United States: Mold: The Hysteria Among Us
Exposure to Mold Causes Bad Faith Claims Against Insurers

Mold is a naturally occurring fungus. Mold litigation, on the other hand, is quite man-made. Take the ingenuity of the plaintiffs’ bar, mix in a few high-profile plaintiffs, intense media coverage (including misinformation), and uncertain science. Then stir in a pinch of legislative involvement, public hysteria, and various collateral opportunists hovering above. Finally, pour the mixture into a tort system run amok, where the only prerequisite to making a settlement demand is having a docket number. The result is litigation over mold - self-fulfilling - but real nonetheless.

Mold, as is the case with most injury and damage litigation, will set a place at the table for the insurance industry. Notwithstanding how simple the recipe, however, mold claims, in and of themselves, should not pose a serious threat to the insurance industry. Indeed, such claims are likely to involve relatively small amounts of money or perhaps not even be covered by insurance. And, if covered, they may be subject to a mold "sublimit". Consider the following. In Texas, where mold claims have been particularly acute - likely caused by, among other things, a standard homeowners’ policy that has been more generous to policyholders than most other states - the average mold claim for the 2-year period from January 1, 2000 to December 31, 2001 was $22,740, inclusive of allocated loss adjustment expenses.¹ While a $22,000 homeowners’ claim is probably large enough to grab the attention of underwriters, actuaries and claims personnel, it is unlikely to whet the appetite of a plaintiff ’s lawyer, especially when the claim is probably too unique to lend itself to the use of form pleadings and other time-saving devices that enable plaintiffs’ attorneys to turn a profit on small cases.

Then why are some in the plaintiffs’ bar hyperventilating over mold, and, in particular, mold insurance claims? Because they bring with them the opportunity to include a "bad faith" count against the insurer. Indeed, it would not be surprising if the property damage component of mold homeowners’ claims are viewed by plaintiffs’ attorneys as "loss leaders" for the bad faith case. According to information reported by the Insurance Information Institute, 50% of all types of lawsuits involving mold are bad faith cases against insurers.² Three justices of the Texas Supreme Court have even gone so far as to characterize any lawyer that pursues an insurance coverage claim without including a bad faith count as incompetent. ³ A debate is presently raging over the causative link between a person’s exposure to mold and bodily injury. However, while the jury is still out on that causation question, the verdict is in on another - exposure to mold causes bad faith claims against insurers.

Mold and bad faith insurance claims are litigation peas and carrots. An examination of the standards governing bad faith, in conjunction with some of the ingredients that have enabled mold to reach the point where it is today, and is projected by some to climb in the future, makes it easy to see why.

If mold has been around forever, as so many articles on the subject are fond of pointing out, then why only now has it become a source of litigation? And not just any litigation. However, litigation that some project could even give asbestos - the mother of all mass torts - a run for its money.⁴ Mold’s recent grand entry onto the litigation scene, with promises to stick around for a while, is the result of a confluence of several external events, some having nothing to do with the actual merits of the cases. Mold is a litigation perfect storm.

According to an August 8, 2002 Wall Street Journal article, "Insurance companies contend that the spike in mold claims is nothing but heightened public awareness, fueled by trial lawyers and the media." There is no doubt that the media has contributed — and, for that matter, substantially — to the public’s awareness of the potential hazards of mold, to both person and property. The media has also fueled the public’s perception that, like most other problems in this country, the solution to mold lies in a lawsuit.

The media’s role in the proliferation of mold as a basis for litigation is twofold. First, the number of media and information outlets have grown like, well - mold. Cable television and the internet have led to a tremendous expansion in the amount of news and other information to which the public is exposed on a daily basis. As a result, there are simply more opportunities for people to hear about mold. And while anyone with access to the internet can become an instant "expert" on the subject, the internet’s absence of any barrier to entry is also the perfect environment for misinformation to flourish.

The media is not to be blamed for their abundance. After all, our market economy dictates that we have as many media sources as audience and advertising revenue can ultimately support. The media, however, deserves substantial criticism for inaccurate reporting on mold, in terms of its scientific aspects, the underlying litigation and insurance claims. Take the Texas mold insurance data, for example. In arriving at an average claim figure of $22,740, the Texas Department of Insurance stated that the total amount incurred for mold claims during 2000 and 2001, including allocated loss adjustment expenses, was $1,007,038,839. However, in footnotes accompanying the data, the Department made it clear that this amount could in fact be much higher or much lower. Specifically, the Department of Insurance stated the following:

1. Losses are total losses on claims where the presence of mold is known or alleged. The losses include costs directly related to mold (remediation, testing, etc.) as well as costs not related to mold, such as underlying non-mold water damage, slab damage, and other repairs not associated with mold per se.
2. Incurred Losses and ALAE [allocated loss adjustment expenses] do not include any provision for loss development. Ultimate loss & ALAE for the most recent quarters may be substantially greater than those shown above.
3. Mold claims may be understated because most companies were unable to report their non-water damage and freezing mold claims for much of the period in question.

Nonetheless, it did not take long after this data was released for two of the largest newspapers in the United States to report, without a single mention of the possible impact of the footnotes - one of which specifically stated that the figures include costs not related to mold - that mold claims in Texas had exceeded the billion dollar mark. Obviously, talking about insurance claims in terms of a billion dollars makes for good newspaper copy. Footnotes don’t. Moreover, neither newspaper mentioned that, until quite recently, Texans have had the benefit of a more generous homeowners’ policy form than many other states when it comes to coverage for water damage claims.⁵

The media blame does not end there. The most famous mold case to date involves that of Melinda Ballard, who, in June 2001, was awarded in excess of $32 million by a Texas jury that concluded that her homeowners’ insurer acted in an unfair, deceptive and fraudulent manner when evaluating a mold property damage claim. The lion’s share of the damages awarded by the Ballard jury were for the bad faith component of the case.⁶ Yet, plenty of articles have been written about Ballard without sufficiently distinguishing between the bad faith aspect of the case and the component for property damage caused by mold. As a result, the media has done an excellent job of creating the impression that the Ballard verdict involved $32 million for mold damage, period.⁷

In addition, Melinda Ballard’s story was the subject of an August 12, 2001 article in The New York Times Magazine, which included a dramatic cover photo, presumably of her, standing inside her home, wearing a biohazard "moon suit" that looks sufficient to protect a Chernobyl employee.⁸ The Times Magazine article also included a photo of Mrs. Ballard’s young son, standing outside the family home, wearing a gas mask-like respirator. Very powerful images.

Reality check - the trial judge in the Ballard case precluded the plaintiffs’ medical experts from testifying. The court granted the defendant’s motion to exclude such experts on the basis of insufficient evidence linking the health problems at issue to mold exposure.⁹ Thus, none of the $32 million awarded by the Ballard jury was for bodily injury allegedly caused by the presence of mold in the Ballard residence. Again, a significant fact omitted from much of the media’s coverage of the Ballard case.¹⁰ As for The New York Times Magazine article, which focused so heavily on Mrs. Ballard’s husband’s mold-caused injuries, it did finally mention, briefly and toward the end, that the Ballard court disallowed all medical evidence on the basis of lack of causation. However, if a picture is worth a thousand words, and one of a person dressed in a "moon suit" probably a few more, the interest of balanced reporting required that more - and better placed - words be devoted to the Ballard court’s ruling on the bodily injury–causation issue.

The Ballard court’s order precluding the medical experts from testifying did not set forth its reasons, except to cite certain cases from the Texas Supreme Court.¹¹ The defendant’s 32-page brief, which successfully served to exclude the plaintiffs’ medical causation opinions, argued, in general, that the plaintiffs were unable to establish both "specific causation" (whether a factor caused a particular individual’s injury) and "general causation" (whether any substance is capable of causing a particular injury or condition in the general population).¹² Recognizing that the court could have relied on any number of reasons for precluding the plaintiffs’ experts from testifying on causation between exposure to mold and bodily injury, it is noteworthy that the defendant’s brief devotes several pages to attacking the validity, from an admissibility standpoint, of two epidemiological studies prepared by one of the plaintiffs’ experts.

The media’s lack of reporting on the fact that the Ballard verdict was really one involving insurance bad faith and that the court precluded the plaintiffs’ medical causation testimony may seem like the kinds of technicalities that could only bother a lawyer. However, this is much more than mere legal minutiae. To the contrary, these omissions are likely some of the most important reasons why there is so much hysteria surrounding mold at this time. Therefore, while the insurance industry is right to point to the increase in mold claims as being the result of heightened public awareness that has been fueled by the media, the media has done much more than simply make people aware. The mainstream media’s imprecision in its reporting on the Ballard verdict deserves substantial blame for contributing to both the public’s hysteria and misunderstanding concerning mold.¹³

Would Ballard be having the same effect if the verdict were being reported for what it really was - one involving the breach of an insurance contract, for an underlying claim that just so happened to involve mold? Consider the ollowing. In May 2001, a Florida jury awarded Dr. John Tedesco, an ophthalmologist, $36.7 million in punitive damages in a bad faith action against his disability insurer over a $265,000 claim.¹⁴ In March 2002, a West Virginia jury awarded Charles Kocher $39 million in compensatory and punitive damages in a bad faith action involving an $11,300 disability claim under a credit life and disability policy.¹⁵ Both of these verdicts, while larger than Ballard, paled in comparison in subsequent media coverage.

For example, a search on Google.com at the time of this writing for the terms "Melinda Ballard" and "mold" revealed 608 hits. A Google search for "John Tedesco", "disability" and "verdict" generated four hits. A search for "Charles Kocher", "disability" and "verdict" — none. Clearly, when the story is only about "bad faith" damages against an insurance company, the media does not have the same interest as when something as ubiquitous as mold and the ability to frighten are involved. Moreover, Google searching also offers further evidence that the media has been less than forthcoming in distinguishing between the "mold" and "bad faith" aspects of the Ballard verdict. Note that the 608 hits for "Melinda Ballard" and "mold" is reduced to 111 when "bad faith" is added as an additional required search term.¹⁶

The media’s contribution to the hysteria surrounding mold is not limited to the Ballard verdict. The July 19-21, 2002 issue of USA Weekend contained a cover story entitled "When Mold Takes Hold". On the cover was a large colorized photo of Stachybotrys, a type of mold, as seen under an electron microscope, along with the words "Mold: Is Your Apartment Building Infected? Memory loss. Dizziness. Asthma. Those are just some of the ailments renters are experiencing as they join the battle against this toxic, microscopic enemy." Given that USA Weekend is distributed in 580 newspapers and reaches 48 million readers ¹⁷ , it is worth taking a look at what this article had to say about the subject.

Actually, it is what the USA Weekend article does not say about mold that makes it significant. The article contains a litany of stories of individuals and families who are suffering from serious illnesses and whose lives have been turned upside down, allegedly on account of the presence of mold in their residences. Considering what is known about the link between exposure to mold and bodily injury, it is possible that each situation described in the USA Weekend article does in fact involve mold-caused injuries.

However, given the amount of uncertainty concerning the link between exposure to mold and bodily injury, especially serious injury, as discussed below, the USA Weekend cover story was remiss to virtually ignore the fact that there is presently a serious debate going on concerning causation between exposure to mold and bodily injury. USA Weekend devoted all of twelve words to this fact, stating, "Many doctors believe they [certain types of mold] cause a raft of serious ills, including flulike symptoms, chronic fatigue, memory impairment, dizziness, and bleeding in the nose and lungs, while others say the science isn’t there yet to make that claim."¹⁸

At least for purposes of courtroom admissibility, Ballard demonstrated the flaws in attempting to prove causation between exposure to mold and bodily injury. Outside the courtroom, things aren’t much clearer. Recognizing that many involved in the mold – bodily injury debate have a bias, here is what the Center for Disease Control has to say about the issue in its publication "Questions and Answers on Stachybotrys chartarum and other molds":

The Center for Disease Control recently had another opportunity to address the question of causation between exposure to mold and bodily injury. Testifying on July 18, 2002 before the Congressional Subcommittees on Housing and Community Opportunity and Oversight and Investigations at a joint hearing entitled "Mold: A Growing Problem," Dr. Stephen Redd, the lead CDC scientist on air pollution and respiratory health echoed the "susceptibility" sentiment of the CDC’s earlier Q&A publication. In his introductory comments, Dr. Redd stated, "While there remain many unresolved scientific questions, we do know that exposure to high levels of molds causes some illnesses in susceptible people."

Dr. Redd, in his testimony, went on to describe some examples of the CDC’s conclusions.

• Molds can cause infections in susceptible people, particularly in hospital settings where 9% of hospital-acquired infections are caused by fungi.
• Respiratory infections due to the inhalation of the fungus Aspergillus have been documented mostly in immunocompromised individuals.
• Two mold produced toxins have been classified by the National Toxicology Program as human carcinogens, the chronic ingestion of which from eating contaminated foods has been associated with liver and kidney tumors in animals and people.

• In industrial and agricultural settings, various forms of hypersensitivity pneumonitis and other allergic responses and infectious respiratory diseases have been reported.
• Outbreaks of hypersensitivity pneumonitis have been reported in office buildings in relation to exposures to mold-contaminated humidifiers and ventilation systems.

• In its 1993 report, "Indoor Allergens," the Institute of Medicine concluded that airborne fungal allergens were most often associated with allergic diseases, such as allergic rhinitis/conjunctivitis, allergic asthma and hypersensitivity pneumonitis.

• The CDC does not know whether molds cause adverse health effects, such as pulmonary hemorrhage, memory loss or lethargy.

• CDC research has concluded that there is insufficient evidence of any association between exposure to Stachybotrys atra and bleeding from the lungs of very young children.

While there are no bright-line rules coming out of the CDC, their loudest message seems to be that a person’s risk for bodily injury on account of exposure to mold is related to his or her susceptibility to such injury. In other words, unlike many other hazardous materials, the exposure to which form the basis for litigation, mold may pick and choose its victims in a more discriminating manner. If so, the "eggshell plaintiff "rule will likely assist plaintiffs in the susceptible category.²⁰ On the other hand, if causation is linked to susceptibility, it should also result in a reduction in the total number of plaintiffs that are capable of bringing actions.

When the CDC talks about causation between exposure to mold and bodily injury, it is likely that they are assuming that a person has in fact actually been exposed to mold. In the litigation arena, such a threshold issue may not be so clear-cut, but, rather, hotly contested. The Defendant’s Motion to Exclude Causation Opinions and Brief in Support in Ballard, addressing plaintiffs’ inability to establish specific causation, makes this point clear, stating as follows:

One final, and very important, point on causation. The link between exposure to mold and various types of bodily injury is not the only aspect of uncertainty concerning causation that has enabled an environment of hysteria to flourish. Mold claims are typically for the repair of property that has been damaged by the presence of the fungus. In doing so, the remedial objectives are the abatement of an unpleasant and/or unsightly condition, with the collateral objective being the prevention of potential future bodily injury (either real or perceived). However, there are no federal standards governing the investigation, testing and emediation of mold. In the words of Sue Kelly, Chair of the Congressional Oversight and Investigations Subcommittee, testifying on July 18, 2002 about the consequences of the fear created in homeowners by the lack of definitive evidence of what safe or potentially dangerous levels of mold may be, such uncertainty "has created a window of opportunity for unethical lawyers and contractors to prey upon vulnerable populations." To put it another way, a person finding mold in their house is left to wonder if the solution is a bottle of Clorox or a bio-hazard "moon suit" from the Melinda Ballard collection.

Undoubtedly, the publicity surrounding the Ballard verdict has been a substantial factor in creating a heightened-interest in mold. However, it is not the only high-profile mold case that has caught the attention of the media. In April 2002, Ed McMahon filed suit against his homeowners’ insurer, insurance adjuster and companies hired to remediate mold and water problems in his home.²² Not surprisingly, McMahon’s suit generated tremendous publicity. The complaint, while primarily concerned with the way in which McMahon’s insurer handled mold abatement work in his house as a result of a burst pipe, also alleges that the presence of mold caused him, his wife and their staff to become seriously ill, as well as the death of his dog.

Further fueling the media’s coverage of mold, Erin Brockovich (yes, that Erin Brockovich) filed suit against the builder and former owner of her 5200 square foot suburban Los Angeles home, alleging that construction defects led to the presence of high levels of mold, resulting in more than $600,000 in repair costs, as well as causing her to be constantly fatigued and suffer from respiratory problems and sinus infections. She also alleges that her young daughter has suffered severe coughing spells and watery eyes.²³ In addition, Brockovich has hit the lecture circuit to discuss the consequences of mold ²⁴ and was active in California’s passage of the Toxic Mold Protection Act of 2001, discussed infra.

Considering the present fervor over mold and the legal system’s track record for handing out enormous sums of money, it can hardly be surprising that Congress and some state legislatures ²⁵ have now stepped-in to address the situation. Mold legislation is likely a double-edged sword. On one hand, it is intended to address some of the aspects of the problem that have enabled an environment of hysteria to exist, such as the lack of permissible exposure limits and uncertainty surrounding the science of mold. On the other hand, there is a risk that such proposed legislation, and the resulting media headlines, could exacerbate the hysteria by sending the message that mold must be a serious problem, otherwise the government would not have become involved.

Most legislation, no matter how well intended, will never please everyone. Legislation over mold, both enacted and proposed, is likely no exception. Take California’s legislative solution. Given the state’s reputation for being cutting-edge in matters health-related, it is not surprising that in October 2001, when California Governor Gray Davis signed into law the Toxic Mold Protection Act of 2001 (SB 732) ("the California Act"), it made his state the first in the country to attempt to establish, among other things, permissible exposure levels for mold.

The California Act, effective January 1, 2002, calls for the State Department of Health Services ("the Department") to convene a task force, comprised of an extremely diverse group, to advise the Department on the feasibility of adopting permissible exposure limits to mold in indoor environments.²⁶ In general, the California Act provides that if the Department concludes that adopting permissible exposure limits to mold in indoor environments is feasible, then the Department, in consultation with the task force, shall adopt permissible exposure limits to mold for indoor environments that avoid adverse effects on health, with an adequate margin of safety, and avoid any significant risk to public health.²⁷

Additionally, the California Act provides that the Department, in consultation with the task force, shall adopt mold identification guidelines for the recognition of mold, as well as develop and disseminate remediation guidelines for molds in indoor environments. The California Act also contains various requirements concerning disclosures that must be made by sellers of property and landlords of the presence of mold that exceeds the permissible exposure limits established by the California Act.

While California certainly looks concerned about mold and committed to tackling the problem, it has, thus far, not put its money where its mouth is. According to an August 6, 2002 Implementation Update from the Department concerning the California Act, while 133 individual "stakeholders" have volunteered for the mold task force, there is no funding in the state’s 2002–2003 budget to provide for the activities that the Act is designed to accomplish.²⁸ The best news that the Department can offer in its Update is to mention that a section of the budget trailer bill, if passed during the 2002 legislative session and signed by the Governor, will create the "Public Health Protection from Indoor Mold Hazards Fund." This fund would accept voluntary contributions from anyone or any entity that wished to support the Department’s indoor mold-related activities, including those specified in the Toxic Mold Protection Act of 2001.

On June 27, 2002, Congressman John Conyers, Jr. (D - MI) introduced the United States Toxic Mold Safety and Protection Act of 2002 (H.R. 5040) ("the Conyers Bill"). Congressman Conyers described his motivation for introducing the bill as follows:

An in-depth discussion of the nuts and bolts of the 57-page Conyers Bill is beyond the scope of this article. A summary of the bill, provided in a statement issued by Congressman Conyers ³⁰ , provides, in part, as follows:

• The Bill directs the Environmental Protection Agency (EPA) and Centers for Disease Control (CDC) to examine the effects of different molds on human health and develop accurate scientific information on the hazards presented by indoor mold.

• The Bill directs EPA and the Department of Housing and Urban Development (HUD) respectively, to establish guidelines that identify conditions that facilitate indoor mold growth and measures that can be implemented to prevent such growth. The guidelines will also address mold inspection, testing, and remediation.

• The bill asks EPA and HUD to establish guidelines for certifying mold inspectors and remediators.

• The Bill authorizes programs to educate the public about the damages of indoor mold.

• The Bill requires mold inspections for multiunit residential property and mold inspections for all property that is purchased or leased using funds that are guaranteed by the federal government. The Bill also requires mold inspections in public housing.

• The Bill requires, to whatever extent possible, that local jurisdictions modify building codes to minimize mold hazards in new construction.

• The Bill authorizes grants for mold removal in public buildings.

• The Bill authorizes tax credits for inspection and/or remediation of mold hazards.

• The Bill creates a National Toxic Mold Insurance Program administered by the Federal Emergency Management Agency (FEMA) to protect homeowners from catastrophic losses.

• The Bill enables States to provide Medicaid coverage to mold victims who are unable to secure adequate health care.

While Congressman Conyers’ summary of his bill does not say so, it should be noted that it also provides that before every sale and lease of real property, a mold inspection must be conducted by a State certified mold inspector, with the results of the inspection being disclosed to the purchaser or lessee of the property. In other words, what is presently a mandatory part of home sales in many states concerning termites would become mandatory in every state concerning mold.

Surely there is no doubt that there are companies currently engaged in the business of mold testing and remediation that are using the present confusion surrounding mold to their business advantage. According to the Air Conditioning, Heating and Refrigeration News website, "A whole new carrot is dangling in front of hvacr contractors, with the promise of millions of dollars in new business - that is, if you believe the prognostications of Melinda Ballard, president of the Policyholders of America."³¹ Speaking at the Healthy Indoor Environments 2002 Conference in Austin, Texas, Ms. Ballard spoke out in favor of the importance of education for those in the mold testing and remediation business. "It’s like dangling money in front of these people. But they shouldn’t grab the money unless they know what they are doing. If it takes 40 hours a year to generate $40 million in business, is it worth the extra $1 million per hour the training can generate?"³² Even the president of a building analysis company, which has seen his business quadruple over the last several years due to mold, acknowledges the current situation. "A lot of people are profiting by instilling panic in the marketplace about mold. Mold is gold. Unfortunately, people’s panic and fear about mold in almost all cases is not warranted."³³

If the health hazards of mold are proven to be a serious enough issue to justify the need for State certified mold inspections before the sale of property, then this aspect of the Conyers Bill, while creating an enormous mold inspection industry (and everything that comes with it, including regulatory issues and negligence claims), may at least offer the public some protection from any unscrupulous and opportunistic companies.

The National Association of Independent Insurers (NAII) and the Independent Insurance Agents & Brokers of America (IIABA) have spoken out against the Conyers Bill. Both organizations have stated that there is no established link between the presence of mold and health concerns, and that the Conyers Bill does not allow for adequate scientific research to establish such a link.³⁴ Melinda Ballard, on the other hand, supports the Conyers Bill wholeheartedly. Pointing to the national insurance program aspects of the bill, she states that, "If insurance companies no longer are liable for toxic mold clean up, state legislators must mandate rate reductions by a corresponding 60% over premiums charged in 1999 (the year that saw a sudden increase in mold-related property damage claims).³⁵

The present environment surrounding mold, whether it is overblown or not, makes perfect sense. Considering the uncertainty surrounding the science and mold’s ubiquitous nature, giving it the ability to make virtually every person in the country a potential plaintiff against some type of defendant (not many mass torts can boast that fact), it is no wonder that mold is getting so much attention from lawyers and the media. And it is likely that the present brouhaha surrounding mold will not subside until the science is clarified and permissible exposure levels to indoor molds are established, both by credible governmental agencies, notwithstanding that debates may exist over the precise manner in which to accomplish such tasks. While the clarification of such issues will still likely leave open questions about individual susceptibility, proof of one’s exposure to mold, and the proper identification, testing and remediation of mold, it should at least introduce some rationality to the situation.