Mold Claims

Chris Carpenter

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Contents

Ballard CaseMold FactsPolicies and Business at RiskScientific LiteratureCGL IssuesReinsurance IssuesForecastRecommendationsExclusionsQ&A

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Mold Facts

• Mold has existed on Earth for millions of years - Bible comments on the mold “crisis”

• Mold are microscopic fungi that can live on plant or animal matter, indoors or outdoors

• Over 300,000 types of mold

• Alleged “toxic” mold types: Stachybotrys, Aspergillus, Penicillium, and Cladosporium

• Conditions enhancing mold spore proliferation:• Dampness/ humidity• Food (any organic substance)• Warm temperature• Lack of ventilation

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Ballard Case Draws Attention to Mold

• High-profile mold insurance case from Texas decided 6/2001

• $32 million jury verdict against insurer

• Insurer’s claim handling conduct under the microscope

• High jury verdict $$ with no medical testimony

• Mold is on radar screen of plaintiffs attorneys and insurers/reinsurers

•Lawsuit cottage industry

Ballard Case Result

• $5 million = Melinda Ballard’s mental anguish• $12 million = Punitive damages based on insurer’s conduct• Did not include damages for adverse health effects

• Appeals court reduced verdict to $4 million

Damages

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10,000 Toxic Mold Lawsuits in 2001

Former

Owners of

Sold Homes

10%

Bad Faith

Against

Insurers

50%Builder for

Construction

Defects

20%

HO

Associations

for Improper

Maintenance

20%

1,000 Cases

2,000 Cases 5,000

Cases

2,000 Cases

•70%mold claims arose in TX (2001)•TX, CA & FL have most mold claims

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New Defendants in Mold Cases

•Apartment complexes: Class action potential, nuisance and breach of warranty claims; large jury verdict potential

•Schools: Children at risk - sympathy factor for jury; workers compensation insurance implicated

•Single family homes: Celebrity mold claims (Brokovich, McMahon, Spelling, Lou Ferrigno, Bianca Jagger) and large jury verdicts ($32M Ballard case) garner media attention; construction defects and product liability claims against component manufacturers

•Commercial buildings: Outgrowth of “sick building syndrome” cases with large remediation costs (e.g., $65M Hilton mold claim in Hawaii)

•Mold remediation companies: Sued when remediation inadequate

•Public buildings: Government budget cuts mean lower quality building materials, less maintenance

•Health care facilities: Hospitals, nursing homes have high population of immune compromised individuals

•Realtors/home inspectors: Negligent or intentional misrepresentation

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Insurance Policies and Reinsurance Business at Risk

•Homeowners

•CGL - construction defect/design claims, product liability, completed operations claims, negligence claims against property managers

•First party property, landlord premises liability

•E&O

•EIL (environmental impairment liability) - if mold is “pollutant”

•Personal injury - mold allegations may constitute trespass, nuisance

Trend = Mold claims are alleged along with other types of claims as “scare tactic”

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“Toxic” Mold: Medical Fact or Legal Fiction?

STACHYBOTRYS!

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“Toxic” or “Killer” Mold?

•Wide variety of alleged illnesses – headaches, nausea, asthma, allergic reactions, central nervous system damage, cancer, death

•Persons with highly sensitive or undeveloped autoimmune systems may be more susceptible to allergic reaction

•Causal link is anecdotal

•“Single spore” theory

•No such thing as “toxic” mold in scientific literature

•No conclusive scientific link between mold and serious illness

“Toxic” mold is creation of media

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The LiteratureThe current public concern for adverse health effects from inhalation of Stachybotrys spores in water damaged buildings is not supported by published reports in the medical literature

Annals of Allergy, Asthma, & Immunology

“There is no compelling evidence that exposure at levels expected in most mold-contaminated indoor environments is likely to result in measurable health effects.”

Applied Occupational & Environmental Hygiene Journal

“The primary result from fungal exposure is allergic disease, and evidence for inhalation disease resulting from mycotoxin exposure is extremely weak.”

Study, Dr. Harriet Burge, Harvard School of Public Health (2001)

“Current scientific evidence does not support the proposition that human health has been adversely affected by inhaled mycotoxins in home, school, or office environments.”

Am. Coll. Of Occupational & Environmental Medicine.

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CGL Issues

• Application of pollution exclusions

• Mold exclusions

• Tales from the front-lines

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Reinsurance Issues

• Number of occurrences

• Allocation

• Aggregation

• Other issues

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Mold 5 Year Forecast

•More mold trials: Pros - should establish guidelines, control runaway jury verdicts. Cons - Media will continue to highlight extremes

•More mold legislation: Should establish permissible exposure levels, regulate vendors, provide abatement guidelines, address real estate disclosure

•Proactive and quality risk management and claims adjudication will enjoy dividends: Quick response time and implementing action plans will lessen claims; more mold disputes may be resolved quickly through ADR

•Creative pleading by plaintiff attorneys: Plaintiffs already emphasizing nuisance claims (easier to plead); causes of action brought on behalf of minors may circumvent ADR

•Mold exclusions/sub-limits: Already approved in many states, mold exclusions will become commonplace on more types of policies; sub-limits of $10K, $25K, $50K

•Product defect allegations: More actions brought against manufacturers of HV/AC, plumbing, windows, siding, caulk and other building materials

•More medical studies: Should clarify causation questions and admissibility issues

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ISO Mold Exclusions

ME

NH

MA

CT

PA

WVVA

NC

LA

TX

OK

NE

ND

MN

MI

IL

IA

ID

WA

OR

AZ

HI

NJ

RI

MDDE

AL

VT

NY

DC

SC

GA

TN

AL

FL

MS

ARNM

KYMOKS

SDWI

IN

OH

MT

CA

NV

UT

WY

CO

Exclusion Approved

No Approved Exclusion

Homeowners policy mold exclusions approved by insurance departments in more than 30 states + DC*

*As of July 29, 2002.

Source: Insurance Services Office

MS

Recent Trend: Allow Exclusion or Sub-limits