Faulty House Inspection did not Cause Property Damage 11th Cir, Florida

Jody Nathan | Reinsurance Law Blog | April 19, 2017

In Auto-Owners Insurance Co. v. Ralph Gage Contracting Inc., the Kjellanders sued Gage after he inspected a house they wanted to buy and gave it a positive report.  The Kjellanders claimed the house had mold and a bad HVAC system, and they wouldn’t have bought it if they had known about the problems — which the inspector should have discovered.  But since the inspection did not cause the property damage, Gage’s insurance did not cover the claimed loss.

Under the terms of the Policy, Auto-Owners agreed to pay “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” In pertinent part, the Policy provided coverage for “property damage” only if it was “caused by an ‘occurrence.’” The Policy defines “property damage” this way:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” In a case like this one — where the term “accident” is undefined by the Policy — the Florida Supreme Court has said that “accident” means “not only ‘accidental events,’ but also damages or injuries that are neither expected nor intended from the viewpoint of the insured.”

The plain language of the Policy requires unambiguously a causal link between the alleged “property damage” and an “occurrence.” Here, the only asserted “occurrence” is Gage’s alleged negligent inspection. Thus, to show that their claim is within the Policy’s coverage, the Kjellanders must demonstrate that Gage’s negligent inspection caused “property damage” within the meaning of the Policy.

The property was damaged before the inspection, not because of the inspection.  Thus, there was no coverage for the loss. The case is not published.

What Does Mold Resistant Really Mean?

Duane Craig | Construction Informer | December 12, 2016

Mold resistant building products offer to reduce the long term risks builders and architects face, but it’s important to know how companies verify their products are truly mold resistant. Here’s the deep story.

It may come as a surprise to many but we live in a world that is infested with mold. Some sources put the number of species of mold, or fungi, at three hundred thousand or more. Most of these fungi spend their time doing useful things like breaking down complex substances into simpler compounds. For example the single-celled forms of fungi, called yeast, make bread, beer, and wine possible. Even most of the multi-celled, or hyphae molds, serve the planet by decomposing organic matter so it can be recycled and reused by other life forms on earth.

Outdoor Mold Dominates

The built environment definitely has its share of mold. But new research has found that most of the mold occurring inside is actually of the outdoor variety. In “The Diversity and Distribution of Fungi on Residential Surfaces” study, Rachel I. Adams and researchers “sampled fungi from three surface types likely to support growth and therefore possible contributors of fungi to indoor air: drains in kitchens and bathrooms, sills beneath condensation-prone windows, and skin of human inhabitants. ” They took the samples at a university housing complex that didn’t have any mold problems.

Taken together, results from these studies suggest that in healthy buildings without reported mold problems, indoor surfaces are not a dominant source for indoor fungi. In fact the reverse is true: surfaces appear to be primarily depositional environments that collect many of the same fungi common in outdoor and indoor air.

So, most indoor mold isn’t actively growing because it is outdoor mold that prefers outdoor conditions for multiplying. According to the Centers for Disease Control (CDC) construction areas are in the top eight places with high mold populations. Other places offering high mold counts include:

antique shops, greenhouses, saunas, farms, mills, flower shops, and summer homes.

Sampling For Presence Has Questionable Value

Most of the time even though mold is present in our buildings it isn’t actively growing to the extent we can see it with the unaided eye. Then too, mold growth is greatly affected by humidity and since many of our buildings are air conditioned, or use dehumidifiers, the opportunity for mold growth is diminished. The CDC doesn’t recommend sampling for mold because allergies are the diseases usually associated with mold and,

…the susceptibility of individuals can vary greatly either because of the amount or type of mold, sampling and culturing are not reliable in determining your health risk. If you are susceptible to mold and mold is seen or smelled, there is a potential health risk; therefore, no matter what type of mold is present, you should arrange for its removal.

Mold growing in petri dishes. (photo courtesy of John Martyny, Ph.D.)

Mold growing in petri dishes.(Photo Courtesy of EPA Web Site and John Martyny, Ph.D.)

One species of mold, Stachybotrys chartarum, in particular has been suspected of causing respiratory health problems in infants, and others, and is one of the test cultures mandated in the Environmental Protection Agency’s (EPA) “Test and Quality Assurance Plan” for testing mold-resistant building materials.

Companies that sell building products are increasingly having their products certified to be mold resistant, based upon tests. The tests usually involve introducing mold cultures to the product under controlled conditions with moisture levels higher than 85 percent, and then either looking for visible evidence of mold, or measuring how much mold grows using microbiological plating techniques. Different types of materials use different tests. Drywall typically is tested with one of two methods.

Building Products Testing Methods

One test is ASTM D3273, and that assesses the mold resistance of the drywall over a period of four weeks, with visual effects being rated weekly. Samples of the product are suspended in an environmental chamber over soil that has been inoculated with several species of fungi. At the end of four weeks the samples are looked at under magnification to confirm the suspicion that the visual observations were indeed of mold. This test method seeks to simulate real world conditions because it relies on indirect inoculation. According to a document put out by United States Gypsum company there are six limitations to this test method. They include:

  • Results not being indicative of field conditions and highly variable field conditions.
  • Only tests for three varieties of fungi.
  • Originally designed to test for mold resistance of paints and similar coatings.
  • Difficulty in getting reproducible results from lab to lab.

Another test method is ASTM D6329. In this case each sample is corralled in its very own petri dish while the humidity can be varied to accommodate the species of mold that were placed on the sample. The rating attempts to become more exacting by not relying on visual criteria and instead quantifying the amount of fungal growth using plating techniques. By my reading the advantages here are less chance of cross contamination and greater accuracy. But it seems that no mold testing method is really limitation free. According to ASTM, in this case, static chambers limit the quantity of a material that can be tested and results may not be indicative of what would happen in the field.

Moving Toward a Standard

The EPA ran a project aimed at making the testing protocols for drywall, and other building materials, more standardized and accurate. As it explained in its December 2008 brief:

Removal of growth substrates from building materials, or the incorporation of antimicrobial agents in the manufacturing of building products may prevent mold growth and the spread of biological contaminants. There are several building products readily available that can reduce mold growth in the indoor environment. However, there is no nationally accepted testing and verification program to guide consumers and building professionals on how to select or specify the best building products for their needs. To help fill this need, EPA started an ESTE project to verify the performance of microbial resistant building products. EPA has contracted with RTI International to develop the protocol and perform the testing needed to verify these products.

When the EPA references this testing protocol in its Test and Quality Assurance Plan it cites it as ASTM D6329-98(2008). In this plan the test is designed to run for 12 weeks, four times longer than ASTM D3273. The quantitative assessment here is a count of the number of colony-forming units (CFUs) taken from samples collected during weeks 1, 6 and 12, and compared against the baseline level of CFUs at the start of the test.So, given the strengths and limitations of each test method it would seem only products that came through one or the other test with absolutely no fungal growth would be mold resistant in the true sense of the term.

Using Multiple Standards

According to Kendall Clark, research & development program manager for Georgia-Pacific Gypsum, the company had products that met the no visible growth criteria using the ASTM D3273 test protocol. The company subjected products to the ASTM D6329 test for 12 weeks and came up with “no growth” there too.

Mold growth can occur on regular drywall within two weeks. Our DensArmor Plus and DensShield products are manufactured to show no mold growth in the ASTM D3273 test (28 days), said Clark. In an effort to assess the robustness of our product, we ran the 12 week test and showed no growth for that period. This type of performance makes our products extremely well suited for applications such as installation of the wall panels before the building is fully enclosed or “dried in”. This sequencing allows the building project to proceed on an accelerated pace.

I was curious just why the company had gone ahead with the ASTM D6329 test. Here’s what Clark had to say.

The test was conducted to demonstrate the durability and robustness that is designed into our products that we do not feel is fully captured and reflected by the industry standard ASTM D3273 test. The product selected for the test was standard production product. No reformulation was involved in the test product. The decision to conduct the testing was based on our belief that while the current industry standard test (ASTM D3273) is a reasonable measure of mold resistance for a relatively short period of time (28 days); it does not provide a good reflection of long-term mold resistance and durability that would provide a higher level of confidence relative to the product’s ability to withstand real world conditions seen on construction sites.

What all of this means to architects, contractors and building owners depends upon a lot of factors that would be unique to each one, but Clark suggested a common benefit exists.

The extended testing period is meant to demonstrate the durability and robustness of the product design. Each of the groups… will likely experience an unexpected moisture event during the product’s life that will be atypical with respect to magnitude and/or duration. The extended test indicates that our product can provide resistance to mold growth for a period that is three times longer than the industry standard test; thereby providing greater confidence for the architect, builder or owner that the product will not need to be replaced due to mold growth.

So, when evaluating products, it seems the verifications a manufacturer uses to support its claims of mold resistance are key in assessing their expected performance. When all things are considered, including the price of the product, bothering with “somewhat” resistive, or “marginally” resistive products will add just some, or just marginal additional value to buildings.

Despite “As Is” Clause, Homebuyer Wins Misrepresentation Appeal Against Bank

Joe Forward | State Bar of Wisconsin | December 28, 2015

A bank is liable for a misrepresentation that induced a homebuyer to buy a foreclosure home with undisclosed water and mold damage, even though the sale contract said the buyer was purchasing the home “as is,” a state appeals court has ruled.

In 2012, Bank of America foreclosed on a home in Menomonee Falls and hired a real estate agent to resell it. The real estate agent learned that the property had severe water damage. The agent recommended the bank remediate to prevent mold.

The bank agreed and the agent solicited bids. However, the clean-up was not immediately completed, and mold remediation became necessary.

In May 2012, the agent told the bank that the mold remediation appeared complete. However, he subsequently told the bank that mold could still be seen in various rooms.

The bank then approved repair work for new drywall, new flooring and carpeting, and new painting. Upon completion, the agent told the bank the job was unsatisfactory.

But the bank did not take further action. It listed the house for sale at $144,900, and it generated immediate interest from potential buyers.

Catherine Fricano and her fiancé were among a dozen people who attended a house showing. Their real estate agent identified some discoloration in the basement that appeared to be mold, but did not see other signs of mold in other parts of the house.

The fiancée’s brother, who had experience buying and renovating foreclosed homes, came with the couple for a second look. He said he would offer to buy it if they didn’t.

The next day, Fricano offered to purchase the home for about $171,000. She increased the offer to 175,000 through a counteroffer. The bank accepted her offer. Fricano could back out if a home inspection revealed conditions that she deemed unacceptable.

The bank then asked her to sign a purchase addendum. It said that Fricano agreed to purchase the property in “as is” condition, which could include any “hidden defects or environmental conditions affecting the property, whether known or unknown, whether such defects or conditions were discoverable through inspection or not.”

The agreement also allowed the bank to negate and disclaim any representations, warranties, covenants, or guarantees with respect to water damage and mold and specifically said the bank did not guarantee the home was free of mold.

However, the addendum also said the bank had “little or no direct knowledge about the condition of the property.” Fricano’s agent said this language was common with foreclosures. Fricano signed the agreement and then had the home inspected.

The home inspector noted evidence of prior water leakage and substantial mold growth, including mold that was not removed in the basement. She pursued his recommendation to consult with an environmental professional, who surveyed the house and prepared a proposal for proper mold mitigation.

However, Fricano did not pursue the service. She closed on the property believing the mold growth was limited to the basement and not the livable areas of the home. Shortly after closing, Fricano learned that mold was “saturated” throughout the house.

As a result, the whole house was stripped to its studs and reconstructed after proper mold and water damage remediation. Fricano then filed a lawsuit against the bank under Wis. Stat. section 100.18(1), which covers fraudulent representations.

She pointed to the bank’s statement, in the addendum, that it had “little or no direct knowledge regarding the condition of the property.” The bank, she said, had lots of information that the whole house had been flooded and incurred significant damage.

At trial, the trial judge informed the jury that an “as is” clause does not relieve a seller from disclosing material adverse facts about a property, though it was Fricano’s burden to prove the bank had knowledge of the property’s condition and did not disclose it.

The jury awarded Fricano $50,000 in compensatory damages, ruling that the bank violated section 100.18(1). The court denied the bank’s motion for judgment notwithstanding the verdict and entered judgment for Fricano. The bank appealed.

The bank noted the “as is” clause and said a violation of section 100.18(1) requires a misrepresentation to a member of “the public,” but Fricano’s negotiating position with the bank, through offers and counteroffers, created a “particular relationship.”

But in Fricano v. Bank of America, 2015AP20 (Dec. 23, 2015), a three-judge panel for the District II Court of Appeals affirmed, upholding the jury verdict for Fricano.

Jury Verdict Affirmed

The panel noted that motions to change a jury’s verdict must be denied unless there is “no credible evidence to sustain a finding in favor of such party.” And trial courts that preside over trials are given substantial deference to make credibility determinations.

The panel concluded that an “as is” provision in a sales contract between buyer and seller does not relieve the seller from liability for material misrepresentations.

“We see no support for the Bank’s argument that the ‘as is’ provision, disclaimers, and waivers in the parties’ contract relieve it from Wis. Stat. § 100.18 (1) liability for its deceptive statement in the contract that it had little to no knowledge of the condition of the property,” wrote Chief Appeals Court Judge Lisa Neubauer.

The panel also ruled that Fricano was a member of the “public” when the bank made its misrepresentation, because the sides had not yet reached a contractual agreement.

“There was no contract between the parties when the Bank misrepresented its knowledge of the condition of the property,” Chief Judge Neubauer wrote.

“[W]e fail to understand how the fact that parties are in negotiations over terms takes the potential purchaser out of the realm of ‘the public.’”

The panel rejected the bank’s claim that Fricano lacked evidence to prove she was induced to purchase the home as a result of any misrepresentation by the bank.

Fricano had testified that she believed the bank could not tell her anything about the property because it was a foreclosure and the bank had not been living there.

“[T]here is more than sufficient credible evidence to believe that had the Bank not misrepresented its knowledge of the condition of the property, Fricano would not have gone forward,” wrote Neubauer, also rejecting the bank’s claim that Fricano had notice of possible defects through a home inspector and should have inquired further.

“The reasonableness of a person’s reliance on a misrepresentation is not a separate element of a Wis. Stat. § 100.18 (1) claim, but relevant only to the consideration of the third element: whether the representation materially induced the plaintiff’s loss.”

The panel also noted evidence of what the bank knew and how it acted: it knew there was severe water and mold damage and failed to properly remediate the problem.

“[T]he jury could have concluded that all of these actions were designed to make the property marketable for sale and are evidence that the Bank’s misrepresentation was intended to induce Fricano to purchase the property,” Judge Neubauer wrote.


Utah Court: Seepage Over A Months-Long Period Is Excluded As Moral Hazard

October 14, 2015

Two weeks ago in Wheeler v. Allstate Ins. Co., 2015 WL 5714392, 2015 U.S. Dist. LEXIS 131736 (C.D.Utah, Sep. 29, 2015), a Utah court barred coverage for a mold loss caused when a vacant log cabin suffered a long-term water leak.  The policy excluded “seepage or leakage over a period of weeks, months or years,” and the judge held that that language embodied the concept that such a loss was a moral hazard – a preventable risk best assumed by the policyholder rather than by his or her homeowners insurer.

shutterstock_112937398The insured owned a seasonal cabin in Duck Creek that was not used during the winter months, and his practice was to leave both the water and the heat turned on.  At some point during the early months of 2011, a valve under the sink in the basement wet bar failed.  The consequences were discovered when the wife of one of his employees visited the building in April, 2011.  According to the insurance adjuster’s report, there was “extensive mold damage throughout the house” and “[m]old upstairs on every wall and ceiling in [the] home.”  Water district records showed that the policyholder’s water bill had jumped from $15 in January to $93.75 in March, but this went unnoticed because the bills were “automatically paid” by his office.

The cabin was covered by a Deluxe Homeowners Policy, and the insured made claim for the loss.  Exclusion 3 of the contract of insurance barred coverage for loss caused by “[s]eepage, meaning continued or repeated seepage or leakage over a period of weeks, months or years, of water . . . from a plumbing . . . system or . . . from, within, or around any plumbing fixtures,” while Exclusion 7 barred coverage for loss from wear and tear, deterioration, latent defect and rust or corrosion.  Exclusion 7 had an exception, however, that recited that if those perils

cause the sudden an accidental escape of water or steam from a plumbing . . . system . . . within your dwelling, we cover the direct physical damage caused by the water or steam.

The carrier inspected the dwelling and issued a denial letter citing the seepage exclusion only seven days after being notified of the claim.  The insured then brought suit, asserting: (1) that Exclusion 7’s exception was ambiguous; and (2) that his loss was covered under Exclusion 7 as a “sudden and accidental escape of water.”

Two weeks ago Magistrate Judge Brooke Wells rejected those arguments and granted the insurer’s motion for summary judgment.  The court found that the provisions of the contract of insurance were “clear and not ambiguous” in nature.  The Judge also rejected the attempt invoke Exclusion 7’s exception because the policy barred coverage for loss from long-term seepage.  As the decision explained, “the plain reading of Section 7 demonstrates that the exception is triggered only if no other exclusion applies.”  The Judge agreed with Schwartzenfeld v. National Mut. Fire Ins. Co., 2011 Mich. App. LEXIS 752, 2011 WL 1565466 (Mich.App. 2011), quoting that case for the following proposition:

Further, “[c]overage” under a policy is lost if any exclusion in the policy applies to the insured particular claims.  Exclusions serve to limit the scope of coverage provided and must be read with the policy as a whole and independently of every other exclusion.”  Therefore, “[b]ecause the loss is excluded, the exceptions do not apply.”

Finally, the court was unpersuaded by the policyholder’s assertion that Exclusion 3 did not apply because he was only seeking to recover for non-mold damage caused during the first three days after the leak.  In her words:

Because the damage to Plaintiff’s cabin was so extensive and was not found for at least 60-70 days, it is difficult if not impossible for the Court determine exactly what amount of damage would have occurred in the first few hours and days.

Judge Wells’ decision also contains a useful discussion of moral hazard.  On direct, the carrier’s expert had explained that this defense deals:

with “attitude rather than intention.  It deals with loss or damage that occurs that and/or is increased because of less-than-conscientious attitude on the part of the homeowner towards the proper maintenance and care of the property insured.”  Therefore “continuous or repeated seepage or leakage of water from a plumbing system is considered a moral hazard because the damage and/or the extent of loss can be limited or prevented entirely through proper maintenance and attentive care of the property insured.”

As the opinion explained:

To finish reading this article

3 Mistakes that Mold Remediation Contractors Make

PR Newsroom | November 20, 2014

When dealing with mold remediation there are certain steps that need to be taken in order to prevent the spreading of mold to other areas of the home or not removing it fully. All of this can occur if the mold remediation contractor makes a mistake.

Mold remediation is a task undertaken by people who are looking to improve their health at home. There are many different companies that provided this as an “additional” service that they offer in conjunction with their other services.  In many cases these companies do not have the proper certifications nor training to handle mold remediation in a proper and thorough manner. There are three mistakes that these untrained companies make and the public has a right to know what they are doing wrong. A frequently asked mold removal question is what steps can an uncertified [companies] do to make the situation worse. One of the first missteps that these companies do, is that they do not put up containment.

The containment part of the mold remediation process is absolutely critical in the success of removing the mold from the property. If there is no containment the mold particles that are being removed can release spores that will more than likely spread throughout the property. Also, if there is containment setup it needs to be done properly, otherwise the mold particles can still spread throughout the property. Another critical factor that many of these company make is not solving the problem of the cause of the mold.

Many types of mold are caused by dampness, moisture collecting or a host of other factors. Without these problems being solved the mold will more likely return to the trouble spot area. When a contractor comes out to the site they should ask the property owner, what is causing the problem, is it a broken, pipe, a leaky, or other areas of the property. Without this information the contractor is not effectively solving the problem because if the moisture issue is not solved that area of the property will more likely have mold return to that same area. Another critical piece that is needed for mold remediation is the equipment.

Mold remediation is controlled demolition in the area of concern. This would require the removal of flooring materials, walls, and insulation to remediate the mold. Many times companies just remove the visible surface mold in the area of concern. Generally in order to remove the mold fully from the area the mold needs to be removed completed removed two feet around the area of concern.

All of this factors in when dealing with mold remediation contractors failing to follow the proper precautions. An IICRC mold remediation company is trained in resolving these problems before they start. Remember when looking at contractors you can look at their customer testimonials and see how well receptive they are. Remember these three mistakes when choosing your mold remediation contractor.

via 3 Mistakes that Mold Remediation Contractors Make | SYS-CON MEDIA.