “Contractors should train their employees how to identify a potential mold problem and the importance of calling their supervisor,” Fried says. “Employees who encounter mold should stop work immediately.”
  3. Build a relationship with an experienced environmental firm that you can call in when you find mold that is of any significant size.
  4. Determine the source of the problem (such as leaky pipe).
  5. Determine whether you are qualified to handle cleanup and remediation or if you need to call in the environmental firm to handle the job. “The latter choice pushes the liability onto the environmental firm, which is considered to be an expert and should already have liability coverage,” Benda says.
  6. Consider an indemnity agreement. “We were concerned that if we went into a house to repair a leak, cut into the wall and released mold spores, we could be liable,” Dowdy says.

As a result, S&D Plumbing worked with an attorney to create an “Agreement of Release, Indemnity and Assumption of Risk,” which reads, in part: “In exchange for the plumbing services to be rendered by company, customer certifies and agrees that the plumbing services may have risk of mold and customer expressly intends to assume the risk of damages and injury, if any, resulting from any and all mold-related damages resulting from the plumbing services.” Dowdy is making the form available to other members of the PHCC - National Association.

Benda adds: “We believe that contractor liabilities and responsibilities related to toxic mold are manageable. It’s not the end of the contracting business, as some folks have predicted.”

For more information on toxic mold and remediation, visit For information on LVI Services, visit:, or call 212/951-3660. For information on the Chelsea Group, call 800/626-6722. To reach the PHCC-NA, visit or call 800/533-7694.

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