Contract language best protection against mold litigation

While problems with mold are millions of years old, parties need to find 21st-century solutions to this age-old problem.
August 11, 2010

The current wave of claims and litigation involving mold creates the impression that this is a new problem. Actually, the problem is literally as old as the hills with some scientists claiming it has been evolving for more than 550 million years. It is recorded in the Old Testament of the Bible that if mold grows back in a house after it has been removed, then it is a "malignant leprosy" and the house must be torn down.

In Leviticus 14:33-45, God tells Moses and Aaron how to rid a house of mold. First, empty the house and ask a priest to inspect it. If the priest finds greenish or reddish spots on the wall deeper than the surface, then the house is locked for seven days. If the disease spreads during the seven days, then the tainted materials must be removed and thrown into an unclean place outside the city. The walls shall be scraped. Stones and plaster are totally replaced. If this fails, the house is demolished.

While problems with mold are millions of years old, parties need to find 21st-century solutions to this age-old problem. Contract clauses and insurance policies developed in the 20th century will not suffice. The best protection for this ancient problem will come in the form of new contract language and new insurance coverage. This article will address the issue of contract clauses as they relate to mold, following our discussion on obtaining insurance coverage in the June 2003 issue.

Commonsense suggests that contract clauses dealing with hazardous materials may be an appropriate starting place to address contractual issues related to mold. But given the fact that mold is a natural entity, it may be wishful thinking to assume it falls within the definition of "hazardous materials."

Contractual allocation of risk

Both the AIA and AGC families of contract documents provide some protection for contractors when it comes to hazardous material. The hazardous material framework found in these forms may be a starting point to address the mold issue, but the clauses should be modified to address mold risks head-on. First and foremost, the definition of hazardous materials needs to be broadened to include "mold, mildew, fungi, or other similar microbial conditions."

On a construction project, risk should be allocated to the party most able to control the risk. Therefore, contractors are not likely to obtain contractual protection where the presence of the mold was caused by the conduct of the contractor or its subcontractors, subconsultants, or their agents and/or employees.

In other cases where the contractor was not the cause of the problem, there needs to be a contractual mechanism that applies as soon as the problem is discovered: notice must be given to the owner of the existence of the problem and, as suggested in the Book of Leviticus, provision should be made to have the offending material inspected, removed, or contained.

These actions, however, take time and money, and appropriate safeguards are needed in the contract for a time extension and recovery of additional costs for shutdown, startup, and delay. Provisions also are needed for indemnity for damages sustained as a result of working in the affected area. The owner's duty to indemnify the contractor and others for pre-existing mold (and new cases of mold) should be limited to specifically exclude mold that is caused by the acts or omissions of the contractor.

Unique clauses

When an owner accelerates a schedule, it is possible that building materials will be incorporated before measures are taken to protect the materials from moisture. In such a case, the contractor should notify the owner of the risk. If the owner nevertheless instructs the contractor to proceed, the contractor should be absolved from liability for resulting damages. In addition, the owner should indemnify the contractor and its subcontractors for claims, including those made by third parties, for damages. The contractor still has the inherent risk that the owner may not have the financial wherewithal to meet its contractual indemnity obligations years in the future.

The contract should also address the owner's continuing obligation to be responsible for managing and operating all building systems and its resultant liabilities for failure to do so.

Finally, it should be recognized that moisture, mildew, and mold prevention are to a certain extent controlled by design plans, specifications, means and methods of construction and building maintenance. It would be prudent to contractually require the owner to retain an independent mold-testing consultant to inspect the work, particularly interior walls, ceilings, and mechanical systems, even though there are not, at least at this time, any recognized standards for acceptable levels of mold.

         
 

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