The media warns of an oncoming ‘wave' of toxic tort claims involving exposure to mould. Indoor air quality specialists advertise air testing programs, mould cleaning services and toxic analysis. Duct cleaners, vacuum cleaners and other related items are proliferating. Physicians, office managers and building contractors are besieged by claims that “something in the air” is making people suffer headaches, rashes, breathing problems and worse. Insurers are being asked for coverage, and claims professionals are asking what coverage issues are implicated under commercial general liability (CGL) policies.
As with all toxic torts, understanding the nature of the alleged pathogen is critical. Mould, a member of the fungi family, is ubiquitous. Many moulds reproduce by making spores that become airborne, exposing people through inhalation or dermal contact. Some forms of mould, such as stachybotrys or aspergillus, may produce mycotoxins that can become airborne. Moulds also give off odorous gases that can be inhaled. Exposure to these toxins and gases is alleged to be harmful to humans.
Allergy or infection is a common biological reaction to mould contamination. In highly sensitive individuals, extreme reactions such as Organic Dust Toxic Syndrome, hypersensitivity pneumonitus or even death may result. Although these severe health effects are generally associated with heavy occupational exposure or ingestion, the fear of extreme reactions coupled with the media's propensity for sensationalism and the omnipresent nature of mould has resulted in a deluge of mould-related claims. Builders, subcontractors, building managers, material suppliers and manufacturers will be tendering defence of such claims to their general liability carriers. How does the responsible carrier approach the coverage issues inherent in these claims?
Not surprisingly, the pollution exclusion is likely to be the most hotly-debated defence in the mould third-party coverage arena. The anticipated disputes regarding application of pollution exclusions to mould claims are the definition of ‘pollutant' and the language requiring the discharge, dispersal or release of the pollutant into or upon land, the atmosphere or water course.
The definition of ‘pollutant' is seemingly very broad, encompassing both ‘irritants' and ‘contaminants'. However, courts often read the pollution exclusion narrowly in the context of such naturally-existing contaminants as lead, carbon dioxide, carbon monoxide and faecal coliform bacteria, finding coverage for the insured under a ‘reasonable expectations' analysis. For instance, some courts have held that contaminants such as lead in paint and urea formaldehyde foam insulation (UFFI) are not ‘pollutants'. Atlantic Mutual Insurance Co. v. McFadden, 595 N.E.2d 762 (Mass. 1992)(lead); Grinnell Mutual Reinsurance Cos. v. Lowell Wasmuth, 432 N.W.2d 495 (Minn. App. 1988)(UFFI). At least one court has held that the pollution exclusion is inapplicable to airborne mould, fungi and yeast. Stillman v. Charter Oak Fire Insurance Co., No. 1949-CV-Highsmith (S.D. Fla. June 18, 1993), rev'd on other grounds, 88 F.3d 911 (11th Cir. 1996). These courts argue that the pollution exclusion, despite the broadness of its language, was designed to preclude coverage only for ‘industrial' or ‘environmental' pollution. Continental Casualty Co. v. Rapid-American Corp., 593 N.Y.S.2d 966 (Ct. App. 1993).
Some courts, however, have held that the definition of ‘pollutant' does encompass natural irritants and contaminants. The Wisconsin Supreme Court in Peace ex rel. Lerner v. Northwestern National Insurance Co., 596 N.W.2d 429 (Wis. 1999), found that flaking lead-based paint disburses and/or releases lead, a pollutant, thereby implicating the pollution exclusion. Other courts agree. Oates by Oates v. State, 597 N.Y.S.2d 550 (N.Y. Ct. Cl. 1993)(lead paint is a ‘pollutant'). Similarly, the District of Massachusetts held that carbon monoxide released from a Zamboni machine (an ice resurfacing machine) is a ‘pollutant'. Essex Insurance Co. v. Tri-Town Corp., 863 F. Supp. 38 (D. Mass. 1994). Thus, application of the pollution exclusion may differ based upon the relevant facts and the applicable state law.
Discharge and dispersal
Even if mould is a ‘pollutant', the pollution exclusion may still be held to be inapplicable. The ‘sudden and accidental' pollution exclusion and the ‘absolute' pollution exclusion drafted in the mid-1980s often bar coverage for discharges ‘into or upon land, the atmosphere or any water course or body of water'. The courts are split, however, as to whether indoor air is ‘the atmosphere'. Compare Town of Harrison v. Nat. Union Fire Insurance Co. of Pittsburgh, Pa., 653 N.Y.S.2d 75 (Ct. App. 1996)(questioning whether indoor space is ‘atmosphere'); Lumbermens Mutual Casualty Co. v. S-W Industries, Inc., 23 F.3d 970 (6th Cir. 1994), cert. denied 513 U.S. 869 (1994)(fumes confined to work area are not released into the atmosphere); and West American Insurance Co. v. Tufco Flooring East, Inc., 409 S.E.2d 692 (N.C. App. 1991), overruled on other grounds (pollution exclusion inapplicable to release of fumes into an indoor refrigeration unit), with Essex Insurance Co. v. Tri-Town Corp., 863 F. Supp. 38 (D. Mass. 1994)(absolute pollution exclusion bars coverage for injuries caused by discharge of carbon monoxide from malfunctioning ice resurfacing machine inside an ice skating rink); American States Insurance Co. v. Netherny, 79 F.3d 473 (5th Cir. 1996)(pollution exclusion applied to paint fumes in home); and Technical Coating Applicators, Inc. v. USF&G, 157 F.3d 843 (11th Cir. 1998)(pollution exclusion precluded coverage for injuries from roofing product vapours).
More recent ‘total' pollution exclusions have abandoned the reference to ‘land, atmosphere or water course' and, instead, preclude coverage for discharges ‘at or from any premises, site or location'. A number of courts, noting the change in language, have applied the exclusion as written. See West American Insurance Co. v. Band & Desenberg, 925 F. Supp. 758 (M.D. Fla. 1996), aff'd 138 F.3d 1428 (11th Cir. 1998); Madison Construction Co. v. Harleysville Mutual Co., 735 A.2d 100 (Pa. 1999); Lititz Mutual Insurance Co. v. Steely, 746 A.2d 607 (Pa. Super. 1999). A nearly equal number of courts have held fast to the concept that the historical purpose of the exclusion is to limit coverage for outdoor, environmental-type claims. See American States Insurance Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997); Stoney Run Co. v. Prudential-LMI Commercial Insurance Co., 47 F.3d 34 (2nd Cir. 1995); Meridian Mutual Insurance Co. v. Kellman, 197 F.3d 1178 (6th Cir. 1999).
Another issue is whether the pollutant has been ‘discharged, dispersed or released'. In Center for Creative Studies v. Aetna Life & Casualty Co., 871 F. Supp. 941 (E.D. Mich. 1994), the court held that a student's exposure to darkroom chemicals did not involve any ‘discharge' of a pollutant. Similarly, in Roofers' Joint Training Apprentice and Educational Committee of Western New York v. General Accident Insurance Co., 713 N.Y.S.2d 615 (4th Dept. 2000), the court held that fumes released during the normal roofing process that were confined to the area where the work was conducted did not constitute a ‘discharge, dispersal or release' of fumes. See also Meridan Mutual Insurance Co. v. Kellman, 197 F.3d 1178 (6th Cir. 1999)(movement of fumes from floor sealant not a ‘discharge, dispersal or release'); Vigilant Insurance Co. v. V.I. Technologies, Inc., 676 N.Y.S.2d 596 (N.Y.A.D. 1st Dept. 1998)(cooling refrigerant that contaminated blood plasma not a ‘release, discharge or dispersal').
Expected or intended injury'
The insuring agreement in a commercial general liability policy generally obligates the insurer to pay for bodily injury or property damage caused by an ‘occurrence', defined as an ‘accident, including continuous or repeated exposure to conditions'. The requirement that the occurrence be an ‘accident' may be determinative of whether the insured can obtain a defence under the policy. For instance, where a building manager is on notice that a heating, ventilation, air conditioning and refrigeration (HVAC) system is defective, but takes no action to correct the defect, the resulting mould claims may be precluded because the cause of the alleged damages may be deemed non-accidental. For the same reason, the alleged damages might be excluded by virtue of the requirement that damages be neither expected nor intended.
‘Property damage' is defined as ‘physical injury to tangible property . . . [or] the loss of use of tangible property that is not physically injured.' Whether the presence of mould constitutes ‘physical injury to tangible property' or whether the presence of mould causes a ‘loss of use' of property is an open issue. Courts have held that purely economic loss does not constitute ‘property damage' under CGL policies. See Aetna Casualty & Surety Co. v. First Security Bank of Bozeman, 662 F. Supp. 1126, 1130 (D. Mont. 1987)(lost wages and diminished earnings not ‘property damage'); McCollum v. Insurance Co. of North America, 644 P.2d 283 (Ariz. App. 1982)(loss of speculative profits from land investment not ‘property damage').
The ‘your product' exclusion bars coverage for “‘property damage' to ‘your product' arising out of it or any part of it.” The ‘your work' exclusion precludes coverage for “‘property damage' to ‘your work', arising out of it or any part of it and included in the ‘products-completed operations hazard.'” These exclusions may apply to claims against builders and contractors whose use of defective or inadequate products, such as an HVAC system or drywall, of improper installation or maintenance of those products, exposes a building to mould. However, these exclusions distinguish between damage to the insured's product or work, which is not covered, and damage to other property caused by the insured's product or work, which may be covered.
Building contractors generally have products-completed operations coverage, which protects against liability for bodily injury and property damage occurring away from premises owned or rented by the insured and arising out of ‘your work' or ‘your product'. Products still in the insured's physical possession or work that has not been completed or abandoned are excluded from such coverage. Whether mould claims are covered under this hazard may depend upon the applicable pollution exclusion.
The 1986 ISO pollution exclusion, barring discharges “at or from any premises” at which any insured is performing operations, has been viewed as inapplicable to most completed operations exposures. Ostrager & Newman, Handbook on Insurance Coverage Disputes, Section 10.02[a] (10th Ed. 2000); West American Insurance Co. v. Tufco Flooring East, 409 S.E.2d 692 (N.C. App. 1991). However, other pollution exclusions, including the absolute and total pollution exclusions, may apply to such claims. It would be impossible to cover in one article all of the conceivable coverage questions that may arise in connection with mould-related claims. Each case will involve unique facts, and may raise issues involving notice, number of occurrences and trigger of coverage. Given the novelty of mould-related claims and the unsettled state of the law, the only prediction that can be made is that the legal decisions regarding coverage for these claims will be conflicting and controversial for a long time to come.