Mold concerns continue to grow along with health risks, lawsuits

Joe Stuckey

Special to Houston Business Journal

They come in a variety of sizes, colors and patterns. They thrive in warm, moist environments. Not tropical flowers -- molds. Fungi. Spores. A natural fauna key in completing the circle of life in nature that is a killer in commercial real estate.

Molds and mold losses create increasingly important and difficult issues in the commercial real estate market. And with stars like Ed McMahon, Erin Brockovich and Bianca Jagger all making some form of mold claim, molds continue to take center stage in commercial real estate litigation.

The 25-story Kalia Tower at Waikiki's Hilton Hawaiian Village is one example. Opened in 2001 at a price of $95 million, the Tower was closed by Hilton less than a year later because of persistent mold problems. After spending $55 million to clean up the mold, the hotel giant sued two dozen architects, contractors and engineers, alleging that they were responsible for creating the conditions that allowed the mold to grow.

All mold needs to grow is damp, warm conditions and nutrients such as paper or wood. Left in peace in these conditions, growth of a mold colony is inevitable. By the same token, defining the conditions in which mold will grow also reveals the way to prevent that growth from occurring. Deprive a mold spore of warmth, dampness or nutrition, and it will remain inactive.

Real losses

According to the Insurance Industry Institute, losses for mold-related property damage claims rose from $700 million in 2000 to $ 2.5 billion to $3 billion in 2002. Jury awards remain high despite growing evidence that the average cost of mold-remediation is $34,000 in residential construction and $200,000 in commercial construction.

Case in point, Melinda Ballard, a Texas homeowner was awarded $32 million in compensatory and punitive damages from a jury because of her insurer's alleged unwillingness to pay a mold claim (the award was later reduced on appeal to $4 million with all punitive damages removed).

The insurance industry has severely limited coverage for mold-related losses because of a flood of mold-related claims in California and Texas, although coverage is beginning to emerge in environmental insurance at a significant price.

Real health risks

On May 25, the Institute of Medicine, an arm of the National Academy of Sciences, issued "Damp Spaces and Health," the first comprehensive evaluation of the existing scientific literature to determine the true nature and extent of health problems associated with mold exposure.

The Institute report concludes that there is a link between exposure to mold and upper respiratory symptoms, wheezing, asthma symptoms in sensitized persons and allergic reactions in sensitized persons. Evidence also exists to support a link between mold and development of shortness of breath and lower respiratory illness in otherwise healthy children.

Significantly, however, the Institute report found there is not a strong link between mold exposure and many of the conditions popularly attributed to it, including chronic obstructive pulmonary disease, skin symptoms, gastrointestinal problems, fatigue, neuropsychiatric symptoms, cancer, reproductive effects and rheumatologic and immune disorders and pulmonary hemorrhage.

Commercial litigation

Even with this growing array of data, those in commercial real estate should remember the lesson of the Kalia Tower: commercial mold litigation is not over injuries but over breached warranties and alleged failures to disclose.

Mold awareness must be constant from the first sketch of a new building to the last day of an owner or manager's involvement with it.

The American Society for Testing and Materials has created a screening process that can be used to help determine whether mold is present in a structure. Other trade associations and industry groups such as the Mortgage Bankers Association of America are deeply involved in efforts to ensure accurate identification, monitoring and remediation of mold problems.

Governmental agencies ranging from the U.S. Environmental Protection Agency and the Occupational Safety & Health Administration to the New York City Department of Health and Mental Hygiene have published valuable guidance documents on mold that are available on-line to guide those in commercial real estate in the pitfalls of mold.

Materials matter

Mold control is moisture control. During design and construction, use materials that are not conducive to the growth of mold when and wherever possible. Select engineers and contractors familiar with mold issues and prevention. Don't assume the knowledge is there; ask questions and check references.

Inventory areas that could produce mold problems in advance. While broken pipes and roof leaks from hail storms may not be anticipated, knowing the location of such things as air conditioners, moisture-generating appliances, steam or exhaust pipes, drains and other equipment that generates dampness can save time and trouble later.

After construction, conduct regular inspections with emphasis on areas that produce mold-friendly conditions. Pipes, roofs, gutter and drain pipes, air conditioners and a host of other locations, appliances and equipment that can produce moisture must be checked, and checked regularly.

A formal operations and maintenance plan should be developed and followed rigorously. Inspection should be documented and pictures taken as necessary. If repairs to structures or roofs become necessary, ensure that any entering moisture has been removed. It is just as important as stopping future leakage.

If mold is discovered, act promptly. Mold grows. It will continue to grow as long as it has access to food and warmth. Leaving moldy conditions in place increases problems and the costs of repair.

Select remediation contractors carefully; check experience, credentials and references. Having a couple of maintenance workers pour bleach on an affected area may kill the mold, but it will not fix the root cause and will not remove the perception that the problem is fixed.

Document all phases of the operations and maintenance plan. Leave a record of what happened and how it was remedied. Pictures are an important adjunct to any remediation project and when the time comes to sell. Buyers should and will inspect. Having records is essential to answer the inevitable questions.

With mold, as with so many other issues, there is no substitute for common sense and quick, persistent, directed action. Vigilance is the first line of defense against this eternal problem.

Joe Stuckey is an environmental attorney and member of the Environmental Practice group at Winstead Sechrest & Minick PC, which relates to real estate transactions, financial transactions, corporate risk management, litigation, personal injury and work-related exposures and property damage.

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