This addendum explains exactly what mold is and defines
everyone's responsibility in the event of a mold or moisture
problem. To download the complete form, go to
www.jlconline.com/public/legalkit.pdf.
Mold has been around for millennia, but in recent years public
concern about its presence in homes and buildings has
metastasized into near hysteria. This has spawned a legal
atmosphere in which it's relatively easy for unscrupulous
owners to fabricate huge mold lawsuits against contractors. In
fact, mold has become the new vogue for "dangerous clients,"
and a growing number of law firms throughout the country
specialize in — and profit from — mold litigation.
The relatively short amount of time it takes to build a major
case — and the ease with which it can be done —
makes mold one of the pre-eminent legal threats a contractor
faces today.
While it's not possible to fully eliminate the risk of
mold-related legal action, contractors can adopt certain
procedures to limit that risk. Obviously, though, they have to
be incorporated into the contractor's business practice before
any actual claims arise.
High Cost
Unlike most construction-defect claims — which focus
solely on property damage — mold claims often involve a
very costly personal injury claim as well. Why? Because even
though most molds are harmless under ordinary conditions, some
— most notably Stachybotrys — can pose health risks
to people with weakened immune systems. These possible risks
are what drive the personal injury claims, which have amounted
to many millions of dollars — despite the lack of
agreement in the scientific and medical community about what
level of exposure can lead to health problems.
Most plaintiffs accuse the contractor of "negligence" as well,
for failing to exercise "due care" to prevent the mold growth;
claims also may be based on breach of contract, breach of
warranty, liability for defective products, and even
fraud.
Proper Paperwork
Fortunately for the contractor, the burden of proving these
claims lies with the plaintiff. The key to pre-empting
plaintiffs' claims — and limiting your exposure —
is having a good risk-management procedure in place. This will
require some extra paperwork for you and your foremen, but it's
worth it: That paperwork could save your business
someday.
A risk-management procedure requires that you do the
following.
• Use construction specifications and procedures designed
to prevent mold growth. Modern building materials like OSB are
more mold-friendly than solid sawn lumber or plywood. Most
houses are built tighter today than they were in the past; in
cooling climates, many homes contain energy-efficient air
conditioners that don't dehumidify very well, along with vinyl
wallpapers that trap moisture. All of this has made it harder
for buildings to dry out.
• Document details. You or your field supervisor should
keep a log that describes what's been done to manage water and
control moisture at every step of construction. If you want to
include photos in this documentation, make absolutely sure the
details have been properly executed. Otherwise, the pictures
could work against you.
• Keep the homeowner informed. Owners need to understand
that they bear some responsibility for limiting moisture levels
inside their home. You can make this clear by educating them on
the nature of mold and on what they need to do to prevent it,
and by explaining what everyone's obligations are in the event
of a mold or moisture event. The Contractor's Legal Kit —
from which this article is adapted — includes a mold
addendum (see previous page) that spells this out. If you're
concerned about a mold claim on a particular project, review
the addendum with the clients and have them sign it before
signing the contract.
• Use contract language that limits your liability,
clarifies who is responsible for mold issues, and guarantees
your right to respond to these problems before a claim is made.
For example, all of the contracts and warranties in the Legal
Kit include a mold exclusion (which, of course, should be
reviewed and revised as needed by a local attorney).
Immediate Action
If a client reports a mold or moisture problem, it's important
that you respond immediately. Taking preventive steps and
acting at the appropriate time is far more cost-effective than
dealing with the inevitable consequences of turning a blind
eye. Moreover, following an established procedure of response
and notification will be considered crucial in the eyes of the
court. Failure to do so could be viewed as a lack of
professional conduct.
If you're out of town, tell the homeowners to call their
insurance company to submit a claim and keep all receipts for
cleanup work. Otherwise, personally visit the site the same
day. Ask the owners not to touch anything until you get there,
but to stop water intrusion if possible.
If there's a flood, stop the source immediately and drain any
water trapped in cavities, being careful not to destroy
evidence. Don't attempt to clean up any mold; insurance
companies are increasingly likely to deny coverage to
contractors who try to solve mold-related problems themselves,
because they can inadvertently spread contaminants. Call a
remediation company.
Do just a visual inspection and record your findings —
carefully. You should document, in photos and writing, the
following:
• The condition of the property
• The source of the moisture
• Identification of all damaged materials and a
description of all affected areas
• Evidence of material defects associated with the
moisture or mold problem
• Potential sources of outside mold contamination
• Identification of all persons who provided
information
Look throughout the property — especially in areas of the
house that you did not work on — for other evidence of
elevated moisture, and for nonconstruction sources of moisture
(firewood stored indoors, houseplants, leaky faucets, and so
on). Don't make any hasty statements about causes or who is at
fault. Just gather the information you need and tell the
homeowners you will get back to them soon.
And be careful what you say to outside investigators. Typically
they're hired by the owner's insurance company and are looking
for a way to blame you, whether you're at fault or not.
Notify other involved parties without delay: insurance
carriers, subcontractors, architects, real estate agents, and
the like.
If mold is indeed present and remediation is required, you may
be able to avoid a lawsuit by entering into a settlement and
release agreement, in which you agree to be responsible for
getting the cleanup done and having a certification letter
presented to the owner. However, you need a qualified attorney
to advise you on this matter and to draw up the
agreement.
Insurance Matters
Most insurance companies now exclude mold coverage from the
contractor's general liability policy, so if you're sued you
may be on your own. Costs for the legal defense and
construction experts alone on a million-dollar mold claim can
run well over $100,000.
If the mold claim also involves allegations of personal
liability, however, you may be able to trigger insurance
defense coverage and partial or total claims coverage. Again,
this is a complicated area and is best discussed with your
attorney.
Gary Ransone is an attorney and contractor
based in Soquel, Calif. This column was adapted from his book
The Contractor's Legal Kit.