Tag Archives: mold

It’s a Mold, Mold, Mold, Mold World

Mold is an ubiquitous substance whose health hazards present indoor air quality challenges that have been gaining public attention in recent years. As clarity on the health effects of mold – both positive like penicillin and negative such as respiratory implications – has emerged, so too the propensity for claims of bodily injury and property damage. Indeed, at the beginning of this current millennium, predictions were that mold would emerge as the ‘next asbestos’. This prophecy, which has not materialized, was prompted by several notable property damage insurance claims that attracted media attention: one by Tonight Show sidekick Ed McMahon who agreed in 2003 to a settlement of $7.2 million for damages from alleged toxic mold that sickened his family and killed their dog; another involved a jury award of $32 million to a Texas couple for alleged mishandling of their mold claim.

These high-profile claims, a series of tort claims, and mounting uncertainty as to whether mold would be considered a pollutant within the scope of the absolute pollution exclusion in commercial general liability policies, prompted the insurance industry to introduce a variety of mold and fungi related exclusions into their forms. In this emerging coverage void, insureds and their advisors sought an alternative risk transfer solution to address this now seemingly uninsured exposure. So if, as the industry thought, mold was a pollutant, then certainly mold should find a home in the environmental site liability insurance marketplace.

Initially, insurers were justifiably skittish due to the media hype about mold claims. Adopting a cautionary approach, environmental underwriters began to conduct more particular analysis about the nature of a given structure’s building construction, specific materials and wall coverings. Underwriters also looked at a location’s history and source of water intrusions, not solely soil and groundwater beneath and around the property. The industry also looked at ways of more effectively managing and mitigating water intrusion events through development of mold mitigation plans and protocols. Soon, the environmental site liability industry was routinely adding mold to its list of trigger pollutants.

See also: Three Surprising Hazards of Worksite Wellness Programs  

Nevertheless mold claims are becoming a costly tormenter for environmental insurance carriers, especially in properties such as apartments, condos, and hotels, and present several unique challenges and considerations.

Claims Made and Reported Coverage

Mold coverage is typically offered on a claims-made-and-reported basis such that the claim, or discovery of the mold, must first happen during the policy period and be reported to the insurer in that same period. Property owners and managers of properties, especially residential and hotel properties, deal with a host of complaints involving water and mold, most of which are addressed as maintenance issues. These seemingly slight matters can mushroom into a lawsuit, which could become problematic if the initial complaint by the tenant or guest is not reported to the insurer during that policy year and is subsequently interpreted by the insurance company as the triggering claim under a succeeding policy when the lawsuit is filed. This presents a fundamental challenge on the claims made and reported requirement in the policy. Such circumstances may also implicate a known pollution exclusion, which is typically standard in environmental site liability policies.

Late Notice/Consent

When the mold is revealed by a tenant, often a property manager will want to take immediate steps to eliminate the problem. While laudable from the perspective of property stewardship, taking this action without notice to the carrier (pre-tender) and without consent (voluntary payments) can lead to a reduction or elimination of coverage.

Cleanup Costs versus Water Damage

Environmental site liability policies typically cover mold cleanup to the extent required by law or as recommended by a licensed and insurer-approved certified industrial hygienist (CIH). Usually, however, where there is mold, there is also water and water damage that needs to be addressed lest it develop into mold. The policies often only respond to actual mold conditions, not potential mold conditions. As an example, the policy will pay for the costs to handle and dispose of drywall that has mold on it, but not likely any drywall that is only wet or water stained or discolored. A CIH would recommend the removal of such material as well as addressing the source of the water. Unless, however, there is mold confirmed to be present, these non-directly-mold-related activities would not likely be covered under an environmental site liability policy.

Restoration Costs

In a similar vein, environmental site liability policies typically provide some restoration coverage for real or personal property not damaged by mold but damaged during the cleanup. So in the hypothetical situation above, the removal of the moldy wall in the course of the mold remediation would likely trigger an obligation to restore or replace such property. Restoration or replacement of the wet or water stained or discolored drywall, however, would not be covered. Policy wordings on this aspect can differ, but frequently in addition to requiring carrier prior approval, the restoration, repair or replacement is limited to the value of the property immediately before it was damaged during the cleanup. So, in other words, the value of the replacement could be limited to the value of a moldy wall.

Business Interruption

Another challenge arises when the insured’s operations or rental activities are suspended due to water and mold. The environmental site liability policies typically define the interruption as the suspension of operations directly resulting from the cleanup of the pollution and prescribe the period of restoration as the time necessary to complete the cleanup. Establishing that the interruption is the direct result of the cleanup can prove elusive and then isolating the duration of the mold business interruption from the water business interruption can also prove problematic. Additionally, sometimes the mold is discovered in the course of a planned renovation – this offers another avenue of dispute – determining what was the duration of the planned suspension compared with the duration of the suspension from mold cleanup.

Other Insurance

While environmental site liability insurance is typically written as primary coverage, often the mold extension is granted only in excess of other available coverage (such as, but not limited to, property coverage). This structure can add an additional level of complexity (and delay) as the insured must establish to the carrier that no other potential coverage could apply to the loss.

See also: Bad-Faith Claims: 4 Ways to Avoid Them  

Managing mold insurance claims can present unique challenges to owners and operators of real property, including disruption of tenancy, liability for bodily injury and property damage claims, costly cleanup, economic loss from a tenancy disruption and reputational damages. The first step is prompt notification of a claim or the discovery of mold to the carrier in accordance with the policy terms. Thereafter, clients can work with their broker in collaboration with the carrier so that the condition is remediated to the extent recommended by a CIH and that thorough documentation of the work and costs, including any business interruption expenses, are submitted to the carrier for consideration and prompt payment. Mold is not the next asbestos but offers unique challenges to those who advocate for, purchase, or sell coverage for mold conditions.

All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.

Claims In A Catastrophe, Part 1

This is Part 1 of a two-part series on claims management in the wake of a disaster. Part 2 in the series can be found here.

Presenting a Claim
If your house was damaged or destroyed by fire, windstorm, or flood as a result of state declared catastrophes and you had a fire, homeowners, flood insurance, tenant's homeowners or condominium policy, you will be dealing with an insurance adjuster. You should recognize that dealing with an insurance adjuster in a catastrophe is usually fairly easy because of the number of claims the adjuster is required to deal with in a short time.

Insurers will be in a very generous mood. They will be seeking good publicity by taking care of victims of the catastrophe quickly and fairly. To make the claims process go easily, the insured person must understand that both the insured and the adjuster have duties when damage caused by fire, windstorm, flood or other insured perils are discovered. The following list outlines the most important of these duties:

  1. You should be sure there is no unnecessary delay in reporting the fact of the discovery of damage to your insurer as a claim.
  2. You and the adjuster should establish that there is no unnecessary delay in responding to any fire, fire fighting, flood or water-related cause of loss where “mold” may result as a natural result of water, warmth, and existence of mold spores in all building.
  3. You may be asked to sign a non-waiver agreement.
  4. You may receive a reservation of rights letter advising you of your duties under the policy, the conditions that apply or might apply, and the exclusions that may apply to the facts of the loss.
  5. You, as the insured, should readily, and without objection, sign the non-waiver agreement or accept the reservation of rights as an expression of the status quo.
  6. The adjuster should remind you, as part of the reservation of rights letter and explanation of the duties of the insured, to preserve and protect the damaged property and to mitigate the loss with due diligence and dispatch.
  7. You can request from the adjuster the identity of respected, competent, and professional contractors experienced in fire reconstruction or the drying out of buildings and the prevention or restriction of further loss including mold growth.
  8. You should follow up regularly with the adjuster to ensure that he or she is meeting contractual obligations since a catastrophe often makes communications difficult.
  9. If you have failed to protect the property from further loss, the adjuster must remind you, in writing, of your failure and how that could effect your claim.
  10. The adjuster should consider advance payments to avoid any unnecessary difficulties so that you and your family will have a place to live while your house is being rebuilt.

    1. If your house is destroyed, you can expect an advance of $10,000 to $20,000 to carry you over.
    2. Even if your house was not damaged, you are entitled to additional living expense payments if you were ordered out of your house by the state government, federal government, Homeland Security, or the local fire department.
    3. Remember that additional living expense coverage does not pay all of your post loss expenses, only those over and above your normal expenses.

Insurance claims require personal attention to detail by the insured. You and the adjuster must meet in person. If the claim is to be resolved expeditiously and fairly, both you and the adjuster should work to establish a personal relationship and to resolve, if coverage is available, the problems caused by the damage to the dwelling or business structure.

Once the rights, obligations, and duties of the insured and the insurer have been stated, and the initial investigation is complete, the insurer is obligated to conduct a prompt analysis of the policy wording and the law to determine whether coverage exists for the damage claimed. Once the investigation is complete and the decision made, it is the adjuster’s obligation to advise you, promptly and in detail, of the decision of the insurer. If coverage is available, it is also the obligation of the adjuster to advise you of your duties and obligations to obtain complete indemnity from the insurer and to protect the property from further loss.

The Notice Of Loss
If you believe that your property was damaged or destroyed by a peril insured by your policy, you should call or write the insurance agent, broker or insurer immediately (or as soon as practical) to report your claim. Follow up the phone call with a fax, an email, and a letter. If the house was not destroyed but a great deal of fire fighting water or subsequent rain or flood water entered the property, try to get a remediation team into the home or business within the first 48 hours to begin drying out the property. If you do not know one, ask your insurer for a referral. This is crucial to preventing or containing mold growth and rot.

If the agent, insurance company, independent adjuster, or restoration company delays the claim, follow up with a fax, an email, and a letter confirming their delay in responding. It would be helpful to send copies of the follow-up letters to the consumer protection unit of the state’s Department of Insurance. Take detailed notes of every conversation, including the name, company, phone number, address, and job title of every insurance adjuster, representative, consultant, and contractor you deal with. Confirm all agreements in writing and insist that appointments and deadlines be honored. Keep a log of all notes and letters and ask for and keep business cards from everyone involved in your claim.

Immediately after the telephone call, write a letter to the broker or agent, with a copy to the insurer, providing the same information. The letter need not be formal. It can be handwritten on any available paper. Make a photocopy.

The notice of loss should include the following information:

  • Your full name.
  • The location of the property.
  • The policy number.
  • The effective dates of the policy.
  • The date when damage first occurred.
  • The type of property damage.
  • The cause or causes of the damage.
  • How the adjuster can contact you.
  • That you need immediate contact from the adjuster.

By providing the information to the agent, the broker and/or the insurer, you have fulfilled the first obligation under the policy: to provide immediate notice of loss to the insurer.

If the insurer is working effectively and has a catastrophe team of adjusters in place, you should receive contact from an adjuster within 24 hours of the notice. The first call should arrange an appointment to inspect the property. You should arrange for inspection as soon as possible and have the entire property available for the inspection if possible. If emergency efforts are required, you should so advise the adjuster so that he or she can help you take emergency measures to protect against further loss.

If possible, you or the adjuster should arrange to have one or more contractors present at the first meeting to determine the extent of the damage. If the damage is extensive, consider retaining the services of a public insurance adjuster [if you determine a public insurance adjuster would be helpful, it is appropriate to seek one who is a member of the National Association of Public Insurance Adjusters (NAPIA), a professional membership organization that seeks to instill professionalism in the trade] or an attorney experienced in representing policyholders in the claims process to represent your interest. The lawyer will usually work on an hourly fee basis while the public insurance adjuster will expect a percentage of the amount paid by the insurer. You must recognize that the public insurance adjuster will ask for a 10 – 15% negotiable fee. Do not hesitate to negotiate with the public insurance adjuster. Never pay the first fee quoted. Considering the volume of work in a catastrophe, you should be able to negotiate a fee between 3% and 10%.

Insurance Company Response
Your insurer should respond to typical catastrophe claims by written or verbal contact within 24 hours of your notice of the claim. The insurer should share information regarding emergency repairs, additional living expenses, temporary advance payments and prevention of further loss with you.

Your insurer should, and in California is obligated to, advise you of your responsibilities under the policy. Many require their representatives to be at your home within 24 to 72 hours of notice of claim. If you explain that your fire loss is severe, the insurer should attempt to have a representative at your house within 24 hours.

The insurer is obligated by statute, state administrative regulations, or by the terms of the policy to determine whether your claim is covered and provide an initial estimate of damage within seven to 14 days after the insurer’s first on-site visit. This first estimate is subject to change. Within the same time frame, your insurer should attempt to provide you with a written statement confirming or denying coverage. These time limits are usually waived in catastrophes and may be impossible to meet with regard to Hurricane Katrina event and other massive catastrophes.

You should expect your insurer to return all phone calls within 24 hours. Initial contact may be with your insurance agent or broker or a claims office or the toll-free phone number included in the policy. Because of the volume of claims after a catastrophe like those in the 2005 hurricane season and the 2008 California wildfire season, this time frame will probably not be feasible.

First Contact With The Adjuster
Your first contact with the adjuster is usually an informative meeting where you discuss the cause of the loss, the type of loss, when the loss was discovered, and make an initial effort to agree on a tentative scope of loss.

You should expect the adjuster to do the following:

  1. ask for a walk-through inspection of the entire dwelling or building.
    1. You should make every effort to point out each item of damage or suspected damage during the walk-through inspection.
    2. You, or your representative, should assist the adjuster in viewing both the damage and the source of the damage.
  2. ask you to submit to a recorded statement;
  3. ask you for the identities of each family member or vendor who can give the adjuster information about the loss;
  4. ask for the recorded statements of the persons identified;
  5. ask permission to allow experts retained by the insurer to inspect the property and do minor destructive testing to establish the appropriate methods of reconstruction and repair; and,
  6. ask permission to contact others who know information about the loss and to obtain from those people within your control a detailed recorded statement and documents relating to their knowledge of the loss and the extent of the loss.

First Meeting With The Adjuster
An adjuster is a person professionally trained to assess the damage to your property. He or she will probably visit your home or business before you are asked to complete any forms. The more information you have about your damaged home or business and belongings, the sooner your claim will be settled.

Your adjuster generally will come prepared to do a thorough and complete evaluation of the damage to your property. If the adjuster is unable to complete a thorough inspection due to time constraints or the extent of damage, he or she should prepare a scope of the loss report. This is a brief listing of the findings of damage determined at the initial inspection of the damage. The adjuster should ask you to agree to the scope of loss. Agreeing to a scope of loss is not presenting a claim. It is understood by the adjuster that the scope is incomplete and will be added to as new damage is discovered. It is usually supplemented with a second visit after the reports of experts are received to complete the inspection.

The “scope of loss” should include the following:

  • degree of damage;
  • a description of each location where damage was observed;
  • a description of the adjuster’s and your own best estimates of the type of damage observed;
  • a list of all personal property damaged or destroyed;
  • quality of the materials and workmanship; and,
  • measurements needed to calculate quantities, including length, width, and height of rooms and the number of “openings” (windows and doors) in each room.

The scope of loss, usually referred to by claims people as the “scope,” differs from the finished estimate in two ways:

  • the scope does not necessarily list any prices, although prices can be used to describe quality; and,
  • the scope does not list the calculated quantities — it includes just the raw counts and measurements needed to calculate quantities for the estimate.

This article is adapted from Barry Zalma’s book, “Insurance Claims: A Comprehensive Guide” and his book “Mold: A Comprehensive Claims Guide” published by Specialty Technical Publishers, Vancouver, BC, Canada; 800-251-0381; http://www.stpub.com.