Legal Aspects of Water Intrusion and Mold Contamination

Introduction to Water Intrusion

The protection of the exterior and interior aspects of a building from unwanted water, moisture and mold is a function of the integrity of the “building envelope”. Water intrusion, which is a breach and compromise of the building’s envelope by water, is one of the greatest concerns of a building’s owner because of the potential health risk and destructive damages. It is one thing to mis-size the opening for a stairway from the potential to unleash serious, deadly contaminants (mold) into the owner’s living and breathing space.

To prevent water intrusion, proper and adequate materials must be specified, and the proper and specified installation procedures must be followed. Material specification and installation procedures depend on the type of construction and the climate conditions. There is a vast category of individuals, professionals, manufacturers, specifiers and installers who are potential parties when a building owner commences a lawsuit based upon water and/or mold breach into the building envelope.

Water Intrusion Litigation

A. POTENTIAL PARTIES:

Discovery and analysis of all parties involved in a water intrusion/mold contamination matter is critical as well as recognition of the varying types of claims.[1]

1. Architect.

The architect is usually the professional involved in selecting and specifying the differing types of roofs, roof membrane, gutters and down spouts, use of pre-formed wall and roof panels, choice of cladding and siding, sheathing, plywood sheathing grades, exterior surfaces such as wood shingles, siding, veneer, specifying the types of flashing, caulking, sealants and gaskets, specifying building insulation, and choice of roof coverings.

The architect is charged with a pre-assumed knowledge of the workings and interplay of all of these elements and how they fit into the protection of the building’s envelope.

One of an architect’s main lines of defense is reliance upon a manufacturer’s specification, that simply did not hold true. However, architects must establish that they reasonably relied upon a manufacturer’s specification for its use in the precise construction given the climate and locale differentials.

Another main defense for an architect is defective manufacture and improper installation. However, an architect must be careful to limit their exposure based upon the frequency and duration of their inspection obligation. An architect rarely insures the means and methods of construction and is rarely present for the nailing of each floorboard and the turning of each screw. However, if an architect knew or reasonably should have known that a defective product was or was about to be installed, or that a specific item had been improperly installed, or that the contractor was continuously deviating from specifications, the architect is under an affirmative duty to act.

2. Building product manufacturers and suppliers.

Many causes for water intrusion and the eventual production of mold is based upon defectively manufactured windows and exterior insulation finishing systems (“EIFS”).

In some situations, a leaking window is the source of water intrusion based upon defective seals and defective manufacture. Nevertheless, most window manufacturers will argue that the window was not properly installed and that the defective installation voided any warranty and caused the window to leak.

The exterior insulation finishing system (“EIFS”) is a multi-layered exterior wall system consisting of styrofoam insulation board glued to the exterior wooden substraight previously affixed during construction of a house, a base coat into which a mesh is impended, and a finished coat designed to look like stucco. The EIFS is not water proof and water cannot drain out of the system if water does penetrate the system. The EIFS is dependent upon sealants to protect a house to which the EIFS has been applied for water intrusion. EIFS litigation, otherwise known as “stucco litigation”, is voluminous and involves an interplay between the EIFS manufacturer and the installer.

3. General contractors and subcontractors.

Those involved in choosing and implementing the means and methods of construction are often the primary targets in water intrusion and mold formation cases. A building owner will allege improper installation of windows, failure to seal breaches in the exterior, improper application of a weather resistive barrier, improper installation of windows, failure to properly flash windows, improper excavation, etc.

The general contractor and subcontractor’s main defense is that they carefully and accurately followed the plans and specifications without deviation.

4. Inspectors.

On many occasions, a building owner will hire an inspector either separate or affiliated with a project architect or construction manager, to inspect and certify that the building envelope, as constructed, is adequate. An inspector’s main argument will be that the inspection was mainly visible and that they were not requested and/or permitted to deconstruct portions of the building.

Often, prior to a home or a building purchase, an individual will retain the services of an engineer to conduct a prospective purchase inspection. New York courts have held engineers negligent in failing to exercise their duty of care to interpret dangerous signals and telltale signs of wet basements. However, courts have held that exculpatory clause in an inspection contract limits an engineer’s liability to the cost of inspection.[2]

5. Professional consultants.

On many occasions, prior to construction, an owner, general contractor or architect will obtain the services of a site engineer, a soil engineer, and an excavation engineer. In many instances, it is the actual siting of a building in the path of large amounts of water drainage without the design of a proper barrier, that is the cause of water intrusion.

6. Insurance Company.

Claims that a homeowner’s carrier failed to timely remediate mold conditions has resulted in multi-million dollar verdicts throughout the United States. In some instances, building owners have commenced actions against insurance carriers for bad faith in failing to timely pay for direct physical loss or damage to a covered property.

7. Building management company.

In some situations involving multiple dwellings and units, management companies are often sued for failure to remedy known water infiltration and/or mold conditions. In these multiple dwelling fact scenarios, the management company failed to rectify the seepage from one unit to the other, failed to remedy the emergence of mold, and thus created a “sick” building where the mold and fungus spores were spread throughout the building’s heating and ventilation system. Recently, in New York, a confidential settlement was reached after nearly two months’ of trial in a case involving 495 New York apartment residents who claim they were injured by mold. The plaintiff sought approximately $9 Billion in damages from the two New York apartment building owners, claiming that mold and fungi contamination caused personal injury and property damage.

8. Prior owners.

In some instances, home and building owners have commenced suit against prior owners, alleging that a previous homeowner failed to disclose water damage. Suits against prior homeowners have traditionally been dismissed based upon principals of caveat emptor and the buyer’s use of a home inspector. However, New York has recently codified a statute requiring property condition disclosure in the sale of residential real property.

Absent active concealment or an affirmative misrepresentation by the seller, a purchaser has little or no recourse against a seller for defects later found to affect the property. See Glazer v. Lopreste, 717 N.Y.S.2d 256 (2d Dep’t 2000). However, on November 13, 2001, Governor Pataki signed into law the Property Condition Disclosure Act, 2001 N.Y. Laws 5339-A (Real Property Law Section 462, became effective on March 1, 2002)[3]. The Act requires sellers of residential real property (excluding condominiums and cooperatives) containing up to four dwelling units to provide a disclosure statement to prospective purchasers detailing all known defects relating to the property. Sellers must complete and deliver this disclosure statement prior to a purchaser’s acceptance of a contract of sale. The disclosure statement contains forty-eight questions to be answered by the seller which cover a variety of subjects. For example, the seller is asked to answer yes or no: “Is there any rot or water damage to the structure or structures?”, “Are there any known material defects in any of the following structural systems: footings, beams, girders, lintels, columns or partitions?”, “Are there any flooding, drainage or grading problems that resulted in standing water on any portion of the property?”, “Does the basement have seepage that results in standing water?”.

However, if a seller fails to provide a purchaser with a requisite disclosure statement, the purchaser is simply entitled to receive a $500.00 credit at closing. The statute does not create any further liability for a seller’s non-compliance. Thus the consequence of providing a disclosure statement could be far worse and most sellers are now buying off their obligation for $500.00. If a seller refuses to provide the disclosure statement, a purchaser may rescind the contract. Thus, there is a possibility that a purchaser may come forward even after the transfer of title and ask the court to rescind the sale because of the seller’s failure to provide a disclosure statement.

B. CAUSATION – PROOF OF ASSOCIATION BETWEEN STACHYBOTRYS AND A PARTICULAR HEALTH SYMPTOM:

Determination of the cause of the water intrusion or mold problem and specific proof of a particular and specific health symptom is one of the hottest litigated topics in the fields of water intrusion and mold problems. Determination of property damage which consists of rot and decay of wood based building materials such as sheathing, studs, support beams, windows and floor joists is more formulaic in seeking resolution. However, water intrusion which results in wide spread mold growth on building materials and in walls can be pervasive as mold spores migrate into the interiors of buildings, and circulate throughout the building in the building’s heating, ventilation and air conditioning system. This situation may create an entire “sick building” where dozens and sometimes hundreds of building occupiers exhibit the same health symptoms. Health problems range from flu-like symptoms to brain damage, and even death. More specifically, children and people with asthma, or individuals with compromised immune systems, are more prone to adverse health problems due to mold exposure.

In order to succeed, an injured person must establish a link between mold exposure and a particular disease. In this emerging field, it is hotly debated whether there is adequate scientific correlation between mold exposure and an illness. Recent public attention focused on the health effects particularly of Aspergillus and Stachybotrys has caused homeowners to leave their homes, the closing of numerous public buildings, and the filing of hundreds of lawsuits.

Aspergillus is a common indoor mold that can grow and reproduce indoors in dry buildings and can be found in house dust. This type of mold flourishes where there is water, high humidity and dampness and is found in wet buildings and basements, growing on wallpaper and porous building material. The appearance is usually white or yellow over a layer of dark brown to dark yellow green.[4]

Stachybotrys is another form of mold which is found in decaying organic matter in the outdoor environment. However, one species is known to grow and prosper indoors and is typically dark brown or black, slimy and wet in texture. Stachybotrys requires a certain condition in order to thrive, including moisture, nutrient, temperature and a significant period of time. The presence of standing water or a high level of humidity is necessary for Stachybotrys to germinate and grow.

The defense bar concludes that there is no scientific data conclusively connecting severe illness in non-predisposed individuals from exposure to these types of molds. The defense bar contends that the data suggests that symptoms can be transient and psychological and that other environmental factors may play an important part in the health complaints. It is recognized that science has not determined what amount and duration of exposure to mold can cause a serious health risk. Thus, this area of scientific determination is uncertain.

It is argued that simply because a mold is visible or smells, does not mean it is harmful. Allergic reactions are believed to be the most common exposure reactions to mold. The severity and type of allergic reaction appears to depend upon the type and amount of mold present as well as the sensitivity of the individual experiencing the problem. The Center for Disease Control and Prevention (“CDC”), in a March 9, 2000, bulletin stated “that there are very few case reports that toxic molds inside homes can cause unique or rare, health conditions such as pulmonary hemorrhage or memory loss. These case reports are rare, and a causal link between the presence of the toxic mold and these conditions has not been proven.” Nevertheless, Stachybotrys has been linked by the Center for Disease Control to ten cases of lung disorder in infants and a hundred other cases. In 1993, there were a number of cases of acute pulmonary hemorrhage in nearly thirty infants after homes were flooded. The CDC concluded that it did not know completely the specific cause of these deaths. However, they did conclude that significant exposure to Stachybotrys in addition to other molds, played a significant role in the development of the severe and fatal lung disease. However, the CDC has retracted its study.[5]

Another form of Stachybotrys has caused disease-like symptoms in Russia and Eastern Europe where agricultural and farm workers who handled moist wet hay experienced symptoms not unlike those that were affecting nearby animals. Thereafter, individuals who ate grain from the contaminated hay experienced symptoms.

Despite the lack of a proven causal link, the media hype and litigation continue. Mold litigation and the resulting verdicts are moving faster than scientific studies and publications. The only true remedy in a mold situation is that once a claim is filed, effective investigation must begin to conclude with confirmation or denial of the claimant’s exposure, level of exposure, and thereafter review by the independent, scientific or technical experts should be retained to examine the location as soon as possible. Other sources of mold exposure should also be investigated.

C. PRODUCT LIABILITY VS. CONSTRUCTION/INSTALLATION DEFECT

A claim sounding in product liability is afforded different protection than a claim based upon construction/installation defects in the State of New York. The liability of an architect or engineer may be based in contract or negligence. An owner who has a direct contract with an architect or engineer may seek damages in either contract or tort. If the owner files an action in negligence, the claim is called one for malpractice. An owner may sue an architect and an engineer for both malpractice and breach of contract. The distinction, while it appears to be only semantical in nature, is really quite important when it comes to an award of damages.

Economic loss (costs of repair of product itself and consequential damages) may not be recovered in an action predicated on a strict products liability theory.[6] The rationale for these holdings is that the terms of the parties contract should govern whether a purchaser may recover repair costs and consequential loss sustained because a product failed to function properly. It has been held that recovery for economic loss based on strict products liability may be permitted where the defect in the product created an inherently dangerous condition and caused either personal injury or property damage.[7] The border between contract and tort raises questions regarding what damages are recoverable where plaintiff claims that defendant performed its contractual obligations negligently because there can be no recovery for purely economic loss in tort. A simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated.[8]

In a situation, for example, a property owner purchases a building and the building begins to leak because of defects in the siding and/or windows, and mold begins to grow and damages walls/ceilings, requiring repair and replacement, resulting in extensive property damage, although no one becomes ill. In this situation, application of the economic loss rule prohibits recovery in tort where a product has damaged only itself and the only losses suffered are economic in nature. The distinction is simple: tort law compensates consumers for physical injury or damage, other than the damage to the product itself; contract law compensates consumers for disappointed economic expectations and for the benefit of the bargain. Accordingly, in situations where there is no causal connection linking mold growth and illness, recovery is limited by the economic loss rule to actual provable economic loss only.

D. CLASS ACTION POTENTIAL – IS MOLD CONTAMINATION THE ASBESTOS

OF THE NEW MILLENNIUM?

It is beyond dispute that insurance carriers have paid out approximately $21.6 Billion in asbestos claims. An analogy is being made between asbestos claims and the emergence of mold litigation. It has been opined that while mold cases concern individual plaintiffs, aspects of this type of litigation make it well suited for class action treatment. For example, where mold damage occurs in large apartment buildings, office buildings, schools, and hospitals, significant numbers of people are affected and class action litigation may be the proper way for compensation.

Some courts have allowed class action certification while others have not. Pursuant to New York law, representative parties may be certified as a class if (1) the class is so numerous that joinder of all members, whether otherwise required or permitted, is impracticable; (2) there are questions of law or fact common to the class which predominate over any questions affecting only individual members; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; (4) the representative parties will fairly and adequately protect the interests of the class; and (5) a class action is superior to other available methods for the fair and efficient adjudication of the controversy.[9] The New York statute providing for class action certification is liberally construed to accommodate claims that would not be economically litigable except by means of a class action. Importantly, to certify a lawsuit as a class action, the court must be satisfied that the questions of law or fact common to the class predominate over any question affecting only individual members, and that class action is superior to other available methods for fair and efficient adjudication of the controversy. Generally, the purpose of a class action is to conserve the resources of the courts and the parties by allowing the most economical resolution of the issue potentially affecting the members of the class. Thus, in New York, there is a potential for certification of a class for those individuals all harmed in one locale, ie: a large apartment building. However, defendants will argue that certain issues are individual, not common, questions of fact or law are not suitable for class adjudication and will involve questions of whether an item such as a roof leaked, whether mold grew as a result, and whether any of plaintiff’s symptoms were caused by medical problems other than mold contamination, or whether any claimed expenses were related to water intrusion and mold damage. In a recent lawsuit in New York, the plaintiff moved for certification on behalf of 495 residents who had allegedly suffered personal injury as a result of mold exposure. The court denied the motion but agreed to a joint trial of ten cases at the same time. Only time will tell whether this state will allow class certification in mold litigation.

E. LEGAL PITFALLS AND GUIDELINES:

Defense and prosecution of water intrusion and mold problems are encountered by numerous traps for the unweary, a sample of which are outlined below.

1. Insurance Coverage.

In most, if not all, instances each and every construction defendant is covered by insurance. Insurance coverage varies depending upon companies, state of origin, and the types of purchase covered. Many insurance companies will deny coverage based upon the following:

(i) late notice

(ii) mold exclusion clause

(iii) pollution exclusion clause

(iv) precipitating factor was not a covered event

(v) there was no direct physical loss

The usual homeowner’s policy or a commercial building owner’s policy covers physical loss caused by specifically named perils. Many policies exclude coverage for damages caused by mold or water intrusion. An insurance company may question the appropriate covered policy, be it when mold began to appear or when the mold began to grow.

2. Improper/Contaminated Preservation of Samples.

Most savvy plaintiff attorneys will conduct a “structure survey” where swab samples are collected by properly certified and licensed individuals, the locations of the samples will be documented and photographed, and the mold evidence will be properly preserved. Lack of specific proof of the type and presence of a specific type of mold may be fatal to a plaintiff’s case.

3. Ruling out Pre-existing Health Conditions:

A major factor in the defense of mold litigation will be the particular plaintiff’s pre-existing conditions as they usually affect the pulmonary system. Oft times, plaintiffs will be required to produce their complete medical history where evidence of pre-existing conditions can be analyzed.

4. Failure to Rule out Other Causes of Exposure:

It is extremely important to detail the exact locations of where a particular injured person spends a significant amount of time, usually within the past ten years. It is often discovered that a particular plaintiff’s symptoms while they exhibited themselves during a particular year, were in actuality caused by exposure years before. It is not unusual for mold exposure to occur, to a highly sensitive individual, in their home and place of work.

5. Statute of Limitations:

It is important to remember that an action against a professional architect or engineer is limited by the three year statute of limitations; breach of contract is limited to four years; fraud is limited to six years; and cross-claims for indemnification and contribution are limited to six years.

New York Statute Civil Practice Law and Rules Section 214-c limits certain actions to be commenced within three years of discovery. This provision provides a three year period within which an action may be commenced to recover damages for personal injury or injured property caused by the latent effects of exposure to any substance or combination of substances, in any form, upon or within the body, or upon or within property. The three year period is computed from the date of discovery of the injury by the plaintiff or from the date when, through the exercise of reasonable diligence, such injury should have been discovered by the plaintiff, whichever is earlier.

The New York courts have held that the Statute of Limitations on an apartment tenant’s negligence action against an upstairs tenant and owners’ association, arising from personal injuries she sustained due to exposure of mold that grew in her apartment after leaks developed as a result of plumbing work in the upstairs unit, began to run when the plaintiff discovered her injuries, even though another two years and three months allegedly had passed before her chronic condition was attributed to mold flourishing in her damp apartment. See Harley v. 135 E. 83rd Owners’ Corp., 238 A.D.2d 136, 655 N.Y.S.2d 507 (1st Dep’t 1997).

The New York Supreme Court recently held in Searle v. City of New Rochelle, 20002 W.L. 794967 (2d Dep’t 2002), that a plaintiff’s cause of action for damages resulting from exposure to toxic substances accrues when the plaintiff begins to suffer the manifestations and symptoms of their physical injury, ie: when the injury is apparent, not when the specific cause of the injury is identified. In the Searle case, the court determined that the plaintiffs were well aware of the presence of the mold and mildew from the time it began to form and that the plaintiffs began to suffer from injuries for which they sought recovery around the same time period, which was beyond the three year statute of limitations. See also Chavious v. Tritec Asset Management Inc., 284 A.D.2d 362, 726 N.Y.S.2d 676 (2d Dep’t 2001), wherein the court held that the injured plaintiffs acknowledged that they had been suffering from their symptoms for longer than the three year statute of limitations. The court held that the fact that their symptoms may have worsened did not extend the Statute of Limitations.

6. Failure to Recognize Potentially Responsible Parties.

As discussed previous in this article, it is essential that a complete outline of the construction picture be developed so that proper parties may be joined in the ensuing litigation.

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