The Growing Liability for the Insurance and Restoration Industries Posed by Hazardous Mould in Buildings

• Evidence of the Link Between Mould Exposure and Adverse Health Effects
• Developments in Personal Injury Litigation
• Raising the Standards for Concerns for Mould Control During Restoration Work
• An Example of How Poorly Performed Work Poses Great Liabilities

There is growing concern over the adverse health effects from exposure to mould in buildings.

By now, most involved in the insurance industry as underwriters, adjusters, risk managers or restoration contractors, will have seen some of the press coverage regarding reports of adverse health effects from exposure to mould in buildings. Newspapers and popular magazines have carried many stories of occupants in condominiums, houses and schools complaining of headache, eye, nose and throat irritation, worsening asthma and other effects. Earlier this year, a regional hospital in northwest Manitoba was closed after the discovery of widespread contamination with toxic mould.

Those in the insurance industry that underwrite personal injury coverage for the property owners must be aware of their increasing exposure to potentially huge claims. In addition, those sectors of the industry that provide property damage coverage must be aware and react to a recent step up in the level of performance recommended in standards set by the restoration industry.

Evidence of the Link Between Mould Exposure and Adverse Health Effects

As mould is a naturally occurring substance, some observers find it difficult to accept that minor exposures to a natural substance in a building could be harmful. This is made more difficult by the commonness of the symptoms reported: headache, sore throat, cough, etc. However, there has been a growing consensus in the past 5 years that supports an association between a range of symptoms and mould growth in buildings.

Health Canada issued a guideline in 1995 for assessment and control of one of the more toxic moulds, Stachybotrys chartarum, which essentially requires that any potential exposure must be identified and removed.

This year, the Ontario Ministry of Health convened an expert medical panel to review the possibly harmful effects of mould exposure in buildings, who in response to a question on the strength of the association between health effects and exposure, concluded, "The Expert Panel agrees that there is evidence in the scientific literature which supports an association of several health effects, primarily symptoms, with unusual fungal growth in the indoor environment...".

The panel, when asked to report on those susceptible to these effects, included infants and children, persons with specific diseases such as diabetes or who have a compromised immune system, persons prone to develop allergies, the elderly, and others. Taken together, these susceptible groups represent a considerable portion of the population, and certainly many policyholders and clients of the insurance industry.

Developments in Personal Injury Litigation

Lawsuits have already been launched in Canada regarding mould contamination in schools, particularly portables.

In the United States, lawsuits where the property manager or contractor is alleged to have caused injurious exposures to the occupants are a major concern for insurers. A similar pattern is beginning in Canada.

One of the most important developing cases, both for the scope and the potential impact on building owners in the public sphere, is the $2 billion class action lawsuit launched against the Dufferin Peel Catholic District School Board, to the west of Toronto. This lawsuit alleges that children in the board have been adversely affected by mould exposure in school buildings, particularly portable classrooms and other "temporary" facilities.

Lawrence and Lawrence of Brampton, the attorneys at the centre of this action, intend to extend coverage of the suit to potentially all school children and school boards in Ontario. The attorneys are currently beginning the process of certifying this suit as a class action. At the centre of this case is Chloe MacDonald, a 7 year old with a history of severe asthma who her parents allege was significantly harmed by exposure to mould in her relocatable classroom. This classroom has since been closed for evaluation and possible repairs. The defence to this suit is being directed by attorneys acting for the insurance carrier for the Board.

Peel has been a hotbed of public concern over mould in schools. In March of this year the regional medical officer of health ordered the public and Catholic boards to inspect and remediate over 1100 school portables and portapack classrooms, or these could not be occupied in September. The two boards report that between them they have spent over $40 million so far on this program

Raising the Standards for Concerns for Mould Control During Restoration Work

Restoration contractors are developing new tandards for dealing with flood and other water damage.

The US-based Institute of Inspection, Cleaning and Restoration Certification is a volunteer organization serving the restoration industry. It sets standards for restoration work of various kinds, and provides training and certification of restoration technicians.

The IICRC standards and training are widely used in Canada, to the point that some restoration firms advertise that all their supervisors hold this certification.

The IICRC has just released the Second Edition of their Standard S500, Standard and Reference Guide for Professional Water Damage Restoration. Previous versions of Standard S500 focussed primarily on the bacterial hazard posed by flooding grey water and black water. The new version is much more focussed on the potential harm to occupants from mould growth encountered during the restoration, regardless of the source of water. The changes at this edition, if adopted as standard practice by Canadian contractors, will appreciably affect the conduct and cost of restoration work in Canada. In future, the work will look much more like high risk asbestos removal.

Major additions include:

• The contractor and adjuster should consider whether the occupants should be evacuated for the duration of the work. Factors to consider are the type of mould present, extent, presence of children under 2 years of age, and presence of immuno-compromised individuals. Residents will be advised to seek medical advice.
  
  
• The contractor will have to determine if the microbiological contamination has affected the duct systems and air handling units. Air handling units must be shut down and sealed over during the abatement work.
  
  
• Containment with heavy polyethylene sheeting and negative pressure systems is strongly advised.
  
  
• All mouldy materials must be removed in sealed bags.
  
  
• On projects where microbial contamination was remediated, it may be necessary for a third-party to evaluate the effectiveness of the project. The standard recommends that this be considered where there is microbial contamination that can adversely affect occupant health, or high risk occupants in the structure, or where there are public health issues such as care of children or the sick or elderly, or the project is in a public building. The role of the third-party might include assistance with establishing the scope, overseeing the repair work, and performance of testing at completion.

An Example of How Poorly Performed Work Poses Great Liabilities

Improper removal of mould contamination can actually cause the problem to spread.

A recent project of Le Groupe Gesfor Poirier Pinchin Inc., the Quebec affiliate of Pinchin Environmental, illustrates the problems a contractor can bring on a building, and themselves, by not following correct procedures.

The occupants of a small building housing a federal agency, located in a small Quebec town, had complained for some time of headache, eye and nose irritation, and other typical indoor air quality symptoms.

Health Canada was brought in to investigate the complaints, and based on the symptoms, strongly suspected mould growth in the building.

Air sampling was performed in the building, and the finding of elevated levels of Aspergillus and Penicillium species in the basement supported this suspicion. The property manager investigated and diagnosed the problem as a minor but chronic foundation leak, hidden behind styrofoam insulation. The property manager engaged the local affiliate of a national restoration firm to clean out all water damaged material. Insulation was removed from along about 7 metres of wall, and several cardboard boxes contaminated with black mould were removed. The contractor took no precautions to contain the work area during this work, or to contain the waste as it was removed from the site. The health complaints of the occupants continued, and the unionized workforce walked out of the building in frustration.

Air sampling performed by our Montreal office confirmed their suspicions; the airborne mould levels were in fact over 4 times higher after remediation than before, and now levels on the main floor were as high as previously measured in the basement. The contractor had successfully contaminated the entire building, for lack of a roll of polyethylene sheeting, some disposal bags, and a more complete cleaning.

Who is liable in this circumstance, for the health complaints, the property damage, and the loss of use? Certainly, the restoration contractor who did not follow the IICRC guidelines given above. Also, the property manager, who did not arrange for the hazard to be controlled correctly. Since the property manager was employed by the same employer as the occupants, he and the employer should be protected from litigation due to the workers' compensation umbrella. However, had the property been a leased facility, or if the building was run by a property management firm, the property manager and his employer could have faced litigation from the injured workers, and loss of use litigation from the tenant.

How can the insurance industry manage its risks in this fast-developing area?

First, get smart, be aware of all of the guidelines that exist to make decisions on mould in buildings, and of developments in industry standards and litigation.

Second, set underwriting policies to minimize exposure where possible.

Third, ensure that property damage work that will involve water restoration (cleanup of floods, fires, building defects, etc.) is performed to defensible standards by competent contractors.

Finally, where risk of litigation appears considerable, engage third-party professionals to assist with the assessment, oversee the work, and provide some form of quality assurance at completion of the work.

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