Toxic Mold Litigation

WDC Journal Edition: December 2001
By: Peter F. Mullaney - Peterson Johnson & Murray S.C.

Toxic mold has been called the asbestos of the new millennium. If so, then toxic mold, like asbestos, may cause respiratory distress - particularly among insurance executives. Why all the fuss about fungus, and what issues are likely to arise? A summary follows.

Who is Being Sued, and Why?
Generally speaking, claimants allege that construction, design, or building material defects caused water to infiltrate their home, workplace, school, or other property, resulting in the growth of harmful mold spores. They typically file claims for property damage (expenses to fix water seepage and rid the property of allegedly harmful mold) and personal injury, where there is some temporal relationship between illness and the presence of mold.

Third Party Claims: Anyone who could conceivably be responsible for the conditions that cause mold to flourish - damp, humid, wet buildings or building materials - are vulnerable, as are those that fail to recognize and remedy these adverse conditions. Potential defendants include general contractors; plumbing, heating, roofing, venting, glazing, and carpentry subcontractors; architects and engineers; building owners and lessors; waterproofers; property managers; local and private building inspectors; school districts; real estate brokers; and building material manufacturers.

First Party Claims: Two of the most astounding jury verdicts came in first party cases. In October 2000, a California jury awarded plaintiff homeowners $500,000 in compensatory damages and $15 million in punitive damages. Plaintiffs alleged that Allstate made an insufficient offer under their homeowners' policy to repair water damage and remediate mold resulting from frozen, burst water pipes.

In June 2001, a Texas jury hit Farmers with a $32 million verdict. The plaintiff homeowners alleged that Farmers refused to repair parts of their water damaged home despite a pervasive mold problem. Farmers is now attempting to exclude toxic mold damages from its policies. Wisconsin's long winters are not as conducive to mold growth as the hot, humid climates in the southern and western United States. Nevertheless, lawsuits and claims alleging toxic mold damage have been filed in this state, and recent media coverage of the fungus phenomenon has alerted the plaintiffs' bar to the potential for new business opportunities.

Insurance Coverage
Coverage issues vary depending upon whether the claim is for bodily injury or property damage. In either case, one question will be whether the "pollution exclusion" applies.

Bodily Injury Claims: Claims for bodily injury allegedly resulting from toxic mold will probably turn on resolution of two questions under the pollution exclusion: 1) Is toxic mold a "pollutant"? (Usually defined as a solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.) and 2) Did exposure to mold spores result from a "discharge, dispersal, release, or escape" of a pollutant?

The best published decision in Wisconsin favoring application of the pollution exclusion appears to be Peace v. Northwestern National Ins. Co., 228 Wis.2d 106, 596 N.W.2d 429 (1999). The Supreme Court held that lead paint was a "pollutant" that was "discharged or dispersed" after it broke down into chips, flakes, dust and fumes. On the other hand, the Wisconsin Court of Appeals held that the pollution exclusion did not apply in Leverence v. USF&G, 158 Wis.2d 64, 462 N.W.2d 218 (Ct. App. 1990). In that case, homeowners sued a manufacturer of prefabricated homes alleging that the homes retained moisture that resulted in mold growth. The Court of Appeals agreed with the trial court that the pollution exclusion did not apply because "no contaminants were released, but rather formed over time as a result of environmental conditions." The Leverence case will probably be the biggest obstacle to application of the pollution exclusion.

Property Damage Claims: The issues in property damage cases will probably be somewhat different. Arguably, property damage is not from a "pollutant" (mold), but from water. Therefore, the pollution exclusion may not apply. In cases where the insured has been ordered to clean up or contain mold, and the policy excludes expenses arising out of a request that an insured clean up a "pollutant," the issue will be whether mold is in fact a "pollutant."

Medical Issues in Personal Injury Cases
Although most molds are innocuous, some are not. Claimants allege that exposure to certain types of mold, usually a potent strain known as stachybotrys, cause everything from headaches to inhibition of the immune system, lung disease, and brain damage. There is substantial debate in the medical community about whether mold is the real culprit behind physical symptoms allegedly linked to it, when mold exposure becomes toxic, and to whom. Persons with respiratory disorders, profound allergies, or already-depressed immune systems seem to be most vulnerable, but causation is debatable even in these cases. In fact, in March 2000 the Center for Disease Control retreated from its original position linking mold with pulmonary hemorrhage when it concluded that the available evidence does not support that association. An associate professor of microbiology at UW-Madison, recently quoted in a Milwaukee Journal Sentinel article on toxic mold, agreed that a cause and effect link is difficult to establish.

For additional information on this topic, including discussion of potential experts, feel free to contact Peter F. Mullaney at Peterson, Johnson & Murray, S.C., 733 North Van Buren Street, Milwaukee, WI 53214; (414) 278-8800; e-mail: