Mold – Simpler than you think – It’s about the Money!

By Mark Tschetter, Senior Managing Partner, Tschetter Hamrick Sulzer 

Original Article:

Mold situations arise on a regular basis. Because we have handled a large number of mold situations recently, we thought it was time to revisit the issue. What if anything has changed since we last discussed this issue in October of 2010?

After extensive research and review of the latest court decisions, not much has changed. If anything, time has only reinforced that mold is not as much a legal issue but rather a business decision, or certainly not as much of a legal issue as most folks think. When a tenant complains, and there is some visible black mold accompanied by a dreaded black mold test, managers often get sidetracked from the real issue. Because mold cases are very defensible, mold situations should always be resolved by risk and financial analysis. When it comes to mold, the question always is what solution involves the least financial expenditure resulting in a permanent resolution?

Despite the hopes and dreams of the trial lawyers everywhere, mold is not gold. Even though there were some high profile cases in the late 90s and early 2000s with some ridiculous (many say unsupportable verdicts), mold certainly has not been the next asbestos. Major mold verdicts are few and far in between, and have all but come to a halt. Mold litigation has failed primarily over causation. Tenants simply cannot prove either general or specific causation. To prove general causation, a tenant needs to prove that mold at certain levels causes specific health issues. To prove specific causation, a tenant needs to prove the specific mold alleged to be in their apartment unit caused the specific health issues that the tenant is experiencing.

The American College of Occupational and Environmental Medicine succinctly summarized the issue over a decade ago. “The present alarm over human exposure to molds in the indoor environment derives from a belief that inhalation exposures to mycotoxins cause numerous and varied, but generally nonspecific, symptoms. Current scientific evidence does not support the proposition that human health has been adversely affected by inhaled mycotoxins in the home, school, or office environment.”

In 2003, the Center for Disease Control and Prevention of the United States Department of Health and Human Services, requested the Institute of Medicine (IOM) to convene a committee of experts and conduct a comprehensive review of scientific literature regarding the relationship between damp or moldy indoor environments and the manifestation of adverse health effects, particularly respiratory and allergic symptoms. IOM found that there was not sufficient evidence of a causal relationship between the presence of mold or other agents in damp indoor environments, and such health outcomes as asthma development, skin symptoms, gastrointestinal tract problems, fatigue, cancer, mucous membrane irritation syndrome, chronic obstructive pulmonary disease, rheumatologic and other immune diseases, and inhalation fevers.

Medical and scientific research simply does not support the outrageous legal demands by tenants. Medical and scientific mold research also doesn’t support the expert witnesses who try to support tenant mold claims through expert testimony. Many, if not most courts, now bar expert testimony in support of mold claims because the experts cannot establish through any acceptable methodology that a tenant was injured due to mold contained within the tenant’s apartment.

The fact that mold is not the deadly agent it is made out to be makes perfect and logical sense. After all, mold is everywhere. Mold makes up twenty- five percent of the earth’s biomass. This explains why almost everyone has had some form of mold growing in his or her residence at one time. Given how much mold naturally occurs in the environment, if mold were extremely toxic, serious mold related illnesses would be an everyday occurrence.

Even though mold concerns are not supported by scientific evidence, the mass hysteria over mold is all too real. With Google reporting over half a million hits for “toxic mold”, it is not surprising many tenants believe that even a small amount of mold has immediate and serious health effects. Tenants often think mold is a winning lottery ticket, or a get out of a lease for free card.

This is where risk and financial analysis comes into play. If it is a break lease scenario (tenant wants out of their lease because of mold or at least allegedly over the mold), we normally would advise our clients in today’s environment to grant this request, subject to several caveats. First, the market is favorable, thus the likelihood of replacing any tenant almost immediately is good. Obviously, in a tough market allowing somebody to break over mold would be a tougher decision. Second, allowing the tenant out doesn’t also mean (in most instances) writing a check. Third, the tenant should sign a release. If the tenant wants out, this is your leverage. If you allow the tenant out without making them sign a release, the tenant might come at you again with the same mold claim, costing you more time and money. If you’re going to let the tenant break their lease, it should and has to be over.

If it is a demanding damage scenario (tenant wants money or big money because of mold in their unit), the risk and financial analysis is more involved. If the financial demand is small, for pure economic reasons, you should strongly consider just paying it. Unfortunately, payment of settlements is a cost of doing business. Payment of small settlements, even when not justified, usually will leave the community financially far ahead. For example, settling for $500 and getting a release, is always preferable to racking up several thousand dollars in attorneys’ fees you probably will never be able to collect.

In dealing with higher dollar mold demands, you should base your risk analysis on a number of factors. If you have mold insurance, you should always turn over high dollar mold demands to your insurance carrier.   One of the biggest downsides of mold (like many other claims) is the cost of defense. If a tenant is determined to pursue a mold claim, even though you are likely to prevail in court, you will spend a lot of money defending the claim. If you have insurance, the insurance company must defend you. If an insurance company defends you, you normally don’t have to pay attorneys’ fees and therefore one of the major risks of a mold claim (cost of defense) is minimized. Obviously, if you can settle the claim for less than the deductible, you should consider it.

Because most owners and managers either don’t have mold insurance or the deductible is significantly higher than what the claim can be settled for, owners and managers end up having to settle mold claims. If you have to resolve or settle a mold claim, you should consider the following factors in your risk and economic analysis.

Was there a water source? Almost all molds are caused by water intrusion events, or leaks either from inside a unit or outside of a unit. Except for tenant-caused water intrusions, most water intrusions are maintenance related, and therefore in most case your responsibility. Even if the tenant caused the water intrusion, you are still responsible for remedying mold in most cases. Regardless whether you’re responsible for causing the problem or remedying mold, tenants will always look to you. If there is no, little, or ongoing water source, you have much more leverage to resolve a mold demand.

How good on your lease documents? If your lease documents require tenants to immediately report any mold growth and water intrusions, you are in a stronger position. Strong mold language gives you the leverage to greatly reduce tenant damages claims, especially in the worst cases when tenants demand the most. “Yes, we know it is bad. However, it is bad because you failed to report the situation as required by your lease.”

How good are your vendors? Specifically, how much do they know about mold and mold tests? In providing legal services to the multifamily industry, we are constantly exposed to vendors for a variety of reasons. While many mold related vendors we have come across are good at remediating mold, few know much about mold, why it generally is not harmful, and most importantly cannot review a mold test, and offer opinions why mold tests are inherently flawed

Having a strong mold expert (vendor) can help resolve mold disputes. Mold reports scare tenants because mold reports use terms such as “black mold” and “toxic mold”, and refer to “adverse health consequences”. A knowledgeable mold vendor should be able to clarify a tenant’s mold report, and provide other information and insight that demonstrates the inherent limitations of a tenant’s mold report. Your vendor should be able to discuss the inherent limitations and flaws associated with mold testing.

One reason tenants believe that mold is a significant health hazard is because the Internet contains substantial information about mycotoxins produced from mold. This probably led to the expression “toxic mold”. But as the Center for Disease Control points out, “[t] he term “toxic mold” is not accurate. While certain molds are toxigenic, meaning they can produce toxins (specifically mycotoxins), the molds themselves are not toxic, or poisonous. Hazards presented by molds that may produce mycotoxins should be considered the same as other common molds that can grow in your house. There is always a little mold everywhere – in the air and on many surfaces.”

Your mold vendor should know about mycotoxins, including the following facts. Visible mold may not be producing mycotoxins. Whether the tenants tested for mycotoxins. Mold itself is not toxic. Even if the mold is producing mycotoxins, the level of mycotoxins is probably nowhere near a level considered to be a health hazard. For example, a tenant recently had a mold report with seven spores per cubic meter of stachybotrys. Stachybortrys is also known as “black mold”, and is widely viewed by tenants as the cause of many ailments. But according to OSHA the air does not even become potentially contaminated until there are 1,000 colonyforming units of stachybotrys in a cubic meter of air. Obviously, there is a huge difference between a seven spore count and 1,000 colony-forming units.

Armed with an expert review of the situation and the tenant’s mold test, you should be able to strongly respond to the tenant’s demands. Your vendor should provide you with the knowledge to refute the tenant’s claims, and to provide the reasons why you’re not going to write the tenant a check for several thousand dollars. After reading this article, you should discuss your vendor’s specific mold experience and knowledge. Your vendor should know more about mold than your attorneys. We could be wrong, but most mold remediation vendors we have encountered do not have the qualifications discussed in this article. If your vendor can’t provide specific insight and guidance in responding to tenant mold claims and assist you in dealing with a mold remediation vendor, you should find a vendor that can assist with such claims.

Regardless of the facts and the low probability that the tenant would win in court over a mold claim, many tenants and attorneys will not go away without compensation. While the scientific literature indicates that the tenant should not recover for health-related damages, no result is automatic in court. You may also face claims for potential legal liability for property damages, rent abatement, and moving costs, among other items of damages. While you are likely to win cases involving insignificant amounts of mold, the cost of victory may greatly exceed the cost of a settlement with the resident.

In any potential lawsuit, defense costs and chances of losing in court should be immediately considered in settlement analysis. This is especially true with mold because it usually is just about the money (weighing the cost of what you can get rid of it for now versus what it will cost to get rid of a tenant lawsuit). The cost of defense will vary greatly based on the situation, and whether or not the tenant has hired an attorney. However, attorneys’ fees to defend even a simple mold case in county court could easily total five thousand dollars. Further, even if you win in court, you may not be awarded your attorneys’ fees, and if awarded you may not be able to collect them from the tenant. There is also the significant cost of lost staff time to participate in the lawsuit. Each potential mold lawsuit needs to be individually evaluated based on the facts. However, based on defense costs, like any other litigation, settlement may be advisable, and even desirable, especially if the resident is wiling to move on for a reasonable amount.