Mold can happen for a number of reasons. Floods, hurricanes, heavy rains, burst pipes, and other water related issues can lead to mold spores forming incredibly quickly. What happens when the dreaded “m” word hits your building?
Does insurance cover the damage? What about any resulting lawsuits?
What is Mold?
Mold is a fungi that typically starts to grow in areas of water damage within a few hours. There are thousands of different types of mold, and while not all of them are dangerous, there are many whose spores can cause humans to have adverse reactions.
Mold needs an organic material to live on, and will often form in areas where it isn’t easily seen. It prefers dark, humid spaces like attics, basements, and crawl spaces, or even spaces between walls. Because of this, you may not catch the mold problem until it has already taken hold and cause damage to your commercial property.
Mold spores are what cause the irritants that can become an issue to inhabitants in the building. Spores travel quickly and easily, and can be carried through the air, air ducts, and even on clothing. They are nearly impossible to see with the naked eye, so you won’t know if you are carrying the spores until you have spread them to other areas of your building – and by that time, the damage is done.
Mold Exclusions in Insurance Policies
In the 1990’s, commercial property insurers began to exclude mold from their policies due to many lawsuits from their policy holders. Many of these policies do refer to mold as fungus (which mold technically is a form of), and the exclusion applies to damage or loss caused by the presence and growth of fungus or dry rot.
While this policy excludes fungus, there are a few exceptions to this rule. For example:
- Fungus or mold that forms from fire or lightning is covered under the policy… which doesn’t seem very likely.
- Specified cause of loss from fungus. Meaning you’ve specified that the fungus will form through wind, hail, sinkhole, etc.
- Limited Fungus Coverage (see below)
Limited Fungus Coverage
The Insurance Services Office policy does have a limited fungus coverage policy that covers loss, damage, and cleanup of fungus from a specified cause of loss. You must ensure that your policy specifies fungus caused by water damage – and remember, flood coverage is different! Always purchase a different policy for flood insurance.
Two things are always excluded from specific causes of loss by fungus. These include water damage and fire-extinguishing equipment. This means that if mold forms from a sprinkler system – it is not covered. However, the limited fungus coverage does protect from the following:
- Physical loss or damage caused by fungus. This means the coverage would cover the cost of removing ceiling tiles and replacing with new ones.
- Cost to tear out and replace walls, floors, or any other part of the building that is necessary to gain access to the fungus.
- Testing costs to see if the fungus is toxic.
Speak with your insurance agent and explicitly go over the terms and conditions that your policy covers regarding mold and fungus and most policies will vary.
Liability Insurance and Lawsuits Against Mold Related Incidents
When you deal with mold problems, there is always the chance that a tenant will file a lawsuit due to health issues or property damage. Should this happen, it is important to have liability insurance to cover any lawsuits that may result from mold problems.
Commercial landlords are under less strict laws regarding the necessary insurance required by law. Commercial tenants tend to negotiate with landlords, instead of immediately heading to court, however, liability insurance can protect from bodily injury and property damage.
There is also the option to purchase environmental insurance, which is a great discussion to have with an insurance broker.