Your New York Construction Insurance May Exclude Mold.

Posted by John Cofini on Tue, Oct 23, 2012 @ 01:45 PM

What This Means If/When You’re Hit With A $100K Claim

In the last 10 years, a new threat to contractors and their insurance companies has been on the rise:  toxic mold claims. The number of toxic mold damage claims has skyrocketed since 2002. The cost of those claims more than doubled from 2001 to 2003, with insurers paying out $1.3 billion in mold-related claims in 2001 and more than $3 billion in 2002. And the trend continues today.

This has led to an almost universal exclusion of mold-related claims in New York business insurance Commercial Property and General Liability policies. In 2003 the insurance industry adopted a universal mold exclusion and began including language in policies to implement the exclusion. And since 2003, virtually all property and liability policies have contained mold, microbial matter, or fungus exclusions.

If you suddenly found yourself named as a defendant in a mold lawsuit, would you be covered?

If you don’t know, you need to find out. Start by objectively assessing your potential liability exposure and the adequacy of your New York construction insurance coverage. Any effort and cost associated with such an assessment will pale in comparison to what you’ll face if you have to defend yourself in a mold suit. Before 2000, most mold claims settled for relatively nominal amounts of $5,000 or less. Today, mold claims by commercial developers and homeowners routinely exceed $100,000, and some are in the millions.

Here are some of the most common causes of legal action in toxic mold claims…

Property Damage: Plaintiff seeks to recover costs for remediation of water damage and mold, as well as any lost business as a result.

Bad Faith: Plaintiff takes action against an insurance company for failure to pay for remediation.

Construction Defect:  Plaintiff alleges failure to properly seal a home against water penetration, or for leaky pipes or air handling equipment.

Negligence: Plaintiff files suit against a building owner or maintenance company for failing to properly maintain equipment and premises so as to produce healthy indoor air quality.

Breach of Contract: This includes written and implied contract terms of usability for purchased or leased property or for maintenance services.

Product Liability: Actions are against manufacturers of products such as synthetic stucco or, in some states, the building as a whole can be considered a product.

Fraud:  Alleged failure by sellers or their real estate agents to disclose the presence of mold or conditions that could create it.

What steps can you take to prepare yourself?

  1. Hire a subject matter expert on liability insurance for contractors to review your New York business insurance coverage and advise of any dangerous gaps that leave you exposed.
  2. To fill any coverage gaps in your New York construction insurance, you can purchase separate Pollution Legal Liability or Contractors Pollution Liability (CPL) coverage. To avoid drawn out coverage stalemates between insurance companies, always purchase your GL and CPL coverages from the same insurer. And to fill any coverage gaps between your General Liability and Contractors Pollution Liability coverages, purchase these coverages through a customized package policy, which can also include Professional Liability coverage.
  3. Require your subcontractors to carry CPL coverage if any work could involve water. And keep in mind that the most widely sold CPL policies today restrict subcontracted work, so carefully evaluate the effect this has on coverage and your contractual obligations.
  4. It's likely that mold claims will eventually be excluded altogether by standard CGL policies, either due to court interpretations of the pollution exclusion or because of new mold exclusion endorsements. This means it will become even more necessary for contractors to consider PLL or CPL policies when buying their New York business insurance.

This risk continues to be an economically uncertain liability, and it’s one that could easily bankrupt your business. Make sure you’re protected with the right insurance. After all, doesn’t it make more sense to pay a fixed premium than gamble with potentially catastrophic costs in the future?

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Tags: construction insurance, contractors pollution liability, construction insurance coverage