It was not all that long ago that mold was seen as “the next asbestos”: an issue that could drive large amounts of litigation with substantial damages. As medical and scientific evidence began to pile up, and a few early high-profile cases resulted in significant judgments and large settlements, it seemed increasingly likely that that would be the case. But while mold is still a presence on the legal landscape, it has not been the blockbuster issue that some informed observers had predicted. Partly that has been the result of a coordinated effort by the EPA to develop standard guidelines for mold clean-up, and partly it has been the result of an insurance industry that has moved quickly to exclude or reduce coverage for mold claims in most policies.

But mold is still a significant concern for homeowners, and a potentially costly liability for contractors. It is well-established that mold is an allergen and can result in allergic reactions or respiratory complications, particularly in sensitive individuals. There is still a significant amount of controversy and debate about the more debilitating health effects of “toxic” molds. Accordingly, the health aspects of mold litigation remain an unpredictable and worrisome element for defendants in mold cases.

What does this mean for subcontractors? Virtually all responsible contractors have insurance, but typically any damage stemming from poor workmanship or construction defects is not covered. And because insurance companies do not cover the expense of remedying faulty work, legal exposure is very much an issue for contractors. As a result, mold and moisture concerns need to be taken seriously. What follows is an overview of how contractors can take steps to limit mold and water damage, to limit their legal liability and financial exposure, and to protect themselves against legal action resulting from mold and moisture damage.

The vast majority of contractors work hard to adhere to professional standards and practices at all times. But there are always exceptions, and, for even the most experienced and conscientious professionals, mistakes can happen. Because the expense of repairing a mold or moisture problem far exceeds the costs of doing it right the first time, it makes sense to invest the time and energy necessary to avoid moisture and mold problems ahead of time. It goes without saying that contractors should closely follow established industry best practices for watertight construction and appropriate drainage, and should move quickly to remedy any leaks or moisture problems before they become a bigger, more intractable problem. But not all such problems are immediately apparent. A much more common result is that it takes quite some time for moisture and mold issues to manifest themselves. While all states have some form of statutes of limitations or statutes of repose, those timelines vary, and legal liability related to mold is still an enormously important issue for construction professionals.

TAKE IT SERIOUSLY

Far too many mold and moisture complaints that end up in court could have been avoided and successfully resolved with all parties expending significantly less resources. One of the smartest things that any contractor can do is to simply be willing to identify and remedy a moisture problem before the dispute escalates. Putting aside issues of who is at fault, going in and fixing the issue early can save huge money downstream. The reality is that very few people actually want to get into the litigation process; they just want a dry, mold-free home. However, once a homeowner feels as though they have been forced to expend their own resources to find the problem, they tend to be much more motivated to pursue legal recourse.

HAVE THE RIGHT ATTITUDE

In the event of a complaint, adopting a confrontational attitude or defaulting to a dismissive or defensive posture is generally unwise. If there is a significant problem resulting from construction error or a code violation, it is almost always in the best interests of the contractor to find and fix that problem instead of going to court. The majority of the time, the contractor will be well-equipped to find and fix the source of a moisture problem in a cost-effective manner. Hiring a forensic architect, an indoor air quality specialist, or a mold professional to help you identify the source of the problem is another possibility. However, once you retain a defense-oriented professional whose sole purpose is to help you dispute the homeowner’s claims as opposed to coming up with a solution, you are most certainly headed into litigation.

DO THE MATH

The potential damages in a mold litigation case can add up quickly. Complainants’ attorneys are litigating to recover the cost of any specialists and subsequent contractors they have brought in to fix the problem. Even if those costs dramatically exceed the price for which the contractor/defendant could have performed the work, the contractor may still be liable for that estimate. In addition to the health effects of a serious mold problem, personal injury and emotional distress claims are often added on to the ledger (particularly in states where plaintiffs cannot recoup legal fees and in cases where homeowners have had significant expenses relating to mold remediation and other professional assistance), adding another unpredictable element to the potential financial implications of a mold claim. While contractors should vigorously defend themselves against frivolous or unfounded litigation, the down-side of being on the wrong end of a judgment in a mold case is significant, and should be weighed carefully.

GENERAL CONTRACTORS NEED TO WORK WITH SUBCONTRACTORS

General contractors in particular should be on alert for third-party or cross-complaints, and, most importantly, need to inform subcontractors in the event of a formal complaint. In some cases, general contractors have been found liable or have been forced to settle when it became clear during the course of a dispute that the mold/moisture problem was the result of a mistake made by a subcontractor. General contractors who do not put their subcontractors on notice early on in the process may not be permitted to do so once a case has advanced. This is particularly important with mold litigation, because it is not always immediately obvious what the source of moisture intrusion actually is, whether it be improper materials, poor drainage or faulty flashing. Involving subcontractors early is important, not just because of issues relating to who may be at fault, but also to expedite matters (limiting legal expenses from a drawn-out negotiation or court case) and to spread liability (settlements and attorney’s fees can be much less of a financial burden when there are multiple parties contributing to the costs).

PROTECT YOURSELF

One of the biggest windows of legal vulnerability for subcontractors are the mistakes caused by faulty or incomplete work. During construction, it makes sense to monitor contractors carefully and consistently, formally noting or documenting the best practices used by all parties as much as possible. Another way to protect yourself is to contractually limit your liability for error. Many contractors include language in their standard contract with subs to recoup attorney fees, costs and any liability in the event of negligence, faulty work or code violations. While the legal complexities here can be tricky, these types of clauses can sometimes make it pay to “admit” subcontractor error; even though a contractor is ultimately responsible for work and is tacitly admitting that, legally, they did something wrong, they may subsequently be able to recover commensurate damages from the subcontractor that performed the work.

MOVE QUICKLY AND PRESERVE CONFIDENTIALITY

 Long, drawn-out legal disputes can be extraordinarily costly, extracting an outsized toll on all parties in a mold-related litigation. The sooner a dispute is resolved or a mutually agreeable settlement is reached, the more those expenses can be minimized. But there is another factor that makes speedy resolution and an expedited negotiation process even more appealing to contractors: confidentiality. The sooner a legal dispute is resolved, the sooner the aggrieved party can be required to sign a confidentiality provision forbidding them from sharing any of the details of their complaint and settlement. Particularly for contractors who work on a large scale, avoiding a bigger class action and minimizing the chances that dozens—or even hundreds—of other homes in a subdivision might also find fault and file suit can be invaluable. W&C 

MINIMIZE MOLD LITIGATION

What contractors can do to minimize their exposure to mold related litigation:

Before and during construction:

Adhere to established best practices to keep homes watertight;

In the event of a mold/moisture problem or complaint, take it seriously; do not avoid or dismiss the claim—take steps to minimize it;

Move quickly, diagnose the problem promptly and be willing to fix the problem in an expeditious manner;

Understand homeowner/occupant psychology and priorities;

Resolve outstanding legal issues in a timely and efficient manner; and

Preserve confidentiality.