Recall: Product liability group - March 2003
Do your buildings have toxic mould?
In brief: Senior Associate Miriam Morgan-Hobbs looks at the source of major property damage and personal injury litigation in the US and Canada - and whether a similar situation will develop in Australia.
- Who should be concerned?
- What is toxic mould?
- How does the mould occur?
- Nature of the claims
- Insurance issues
- Implications for Australia
Who should be concerned?
The US and Canadian cases demonstrate that the following persons or bodies should be aware of toxic mould and consider their potential exposure to litigation:
- Property developers
- Building owners and property managers
- Architects
- Vendors and real estate agents
- Engineers
- Government departments and instrumentalities
- Contractors and subcontractors
- Insurers
- Air conditioning designers
- Employers
What is toxic mould?
Moulds are microscopic organisms that can be found everywhere in our environment. Mould spores are continuously in the air and are spread by the wind, but can also move through air circulation systems in buildings. Generally these spores are harmless.
Exactly which of the innumerable species of mould are toxic and what are their health effects remains a difficult question. However it is known that some types of mould, which produce mycotoxins, can lead to health problems by breaking down the immune system.
The more common health problems alleged to have been cause by toxic mould are allergic-type reactions: runny nose, eye irritation, headaches, respiratory and asthma-type problems. It has also been alleged that certain moulds have produced the more serious conditions of chronic fatigue syndrome, lung haemorrhages, memory loss, and deafness.
Although the Centre for Disease Control and Prevention in the US has stated that the causal link between the presence of toxic mould and these more serious conditions has not been proven, this has not prevented major compensation awards in the courts.
However, it is because there is no scientific consensus on what are the effects of toxic mould exposure and how causation is established, that results in the likelihood that litigating toxic mould claims are likely to be an expensive business, given the lack of certainty in this area.
How does the mould occur?
Mould can occur when a leaky roof, faulty plumbing or sewer blockage allows moisture to seep into a house or other building, providing the perfect environment for mould to proliferate in wall cavities, carpets, wood floors and ceiling tiles.
Conditions most favourable to the development of mould are: moisture, heat (between 5o-40o C) and nutrients (building materials). Mould thrives on lack of ventilation and can therefore develop vigorously out of sight behind walls, above ceilings, etc.
Nature of the claims
Mould claims commonly involve some allegation of defective construction or maintenance against any party involved in those areas. Legal action may also be brought against employers for failing to provide a safe place of work, and building insurers for failing to ensure building repairs prevented the development of toxic mould.
US cases
The most noted case is that of Melinda Ballard who, in 2001, was awarded more than US$32 million by a Texan jury which found that her insurer had acted in an unfair, deceptive and fraudulent manner when evaluating a mould property damage claim. This award included US$5 million for mental anguish, US$12 million in punitive damages and US$8.9 million in legal fees.
In Florida, employees in a three-year-old courthouse complained of health issues. There had also been ongoing complaints about water leakage through windows and walls. When these complaints were investigated, mould growth and excessive humidity was discovered. The building contractor, the architect and the masonry subcontractor were sued, with the plaintiffs demanding that the building be demolished and replaced at a cost of US$26 million. Ultimately, there was a settlement of $17 million, which covered extensive renovations and also relocation costs.
One hundred workers at a courthouse in California, filed suit for exposure to toxic mould in the courthouse, which was alleged to have caused a variety of adverse health effects, including respiratory ailments, skin rashes, headaches, nausea, vertigo and memory loss. The plaintiffs are seeking damages against the various contractors who designed, planned and built the building, and also against the government authority for failing to properly maintain the building.
Insurance issues
Some insurers in the US are now excluding mould-related problems as a claimable category from their standard policies or, if included, increasing the cost of such cover. The US experience has been that an exclusion clause that removes coverage for loss caused by mould may or may not be effective, depending upon whether the mould is regarded as the cause of the damage, or rather, whether the mould can be regarded as the effect of some other cause such as a leaking water pipe.
Implications for Australia
Because of the number of cases in the US, and the substantial damages awards, there have been suggestions that toxic mould will be the 'new asbestos'. Due to the differences in the legal system in Australia and the US, and the differences between asbestos and toxic mould set out below, it is unlikely that toxic mould litigation in Australia will have the same impact as that caused by the asbestos litigation.
In Australia, a plaintiff is subject to the costs indemnity rule, meaning they are required to pay the defendant's costs if they are unsuccessful in their litigation. That rule does not apply in the US. Also, plaintiff lawyers in the US act on the basis that they will obtain a percentage of any damages award. That arrangement does not apply in Australia. These factors, plus the fact that punitive damages are less likely to be awarded in Australia, will tend to reduce both the size and number of claims likely to occur in Australia.
Also, in contrast to toxic mould, there is a well recognised link between asbestos and the development of significant disease. The plaintiff's injuries are therefore usually able to be traced to one product. The evidence regarding injury caused by mould is less clear. Also, there is not one particular type of mould that can be identified, nor does it arise under the same circumstances. Therefore, the number of plaintiffs who can trace their injuries to the same source is likely to be substantially fewer than is the case with asbestos.
Finally, exclusions for mould in insurance policies are likely to be more effective in limiting exposure. Due to the latent nature of asbestos injuries, such exclusions were not commonly included in insurance policies until years or decades after the damage was done and the potential liability established.
Despite these factors, it is likely that litigation in relation to toxic mould will occur in Australia, and those persons likely to be sued should become well-informed about their potential exposure to liability and seek advice on their insurance cover.
For further information, please contact:
- Peter O'DonahooPartner,
Melbourne
Ph: +61 3 9613 8742
Peter.ODonahoo@aar.com.au
