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Contents
Ballard CaseMold FactsPolicies and Business at RiskScientific LiteratureCGL IssuesReinsurance IssuesForecastRecommendationsExclusionsQ&A
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Mold Facts
• Mold has existed on Earth for millions of years - Bible comments on the mold “crisis”
• Mold are microscopic fungi that can live on plant or animal matter, indoors or outdoors
• Over 300,000 types of mold
• Alleged “toxic” mold types: Stachybotrys, Aspergillus, Penicillium, and Cladosporium
• Conditions enhancing mold spore proliferation:• Dampness/ humidity• Food (any organic substance)• Warm temperature• Lack of ventilation
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Ballard Case Draws Attention to Mold
• High-profile mold insurance case from Texas decided 6/2001
• $32 million jury verdict against insurer
• Insurer’s claim handling conduct under the microscope
• High jury verdict $$ with no medical testimony
• Mold is on radar screen of plaintiffs attorneys and insurers/reinsurers
•Lawsuit cottage industry
Ballard Case Result
• $5 million = Melinda Ballard’s mental anguish• $12 million = Punitive damages based on insurer’s conduct• Did not include damages for adverse health effects
• Appeals court reduced verdict to $4 million
Damages
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10,000 Toxic Mold Lawsuits in 2001
Former
Owners of
Sold Homes
10%
Bad Faith
Against
Insurers
50%Builder for
Construction
Defects
20%
HO
Associations
for Improper
Maintenance
20%
1,000 Cases
2,000 Cases 5,000
Cases
2,000 Cases
•70%mold claims arose in TX (2001)•TX, CA & FL have most mold claims
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New Defendants in Mold Cases
•Apartment complexes: Class action potential, nuisance and breach of warranty claims; large jury verdict potential
•Schools: Children at risk - sympathy factor for jury; workers compensation insurance implicated
•Single family homes: Celebrity mold claims (Brokovich, McMahon, Spelling, Lou Ferrigno, Bianca Jagger) and large jury verdicts ($32M Ballard case) garner media attention; construction defects and product liability claims against component manufacturers
•Commercial buildings: Outgrowth of “sick building syndrome” cases with large remediation costs (e.g., $65M Hilton mold claim in Hawaii)
•Mold remediation companies: Sued when remediation inadequate
•Public buildings: Government budget cuts mean lower quality building materials, less maintenance
•Health care facilities: Hospitals, nursing homes have high population of immune compromised individuals
•Realtors/home inspectors: Negligent or intentional misrepresentation
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Insurance Policies and Reinsurance Business at Risk
•Homeowners
•CGL - construction defect/design claims, product liability, completed operations claims, negligence claims against property managers
•First party property, landlord premises liability
•E&O
•EIL (environmental impairment liability) - if mold is “pollutant”
•Personal injury - mold allegations may constitute trespass, nuisance
Trend = Mold claims are alleged along with other types of claims as “scare tactic”
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“Toxic” or “Killer” Mold?
•Wide variety of alleged illnesses – headaches, nausea, asthma, allergic reactions, central nervous system damage, cancer, death
•Persons with highly sensitive or undeveloped autoimmune systems may be more susceptible to allergic reaction
•Causal link is anecdotal
•“Single spore” theory
•No such thing as “toxic” mold in scientific literature
•No conclusive scientific link between mold and serious illness
“Toxic” mold is creation of media
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The LiteratureThe current public concern for adverse health effects from inhalation of Stachybotrys spores in water damaged buildings is not supported by published reports in the medical literature
Annals of Allergy, Asthma, & Immunology
“There is no compelling evidence that exposure at levels expected in most mold-contaminated indoor environments is likely to result in measurable health effects.”
Applied Occupational & Environmental Hygiene Journal
“The primary result from fungal exposure is allergic disease, and evidence for inhalation disease resulting from mycotoxin exposure is extremely weak.”
Study, Dr. Harriet Burge, Harvard School of Public Health (2001)
“Current scientific evidence does not support the proposition that human health has been adversely affected by inhaled mycotoxins in home, school, or office environments.”
Am. Coll. Of Occupational & Environmental Medicine.
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Mold 5 Year Forecast
•More mold trials: Pros - should establish guidelines, control runaway jury verdicts. Cons - Media will continue to highlight extremes
•More mold legislation: Should establish permissible exposure levels, regulate vendors, provide abatement guidelines, address real estate disclosure
•Proactive and quality risk management and claims adjudication will enjoy dividends: Quick response time and implementing action plans will lessen claims; more mold disputes may be resolved quickly through ADR
•Creative pleading by plaintiff attorneys: Plaintiffs already emphasizing nuisance claims (easier to plead); causes of action brought on behalf of minors may circumvent ADR
•Mold exclusions/sub-limits: Already approved in many states, mold exclusions will become commonplace on more types of policies; sub-limits of $10K, $25K, $50K
•Product defect allegations: More actions brought against manufacturers of HV/AC, plumbing, windows, siding, caulk and other building materials
•More medical studies: Should clarify causation questions and admissibility issues
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ISO Mold Exclusions
ME
NH
MA
CT
PA
WVVA
NC
LA
TX
OK
NE
ND
MN
MI
IL
IA
ID
WA
OR
AZ
HI
NJ
RI
MDDE
AL
VT
NY
DC
SC
GA
TN
AL
FL
MS
ARNM
KYMOKS
SDWI
IN
OH
MT
CA
NV
UT
WY
CO
Exclusion Approved
No Approved Exclusion
Homeowners policy mold exclusions approved by insurance departments in more than 30 states + DC*
*As of July 29, 2002.
Source: Insurance Services Office
MS
Recent Trend: Allow Exclusion or Sub-limits