LAW: Mold Liability
BY GARY W. JACKSON
Mixed signals
There’s no definitive evidence linking mold to brain damage, reproductive problems, or cancer, according to a widely covered spring 2004 report issued by the Institute of Medicine, an arm of the National Academy of Sciences. But that doesn’t mean mold liability claims and buyers’ concerns about mold have dried up. Indeed mold claims show no signs of slowing, even though court rulings have been inconsistent. There’ve been some spectacular awards as well as some dismissals in high-profile cases.
More troubling is that the insurance industry has greatly reduced its mold claims burden. Many states have approved exclusions to or caps on mold liability in homeowners’ and property-casualty insurance policies. In numerous jurisdictions, new statutes and court decisions have also reduced general contractors’ potential liability. Thus, buyers who’ve discovered mold problems in their homes have been forced to seek other avenues of recovery, including lenders, sellers, and, in a few cases, real estate professionals.
Suits that name practitioners tend to be related to fraud, claiming, for instance, a broker had knowledge that significant amounts of mold were present in a home but withheld that knowledge from buyers.
Also because buyers tend to think of you as an expert—even though you aren’t legally expected to have special knowledge about mold and, therefore, shouldn’t offer opinions on mold’s potential risk—you could be sued for negligence or negligent misrepresentation.
Unfortunately, even inserting a hold-harmless clause in purchase contracts or listing agreements to limit your liability won’t prevent buyers from naming you in a suit. Courts typically don’t find such clauses enforceable anyway.
Two kinds of damages
In mold-related litigation that involves real estate practitioners, the plaintiff may try to recover under two general categories of damages: (1) property repair and mold remediation and (2) personal injury.
Property damages would be awarded based on the amount of work required to repair the damage or correct construction defects and remove the mold. If mold is confined to a small area, eliminating mold may cost only a few hundred dollars. However, if mold is widespread in a home either because of faulty construction systems such as poorly installed insulation or because it has circulated through the HVAC system, remediation may require removing walls and become quite expensive.
Homebuyers may also sue for personal injury damages based on harm to their health. Most health experts agree that mold can lead to allergenic and respiratory problems such as coughing, wheezing, or congestion. A recent Duke University Medical Center study also established that exposure to mold in damp buildings is an important risk factor for childhood respiratory illness. And despite the recent National Academy of Sciences report, some experts contend that ongoing research will eventually establish connections between mold and serious health problems. Still, the basis for significant personal injury claims is hotly contested.
Perhaps the greatest risk for high-cost liability in mold cases today arises when parties have engaged in fraudulent activities. Parties who conceal hazardous contamination or who recklessly oversee or approve a shoddy mold cleanup expose themselves to punitive damages that can be far more costly than negligence claims.
Curb your risk
Follow these five steps to lessen your liability:
1. If you know about the existence of mold, provide this information to the buyer and seller in writing.
2. If you see signs that might indicate water intrusion into a home, suggest that the buyer hire a certified industrial hygienist or other expert to examine the home for water damage or mold growth. As with any other defect or potentially hazardous condition, don’t make representations or indicate you have expert knowledge.
3. Provide sellers and buyers with resources, such as the two mold brochures available from the NATIONAL ASSOCIATION OF REALTORS®, A Guide to Mold, Moisture, and Your Home (Item #141-24) and The Facts About Mold (Item #141-30), both available at REALTOR.org/store.Also suggest they visit such sites as www.epa.gov/mold,www.cdc.gov,and www.themoldsource.com.
4. Encourage homeowners to obtain an insurance claims history for their house from the Comprehensive Loss Underwriting Exchange (CLUE) at 866/527-2600 or www.choicetrust.com. This $9 report can reassure buyers that water intrusion or other occurrences that might trigger mold haven’t taken place. However, the report won’t reflect water damage that hasn’t been reported to insurers.
5. If sellers decide to remediate mold on their property, encourage them to be sure the process is carefully documented to show the scope and quality of the work performed by the contractor. Also direct them to give the documentation to potential buyers.
The overriding conclusion to draw from the evolving climate of mold litigation is don’t bury your head in the sand. Recognizing the vulnerability of entities with deep pockets, the Mortgage Bankers Association has formed a mold task force to explore how lending practices could be altered to protect banks from mold-related losses. Likewise, don’t discount the possibility that you could be a mold defendant. You’ll only be more vulnerable to legal action.
Jackson, an attorney with Lewis & Roberts in Charlotte, N.C., represents owners in construction defects cases throughout the United States. You can reach him at 704/347-8990 orgaryjackson@lewis-roberts.com.
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