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Mold Concerns Spawn Litigation

The real estate industry is seeing a "litigation explosion" in mold-related claims, with a "cottage industry of lawyers trying to prove that there is toxic mold within a residence or structure," according to Jeff Masters, a partner with the Los Angeles- based law firm of Cox, Castle & Nicholson.

Speaking at a panel session on "Mold: the next asbestos?" at the Urban Land Institute's fall meeting, Mr. Masters, the moderator of the session, said that California is at the forefront of this trend and the state has even passed a "toxic mold protection act."

Mr. Masters noted that virtually every general insurance policy issued to homebuilders since last July has excluded mold coverage.

And mold-related litigation is unlike asbestos-related litigation in that "it is not a product liability issue."

On the positive side, he pointed out that while "15 years ago environmental issues seemed so mysterious and strange, we've overcome that."

Stacy McDaniel, general counsel, WL Homes, Newport Beach, Calif., said that with general liability coverage for mold being "virtually extinct," there is a need to use the services of a sophisticated broker in order to evaluate the limited choice that is available.

The mold-related insurance available right now includes a contractor's pollution liability, a homebuilders protection policy from Zurich, and project specific liability policies, Ms. McDaniel said.

There is also some speculation about a new standalone mold policy that might be available from AIG, according to her.

Seeing that there is such limited coverage, she advises that there should be more of a focus on "non-insurance risk reduction."

For one, builders and general contractors "have to quit being penny-wise and pound-foolish."

Builders should document the clean condition of the final product and view inspectors as their friend.

And building managers should think of having a "mold protocol" in place, training people early and often about how to handle a mold situation.

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