Contractors are the target of nearly 2,000 mold-related lawsuits annually according to a 2003 report from toxlaw.com. When accused or sued for injuries and damages resulting from mold, contractors look to their commercial general liability policy to find coverage to finance their defense and pay any judgment levied against them.
This three-part series was triggered by a judgment handed down against a central Ohio general contractor in early May and reported on InsuranceJournal.com. Specific information about the contractor's insurance coverage is irrelevant; the point of these articles has been and is to debate protection, if any, afforded by the CGL for bodily injury or property damage claims caused by mold or defective construction. Nothing presented in this series is intended to infer anything about coverage in the impetus case.
Previous articles focused on the four commercial general liability coverage triggers, and whether the commercial general liability policy extends coverage for injury or damage arising out of defective construction. Mold and the CGL's response to and coverage for bodily injury or property damage caused by mold is the topic of this final discussion.
Triggering the Need for Coverage
Mold can cause respiratory infections, hypersensitivity in those not normally prone to allergic reaction, infections and possibly death. Additionally mold growth can lead to structural damage, destruction of non-structural real property and the decay of personal property.
Most state statutes hold the general contractor ultimately responsible for the finished product regardless of who did the work. Agents with contractor and general contractor clients will be called upon to find coverage and a source of funds when bodily injury and/or property damage claims resulting from mold are presented against their clients. A quick lesson on mold is a necessary precursor to the coverage debate to follow.
Mold Basics
A food source, optimal temperatures and water (the mold triangle) must be present for mold to develop, take root and grow. Like the fire triangle, remove any one of these three legs and mold cannot exist or prosper.
Food sources are plentiful in new construction and remodeled structures. Mold thrives on the organic materials present in most building materials including wood (cellulose) and fiberglass insulation. The optimal temperature to incubate and support mold growth is between 60 degrees and 80 degrees Fahrenheit (lower and higher temperatures also allow the establishment and growth of mold). Little can be done to avoid these two sides of the mold triangle on a construction site. Food sources and optimal temperatures common in crawl spaces, basements and vented attics are unavoidably present.
Proximate Cause
Water infiltration may be the only mold growth factor controllable by the contractor. Removing moisture from the mold triangle eliminates the possibility of mold. But at times efforts to block out water fail and mold develops and grows. When mold "takes root," the question of how the water intrusion occurred leads to the proximate cause of the injury or damage.
Proximate cause is the incident or occurrence (as defined) that leads to the injury or damage in an unbroken chain of events. In short, what lead to the water's presence? The proximate cause of water infiltration can and will have an impact on CGL coverage.
There are essentially four causes for the presence of water in areas where it is not intended once construction is complete: 1) the use of defective construction techniques or materials (i.e. improper flashing, poor sealing methods, use of improper materials, etc.) ; 2) an unintentional error or mistake by the contractor or subcontractor; 3) an occurrence or incident causes damage allowing the introduction of water; or 4) the normal wear and tear of building materials leading to the seepage of water into the structure. Only the first two are "controllable" by the contractor.
Only when the proximate cause is controllable by the contractor can they be held legally liable for bodily injury or property damage caused by mold; but will the CGL be the financing mechanism to defend and pay the claim? The following paragraphs will offer an opinion on the availability of coverage in the commercial general liability policy.
Property Damage Coverage
As stated previously, poor and shoddy workmanship does not qualify as an "occurrence." If the proximate cause of the mold is defective construction methods there must be an accident or repeated exposure to the same harmful condition exploiting the poor construction methods or materials to trigger any hope of coverage in the commercial general liability policy.
Mold damage resulting from substandard means of construction MAY be considered an "occurrence," but it is just as likely to be considered the result of an intentional action, or inaction, of the insured contractor. Intentional acts are specifically excluded.
Two exclusions will likely preclude property damage coverage if the mold damage meets the definition of an "occurrence:"
• Damage to Impaired Property or Property not Physically Impaired; and
• Damage to "Your Work."
Both exclusions were detailed in the construction defect discussion. Effectively, they combine to preclude coverage for any property damage to the insured contractor's completed work resulting from defective construction practices and/or mold damage. But these exclusions don't necessarily remove coverage for damage to personal property owned by the building owner or homeowner, or damage to work done by another contractor.
Personal property of others and the work of another contractor damaged during construction are excluded by the "Impaired Property" and the "j.(4)" care, custody and control exclusionary wording. But neither excludes damage to personal property or other real property once construction is complete.
Only damage to the work of the contractor is excluded by the "Your Work" wording. We'll use a plumbing contractor for our example, since it's water that is the main catalyst for mold growth.
Assume the plumbing contractor improperly seals a joint during construction. The joint is adequate when the water line is "charged," and it holds for two months after completion of the house - making it a "completed operation." Two months after the house is completed and is occupied by the new owner, the joint springs a leak that is not immediately noticeable. A week later, the homeowner begins to notice discoloration of the wall and the drywall is spongy and soft to the touch. The water leak is confimed. It has damaged the insulation, drywall and flooring. What should the plumbing contractor's policy cover? Everything but the cost to tear out and replace the piping - which is the plumbing contractors "work." A month later, mold growth becomes evident in the area of the leak and its cause is traced directly back to the plumbing leak. The mold is directly related to the leak and thus the cost to remove and repair any property damage should be covered by the standard commercial general liability policy because there is no specific exclusion for mold damage in the CGL (mold is not considered a "pollutant," so that exclusion does not apply). All property damage resulting from the leaking pipe is covered by the policy (with the exception of the plumbers "work"), including the cost of fixing the mold damage directly related to the leak.
To find any different is nothing more than torturing the policy to make it say what you want it to say.
Subcontractors may be extended coverage for property damage in the unendorsed commercial general liability policy. However, the general contractor's coverage may not be as broad depending on the definition of their "work." If the CG 22 94 (Exclusion-Damage to Work by Subcontractors) is attached, the entire structure is their work and no property damage coverage to the structure will be covered.
Damage to personal property of others may be covered under any contractor's commercial general liability policy. Provided all four requirements for coverage are satisfied.
Bodily Injury
There is no bodily injury exclusion related to mold in the commercial general liability policy. The only caveat is that the mold must be the result of an "occurrence" as defined and detailed previously.
In short, bodily injury claims resulting from the growth and proliferation of mold will be covered provided all four coverage triggers are satisfied:
1) There is "bodily injury;"
2) The bodily injury results from an "occurrence;"
3) The insured is held legally liable; and
4) The injury or damage is not the result of a specific exclusion, an excluded action or an excluded cause.
Whoa! Not So Fast - Exclusions
ISO has promulgated four endorsements that exclude or severely limit the coverage for injury or damage caused by mold. Two are intended for use with the commercial general liability policy and two are designed for the Owners & Contractors Protective Liability (OCP) policy form.
Both the CG 21 67 used with the CGL and the CG 31 31 for the OCP entitled "Fungi or Bacteria Exclusion" completely exclude coverage for bodily injury or property damage as follows "…which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any "fungi" or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage." The policy goes on to exclude any cost to test for, monitor or clean up such fungi or bacteria.
Another two endorsements severely limit the amount of coverage available for mold or fungi damage. Both the CG 24 25 (used with the CGL) and the CG 31 32 (attached to the OCP) are titled "Limited Fungi or Bacteria Coverage." These endorsements specify an annual aggregate limit of coverage applicable to claims resulting from mold or fungi. Limits are usually minimal ranging between $10,000 and $100,000 in the aggregate.
Underwriters most often use the total fungi or bacteria exclusions to avoid any exposure to mold. If an agent cannot convince the underwriter to remove the exclusion completely, negotiate the limited form; at least the insured will be granted some coverage.
Conclusion
This series has touched on several exclusions related to mold and defective construction of which agents should be wary. The following exclusionary endorsements should be removed when possible:
• CG 22 94 - Exclusion-Damage to Work by Subcontractors;
• CG 21 67 - Fungi or Bacteria Exclusion (for the CGL);
• CG 31 31- Fungi or Bacteria Exclusion (when the OCP is used);
• CG 24 25 - Limited Fungi or Bacteria Coverage (used with the CGL); and the
• CG 31 32 - Limited Fungi or Bacteria Coverage (attached to the OCP).
The Limited Fungi or Bacteria Coverage endorsements are acceptable if they are the only way the underwriter will agree to provide coverage for damage caused by mold. Otherwise, completely removing the mold exclusions is the preferred direction.
Mold and defective construction claims and litigation ebbs and flows with media reports and high jury awards. But regardless of the external causes, agents must always arm themselves with knowledge of the exposures and coverage provisions. A close review of your contractor client's policies to confirm no unknown or unwanted exclusions exist is required. If the contractor is concerned about mold exclusions, separate mold coverages are available from many specialty markets.
Comments
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Most homeowners who have mold as a result of construction defects only lose money. I believe "mold is gold" is a saying invented by someone who thought if it rhymed, it must be true. Great legal theory, huh? I volunteer for a consumer org that gets thousands of complaints a year on bad builders. By the time people find us their leaky new house may have already developed a mold problem. These homeowners find it very difficult to even find a lawyer, let alone win a jackpot. Lawyers know these cases are more work than they're worth most of the time, and decline them. Even if a homeowner wins, they may never collect. And, arbitration clauses in builder and warranty contracts prohibit suing, instead forcing disputes into a process where arbitrators do repeat business with the companies, a clear conflict of interest. Should a homeowner by some miracle win even a fraction of their damages in arbitration, they still may never collect.
Sometimes the homeowners are sick for months before they even find out they have mold. Proving mold harmed them is still very expensive and difficult and many do not have the resources. Moving out of a moldy house often improves their health though some who are exposed for a long time suffer lingering effects. Far from it being 'gold' for them!
As for whether the builder's insurance should cover it or not a very important factor is not being adequately addressed: if builders built the house right in the first place, and stood behind their work, this would not be an issue. And, if so-called home warranty companies honored their end instead of selling illusory policies with the typical arbitration trap, we might not have as much of this problem either. Many new home complaints never make it to court because of these warranties which act as a liability shield for builders and do little for the consumer. Since warranties are typically RRG's not insurance, they are barely regulated in any way meaningful to the consumer.
The builders should have required reading: "Sick Building Syndrome" by David Straus should be first.
Houses, even a hundred years old do not have mold. They were built with pride by craftsmen.
Now houses are built air tight,with low quality materials. These house many times have faulty roofs. They are built with little supervison and by workers who have little or no training.
If the insurance companies did their jobs and inspected these houses before they wrote the policies it would not be neccessary for them to keep dropping coverage all the while raising rates. The insurance companies also have clauses that state they do not cover builder defects or substandard contruction and many of the new houses sure are sub standard.
Insurance companies will be glad to take your preimums. Just do not try to make a claim. Then you are not covered. You can't just drop the insurance or the mortgage company will call the mortgage.
Once again the consumer is screwed everyway possible. Insurance companies and builders plan, unfortunatly they just plan on how to get more of your money.
Consumers aren't in good hands with all state. It is sad that the American Dream has been allowed to deteriorate into such a sham.
"If the insurance companies did their jobs and inspected these houses before they wrote the policies it would not be neccessary for them to keep dropping coverage all the while raising rates.."
Please give me something to go on here because that statement just threw me for a loop... First, I trust you are referring to....homeowners policies? Else, how would you possibly expect an(y) insurance company to inspect every inch of a home whether for a "buyer" (HO policy) or a "contractor" (on a CGL policy) and miraculously tell whether it's not going to develop problems in the future? Are you insane, or do you own an inspection company? Do you propose that someone go in every year and check the roof, walls, windows, plumbing, AC, heating or other systems and give the house a clean bill of health? Imagine the costs to keep that one going!
The problem is that an insurance company should not be liable for every crappy contractor who uses shoddy workmanship, unskilled labor or cuts corners just to "git-er-done".
If you think you can cover every possible scenario, or insure everything that could possibly happen, to a house, apartment, office, or any other building typically constructed using multiple entities, nobody would be able to afford insurance.
The exclusions are initended to keep costs down for the "majority" who are the fly by nite contractors. Albeit, from a company perspective, and seeing some of these claims... All I have to say is "you gotta be kidding me."
Ever hear the saying "But Doctor.. It hurts when I do this..."
Same thing applies "Hey Contractor - your policy doesn't cover this... SO DON"T DO IT!"
That's kind of my point, though my concern is for the consumer. If home OWNERS made claims often, or for things that aren't covered, their rates would go up or they'd be cancelled, right? So why does the building community think they can continue to use their insurance as if it's a warranty, and not have higher rates or cancellations? They are holding consumers to a different standard of personal responsibility than professionals, which is hypocritical and illogical.
I am not sure but think "Jordan" is trying to say the builders insurance co's need to do some inspection of their clients' work before insuring them. As anyone who knows anything about building code enforcement is aware, not all new construction is inspected for codes compliance either, but a sampling of them are. At the very least, insurance co's might consider inspecting a sampling of the ins co's choice, before insuring that builder. This'd be very easy with tract builders who have a number of houses under construction at any given time.
Would increased oversight make their insurance cost more? Sure...but if builders want low rates they have to be at least as "personally responsible" as consumers, and stop doing the things that make their rates go up or their policies get cancelled. I am at a loss as to why this simple, obvious concept is not on the minds of the NAHB and local building associations, and every single builder. The solution is always about putting more restriction on the consumer, (limiting their legal recourse, award caps, arbitration clauses, etc), never about making BUILDERS accountable for their own work.
I suspect that up until now at least, the insurance industry has just gone along with this, figuring that sticking it to the consumer is the easiest route. But it's still wrong. The insurance industry needs to hold builders accountable and STOP insuring builders who cannot build a house correctly. It is not the home buyers' fault nor should it ever be the consumer's duty to make sure any product is made right. What do we pay "professionals" for? Let them do it right or go under for inability to get insurance.
Your article is well written and I think I understand what you are saying about policy language/coverage/exclusions. I just saw something similar from a self insured employer in the workers comp language.
The entire concept does not make sense to me. Why would injury and property damage from mold be addressed any differently than, say a defectively installed Heating system that causes a new homeowner family to inhale smoke and burns up all their property?
What it looks like from where I am sitting is that insurers are acknowledging that many people are being harmed from errors in construction causing mold growth, it is expensive for insurers and they don't want to pay out for it anymore.
It doesn't make sense to me that a builder would want insurance to cover him for only things that are not expensive and occur frequently. Isn't that the purpose of having insurance? In case of major expenses/potential "castrophic events" of their business's financial well being?
What is insurance for, if not to protect the builders from personal financial liability (ruin) should an error prove very costly?
Isn't this kind of like saying, "I will do my best to insure you, Mr. Builder.... but not for areas where you probably really need me!"
What am I missing?
On further thought, it seems to me that what would be fair and logical is for insurers to cover builders for mold damage and injuries, IF the builder can show he moved quickly to correct the problem once notified there was a problem. Typically, if builders let a known problem sit, is when the damages to both human health and the buildings become extremely expensive and the situation becomes litious.
So how about this for policy notification:
The underwriters have been polled.
Crying "Mold is gold" has gotten REAL old.
And now the contractor have been told,
insurers will leave them in the cold
if they don't stand behind what they sold.
They can do the right thing or have to fold.
Cuz mold's NOT gold...It's deadly!!!
...And we are ALL sick of suffering for the actions (or lack there of) of shoddy builders.
LOL,
Sharon
How about the concept of negligence? The simple fact that shoddy construction is completely avoidable if the builder is at all diligent about providing their customers with a good product.
Contrary to some popular belief, the purpose of insurance is not to keep poorly managed and run companies in business (which would be the biggest disservice to consumers) but to protect good businesses from unforeseen and unpreventable losses. There's a huge difference between the two.
We are trying to help and educate the public from personal experience and much study.
Please read my testimony to congress they invited me and accepted what I said under oath.
Google my name for a better understanding of the issues.
Go to HADD or HOBB to get an idea of the magnitude of these problems.
Consumers who do not read and become informed will find themslves, or their loved ones, victimized and at the mercy of big business in one way or another. Then and only then can you see what perilous times we are living in...and perhaps help help us to save others from what we have endured.If you have any questions I would be happy to try to answer them. My email adress is Jfogal281@aol.com
The problem that exists is greater on newer buildings than older ones and from what we've seen, most of the big mold loses are from design flaws and construction defects as you point out in the article; these take months or years to develop and to be discovered.
A properly constructed EIL based policy that responds to the discovery of a pollutant regardless of it cause is a superior approach to Peril based coverage triggers. All environmental policies are built on this coverage trigger. You can buy a time element pollution event trigger policy but without any reference to perils.
The EIL polices also fill the gaps caused by pollution and mold exclusion in GL policies. Those exclusions are more onerous than the property versions as was pointed out.
Call an expert and work with them to design a properly executed pollution policy!
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