jeff posted on January 31, 2010 22:38
Lloyd’s of London and insurers generally will have to face escalating and extensive long tail potential claims from hurricane Katrina. As re-insurers or partners to many US prime policies they will be expected to pick up part of the restoration and recovery cost but will, we believe, be exposed to unnecessary costs far beyond the initial and expected reserve levels.
Mould in the US has, in recent years taken over from asbestos as a revenue stream for the legal profession and the cry of “mold is gold” has been reflected by over 200 pieces of US legislation. In fact State Farm, one of the biggest property insurers in the US, has withdrawn from the market because of its assessed potential risk to mould claims with many other insurers looking to exclude exposure to it within their policies.
The hazards and risks of mould in terms of health issues, bad faith and long tail claims should be high on the list of insurance risk mangers involved with Katrina. Property in New Orleans was expected to be affected by mould even where not directly affected by flood damage. High humidity from uncontrolled evaporation was expected to be adsorbed by hydroscopic materials and cause what’s known as secondary damage effecting buildings sited a considerable distance from the initial flood zone. Defence against this has historically been either the choice of building materials and engineering controls such as air conditioning. With the failure of power coupled to weeks of wet buildings the development of mould was a given certainty as humidity levels rose and activated surface or airborne spores.
Americans are fully aware of the health risks associated with mould as well as the extensive costs of damage restoration in terms of dollars and health. This has been further reinforced this month with US banks announcing that they are foreclosing on 100,000 property related loans and mortgages. People with loans may have various reasons for failing to make repayments but high on the list will be the knowledge that mould will be present in their home, which is likely to affect their property value or personal health and could result in the dreaded negative equity. Many buildings will be seen as uneconomic to decontaminate from mould and possible chemical contamination brought in by flood waters.
The cost of the clean up and restoration is likely to pail into insignificance when compared to the long tail effects associated with claims from employees and homeowners as the legal profession teams up with industrial hygienists to inspect restored properties, looking specifically at present and latent damage health effects. The majority of mould problems revolve mainly around the appropriate methods of prevention, removal and control. The environment in New Orleans is ideal for mould proliferation which has been historically controlled by air conditioning and ventilation.
Many government buildings in New Orleans are already being inspected for mould before being brought back into use and FEMA (Federal Emergency Management Agency) and the CDC (centre of disease control) engaged in drying and restoration expect to undertake mould decontamination which can be assimilated to asbestos. They should install engineering controls and ensure personnel safety factors. Unfortunately the outside or ambient air has mould spore levels higher than normally acceptable internal clearance level and this factor alone may cost insurers dearly unless they follow auditing procedures.
Claim closure and acceptable decontamination associated with, in particular, flood damage may depend on clearance certification or an audit trail. This would eliminate or at the very least significantly reduce the possibility of the long tail or latent damage claim occurring. There is a clear risk that future property purchasers or lease termination surveys, will adopt intrusive methods of inspection to assess competent decontamination of buildings. Clearance parameters are difficult to establish and interpretation may be subject to extensive court debate unless structured claim closure is adopted.
It is generally accepted that 50,000 spores per cubic meter of air is likely to be a health risk. Many areas of New Orleans have levels over 80,000 spores in outside air. Therefore an unusual but mammoth task will exist, especially when many properties have internal levels over 500,000. This means the whole building may require unique and novel engineering controls installed.
We see four areas of particular concern which concern, which are; the decontamination itself, the prevention of cross contamination and most importantly is the need for an audit trail and lastly therein being able to identify responsibility in the event of dispute or latent claims.
As with any disaster zone all new building products or materials which are brought into the New Orleans reconstruction project(s) must be free of mould. This can pose its own problems as new these building materials will travel through ideal mould proliferation conditions of high humidity and air spore counts and you would therefore assume will be contaminated even before arriving on site. The obvious ramifications are that lawyers or Industrial hygienists may at some point in the future request proof from building contractors that the building is restored to pre loss or healthy conditions with clean mould free materials.
The extent of inspection has often meant timber frame buildings being stripped back down to the bare frame. Lumber yard mould is enough to raise concern where enthusiastic air or surface sampling is undertaken even in normally dry climate conditions, therefore properties in New Orleans can almost certainly be expected to fail normal clearance criteria.
The potential for long tail or latent damage claims may develop in any restored property which could and possibly will, be inspected for signs of mould either before being signed over following reinstatement or at some time in the future. Either way mould is almost certain to be found and insurers may face the prospect of counter claim where nominated contractors are used or the reality that the restoration was not acceptable and has to be started again following a total strip out.
Mould inspection is now a major industry in the USA just behind mould decontamination. Typical surveys will include multiple techniques to measure and identify viable and non viable spores; this may include air and surface sampling although toxic mould is recognised as the major health risk, it is now accepted that all mould can be expected to cause allergic reactions.
The level of health risk can be assessed from FEMA which include T2 toxins produced by mould in their publication “Emergency Response to Terrorism”. In this, it informs emergency responders that T2 mycotoxins, where ingested or inhaled have lethality just below that of Ebola. While the T2 produced by terrorists is likely to be highly concentrated, I have decontaminated homes in the UK where families have had nose bleeds, were coughing up blood, which resulted in them having to be hospitalised. The symptoms appearing within days are exposure. to a water damage event with an area of mould measuring only a matter of inches.
The bottom line is that Lloyd’s syndicates and insurers generally should be looking closely at their liabilities and possible safeguards from New Orleans mould.