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Contractor's Business Strategist - April 2002 2002 by Brownstone Publishers, Inc. Any reproduction is strictly prohibited. For more information call 1-800-643-8095 or visit www.brownstone.com

Five Tips to Help You Make Sure Your Insurance Covers Mold Claims

Does your insurance cover you for mold claims? The answer to this question is becoming increasingly important as more owners and occupants claim that contractors are responsible for the damages caused by mold-contaminated buildings, warns Patrick J. Wielinski, an insurance and risk management attorney. But the answer to this question is more and more likely to be no.

Some insurance companies are now refusing to cover mold claims, arguing that the pollution exclusion endorsement found in most commercial general liability insurance (CGL) policies excludes that coverage. And many new or renewal CGL policies are likely to include a new endorsement that specifically excludes mold coverage. For example, the insurance Services Office (ISO) has drafted new standard endorsements that exclude mold-these endorsements, for use with CGL policies, should be available to insurance companies in most states in the spring of 2002.

But there are things you can do to help make sure your insurance will cover mold claims, including your defense costs and any damages you must pay if you're sued for illnesses or property damages caused by mold. Here are five tips from construction insurance experts.

Tip #1: Get Insurer to Confirm the Coverage in Your Current CGL Policy

Contact your insurance agent and ask for confirmation in writing that your CGL policy will cover mold claims, including any damages you must pay, and your legal defense if you're sued over such claims, says Irene C. Warshauer, a policy holder's insurance attorney. A confirmation letter from your agent is unlikely to be legally binding on your insurance company, says Wielinski. So if the agent says you're covered, then try to get an endorsement to the policy affirming coverage, says Howard M. Tollin, an environmental insurance consultant.

If your agent hesitates or is unwilling to confirm coverage, you'll have a good idea that your company may fight a mold claim. You can then point out that courts have been unwilling to classify mold, fungi, or other organisms as pollutants, under standard pollution exclusions, so you expect to be covered, says Warshauer.

Tip #2: Notify Insurance Company Immediately About a Mold Claim

If an owner or occupant makes a mold claim, notify your insurance company immediately, as you would for other claims, says Warshauer. If you give notice later than your policy requires, your insurance company can deny coverage. Warshauer knows of several contractors that didn't promptly notify their insurance companies when they were sued for mold claims, and the insurance company denied coverage.

Don't wait until you have a claim to find out how and when you must notify the insurance company about it. Be prepared by checking your policy now or asking your agent to check for you, says Warshauer.

Tip #3: Try to Avoid Exclusion of Mold Coverage in Renewal or New Policy

When you renew your CGL policy or get a new policy, read the policy carefully to see if it includes an endorsement to exclude mold coverage. Although your insurance company is required to notify you if it changes the coverage or adds a new endorsement that excludes mold, you still need to watch out for the language used in the endorsement. We've already seen endorsement language that says that coverage for "damage arising out of, or contributed to by any fungus, mildew or mold bacteria" or "microbial matter" will be excluded from your CGL policy. If you see an endorsement with language like this, you'll want to try not to accept it.

You should meet with your agent well before your policy expires to discuss your renewal or new policy, says Wielinski. This way, you can find out if your insurance company intends to include an endorsement and what the language will be. If the language is unacceptable, ask your insurance agent if it can be removed. Your insurance company may let you remove it in exchange for a higher premium, adds Warshauer. This is called a "buy back?'

Tip #4: Save Old Policies to Show Mold Wasn't Excluded from Coverage

Save your old CGL policies so that you can show the policy and the pollution exclusion that were in place when the claimed mold damage was caused, says Warshauer. Many mold infestations take place over time and aren't discovered until a project is completed. But the standard pollution exclusion that most insurance companies are currently relying on to exclude mold damage doesn't apply to property damage or bodily injuries that occur after the work has been completed. So you can argue that your policy's pollution exclusion doesn't apply. You just have to be sure you have copies of your old policy to show the kind of coverage you had.

Tip #5: Consider Buying Separate Insurance Coverage for Mold

If your CGL insurance carrier won't allow you to buy back mold coverage as part of your policy, you may want to consider buying an environmental insurance policy that will cover you for a broad range of environmental exposures, including mold or microbial matter, says Tollin. Insurance companies tailor these policies to meet your specific needs, and you buy them as part of a more comprehensive environmental program, Tollin adds. Factor in your potential exposure to mold claims when deciding if you want to pay the cost of such a policy. Pricing for mold coverage will depend on the type of project, the type of work you do, and the steps you take to limit mold.

Further reading: Contractor's Business Strategist, Feb. 2002, P. 1, "Reduce Mold Risks by Prodding Subs to Prevent Water Intrusion."

Strategist Sources

Irene C. Warshauer, Esq.: Fried & Epstein, LLP, 1350 Broadway, Ste. 1400, New York, NY 10018; (212) 268-7111; iwarshauer@friedepstein.com.

Patrick J. Wielinski, Esq.: Haynes & Boone, LLP, 201 Main St., Ste. 2200, Fort Worth, TX 76102-3126; (817) 347-6623; wielinsp@haynesboone.com.

Howard M. Tollin, Esq.: Managing Director, Breitstone & Co. Ltd., 534 Willow Ave., Cedarhurst, NY 11516 (516) 569-2550; howard@breitstone.com.