Fungal Frenzy: Molding New Public Policy

From Roquefort cheese to grungy grout in our bathrooms, mold has long been an unassuming part of our everyday lives. Recently, however, mold has morphed from a seemingly benign entity into a menacing health threat that is having a big impact on owners of residential and commercial real estate throughout the United States.

At the center of what could become one of the fastest growing areas of both construction defect litigation and toxic tort litigation is the humble organism, mold. The presence of mold in buildings has increasingly been cited as one of the causes of health problems of people who interact with so-called "sick buildings." Many environmental scientists believe cases of toxic mold are increasing due to new forms of building materials being used and the relative air tightness of new construction.

According to the Centers for Disease Control (CDC) and Prevention in Atlanta, six varieties of molds are common in buildings, and three can produce toxins. One of the molds that produces toxins is Stachybotrys chartarum (also known at stachbotrys atra). This mold is a potentially dangerous strain that has reportedly been linked to a wide variety of adverse health effects, ranging from allergic symptoms to pulmonary bleeding fatalities among children.

Lawsuits arising for indoor pollution caused by mold fall into three categories: sick building syndrome (SBS), building related illness (BRI) and multiple chemical sensitivity. A number of potential causes of action are available to parties who bring toxic mold suits, including negligence against the builders, design professionals, general contractors and subcontractors. Other causes of action include professional malpractice, breach of implied and express warranties, workers compensation, failure to disclose in sale of real property, fraud and breach of contract.

The rise in toxic mold cases is leading to an increase in the number of expert witnesses being used to testify in court about the adverse health effects of mold. Experts can include industrial hygienists, toxicologists, microbiologists, immunologists and occupational and environmental physicians.

The general principle governing the measure of damages for personal injury cases in many states, such as California, entitles an injured party to recover full compensation for losses caused by a wrongdoer's acts or omissions. The general rule in construction defect cases that the proper measure of damages is decrease in value of the building and personal property in the building or the cost to repair, whichever is less. For personal injury claims arising from toxic mold-related illnesses, recoverable compensatory damages can include pain and suffering; past, present and future medical care; future medical monitoring; lost wages; and loss of earning capacity.

Some recent verdicts and settlements in fungal contamination cases show how toxic mold is becoming a major financial issue for insurance companies, lenders, homeowners associations, landlords and builders. On June 4, 2001, a Texas jury found that Farmers Insurance should pay Melinda Ballard from Dripping Springs, Texas, $32 million for mold damage to her 22-room mansion and for her resulting mental anguish. In May 2001, the Delaware Supreme Court upheld a $1 million jury award to Elizabeth Stroot of Wilmington, Del., who claimed the moldy water leaking into the bathroom of her apartment aggravated her asthma and caused cognitive disorders.

With the number of mold claims increasing monthly, three of the nation's largest insurance carriers -- State Farm, Allstate and Farmers -- have decided to eliminate homeowner's coverage altogether in some states. In Texas, for example, State Farm stopped writing new property insurance policies in late 2001 after the carrier's Lloyd's division incurred about $647 million in losses for all claims, including water and mold for the first nine months of 2001. In contrast, total claims for the entire year of 2000 totaled $298 million. The company attributes the sharp increase to mold claims.

In an attempt to minimize its exposure, last year the California building industry tried and failed to push through a "home warranty" bill, under which homeowners could be required to enter binding arbitration instead of suing for defects, including mold damage. Instead, homeowners prevailed in changing public policy in California. California Governor Gray Davis signed the Toxic Mold Disclosure Act in October 2001, which requires that anyone selling, transferring or leasing commercial, industrial or residential property to disclose a potentially dangerous mold problem. The law also directs the California Department of Health to convene a task force of mold experts and health professionals to advise on exposure limits and remediation standards for toxic mold. The legislation will go into effect in 2003, six months after such standards are developed.

For additional information about this important topic, check out our article on indoor air quality, which begins on page 24 and explains in depth the causes and health effects of toxic mold. Additionally, the article focuses on strategies for dealing with fungal contamination and other indoor air quality problems. Other helpful sources of information about toxic mold include the Toxic Mold & Tort News Online Web site ( and the Washington State Department of Health Web site (

This article originally appeared in the 05/01/2002 issue of Environmental Protection.

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