Toxic Mold - Life Threat or Tempest in a Teapot? / The Global Hospitality Advisor / JMBM / March 2003

Hotel Online Special Report

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The Global Hospitality Advisor

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Toxic Mold
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Life Threat or Tempest in a Teapot?

March 2003

Toxic mold and other indoor air quality concerns have become a hot-button issue for thousands of people in hospitality, lending, insurance and real estate related service industries.

Mold contamination has been discovered in water-damaged hotels, resorts, and other structures across the nation and has raised the specter of health hazards and financial ruin.

While some say toxic mold is the “next asbestos” in terms of mass litigation and insurance risk, in most cases, a few common sense steps should keep everything manageable and enable property owners and managers to avoid major problems.

How to avoid problems

Property owners and managers can control most mold problems with a few simple measures:

1. Prevent and fix all water intrusion problems. Molds and other fungi cannot exist without water. Fixing a water intrusion problem should also solve most disclosure obligations or problems.

2. Fixing a water intrusion problem means eliminating the source of the water intrusion as well as the resulting damage. Simply replacing damaged drywall will not resolve the problem—the source of water intrusion. Remediation should be completed by professional experts (usually led by a Certified Industrial Hygienist) to avoid exacerbating the problem during the abatement process. Counsel should be retained to determine reporting disclosures, remedial obligations, and insurance coverage or indemnification issues.

3. When water intrusion is suspected, tender the claim immediately to all applicable insurers. While most insurance policies (including property policies) now contain mold exclusions, mold problems should still be tendered to carriers. Counsel should be retained to advance all possible arguments to avoid policy exclusions.

4. Tender claims to all insurers before testing. Policyholders should try to get their insurers to complete all necessary work at the carrier’s expense. However, if the insurer delays a coverage determination, the insured must mitigate damages. This may include initiating the testing (and sometimes abatement) process before the carrier makes a coverage determination. Experienced counsel can advocate for insurer participation even if coverage is disputed.

5. Prevent fraud claims and minimize litigation risk. In most cases, property damage resulting from toxic mold is more costly than handling related personal injury claims. Property owners and managers minimize the risks associated with litigation, and avoid fraud claims, by disclosing known and suspected conditions to all who could have come into contact with the mold. If a hotel or resort has known mold, but has not remediated the problem, a subtle, yet informative general disclosure policy should be considered. Early disclosure also triggers the applicable statute of limitations on potential claims.

Indoor air quality concerns have become, and will continue to be, environmental issues that materially affect the hotel and resort industry. With few notable exceptions, most mold issues can be handled on a reasonable basis with good detection, prompt handling of insurance and remediation claims, appropriate disclosures and sound legal advice guiding the process.

One State’s Odyssey

In January 2002, a new California law, The Toxic Mold Protection Act (SB 732) (California Health & Safety Code § 26100 et seq.), became effective and provides guidelines for mold remediation, public education materials, and disclosure requirements. Potentially, this law could lead to the creation of a thorough regulatory structure for mold and other indoor air problems. However, in the short term, the regulatory scheme cannot be developed because it is contingent on state funding—impossible this year in light of California’s $35 billion budget shortfall.

Ken Ehrlich is a partner in Jeffer, Mangels, Butler & Marmaro’s Land Use, Environmental, and Energy Department. In addition to indoor air issues, he has extensive experience advising both private and public sector clients regarding their rights, obligations, liabilities and opportunities relating to environmental and project development matters. His practice includes real estate and environmental litigation, environmental site assessment and remediation, administrative proceedings and regulatory compliance matters, as well as disclosure and reporting of environmental problems or liabilities. Mr. Ehrlich also has substantial experience in environmental aspects of real estate transactions. Contact Ken Ehrlich at kae@jmbm.com or 310.785.5395.

The Global Hospitality Group® is a registered trademark of Jeffer, Mangels, Butler & Marmaro LLP

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For more information:
Jeffer, Mangels, Butler & Marmaro LLP
web site: http://www.jmbm.com
Email Jim Butler at jbutler@jmbm.com
Or contact
Jim Butler at the Firm
Jeffer, Mangels, Butler & Marmaro LLP
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Los Angeles, CA 90067
Phone: 310-201-3526

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