Commercial Real Estate - Mold is Growing Concern

New awareness of the fungus leads to a rise in insurance claims

by Lisa Y. Taylor

You can't get rid of mold, says Mark Sheets, senior industrial hygienist at Raba-Kistner Consultants Inc. "It's out there. Mold is in the environment. It's part of us. You're walking around with mold on you right now."

Despite mold's ubiquity, at unprecedented rates, those that occupy, manage and own the commercial buildings that the fungus lives in are trying to get rid of it.

"Knowledge is what's driving it," Sheets says. "More people are finding out what's out there and what can harm them. People are more concerned about their environment now."

In the last four months, Raba-Kistner has hired three scientists to keep up with its mold testing, and mold consulting composes a third of the firm's environmental engineering services revenue today compared to about 1 percent five years ago.

Most of the firm's business comes from private residences, but their work in commercial buildings has picked up since last year, says Steve Jones, vice president of the engineering firm that predominately serves South and Central Texas.

"It could be a situation where you have a tenant who is trying to get something resolved inside of a leased space," he says. "Is there a problem? If so, we can help identify the source of it and then recommend a way to clean it up."

Office building owners are worried about mold, but they seldom have a problem with it, says Susan Shepard, vice president of the Building Owners and Managers Association and senior property manager for Equity Office in San Antonio.

"Most owners over the past 10 years or so have done a good job at making sure they pass the test," she says. "It is always a smart idea to have a proactive policy, make sure you bring in a lot of fresh air, and clean air filters to minimize leaks."

Argus/King Environmental Consultants LLC in San Antonio has seen a dramatic rise in its commercial business of investigating mold, although residential cases still make up 60 percent of its business.

Television and media stories focusing on a few mold cases have stirred up much of the concern within the last two years, says Bob Miller, owner of Argus/King and a certified industrial hygienist.

From retail strip centers to office buildings, the company is as busy as can be testing for mold and other microbial contaminants, Miller says.

"In the past people have not understood that it's a problem, and now people tend to notice symptoms associated with their work environment," he says.

Scientific papers have indicated a relationship between mold and people, such as an impact on people's allergies, sinuses and asthma, says Larry Robertson, president of Mycotech Biological Inc., a company in Jewett, Texas, that analyzes mold tests.

However, the medical community and the Centers for Disease Control and Prevention have not defined a true cause and effect between mold and health problems, he says. Robertson says mold problems do exist, but the current hysteria is unwarranted.

In the last three years, he has seen people wanting tests done for ulterior reasons. "People are tired of working in a building or don't want to be in a particular location," Robertson says. "If they want to break a lease or want to move, they utilize these issues to try to develop a case where they can break a lease."

There is a legitimate cause for some of the concern about mold, says Jones of Raba-Kistner. Energy efficient buildings that limit air exchange through its structures have caused some of the real cases, he says.

Insurance claims increase

Only about half of the cases Raba-Kistner investigates actually have a mold problem that needs correcting, Jones says, and insurance companies are "bending over backwards" to investigate the claims of its policyholders.

Most insurance companies acknowledge that mold is a problem, but some are in denial, Miller says. He is consulting an owner who has an office building with a mold problem due to rain entering through the balconies, and penetrating the building's walls, floors and ceilings.

To solve the problem will cost six-figures, but the owner is having a dispute with its insurance carrier about its policy.

Getting rid of mold could cost as little as $1,000, or run millions of dollars if extensive remodeling is involved.

Insurance companies, such as State Farm Insurance, who have received more commercial claims recently, send a certified industrial hygienist to investigate mold claims, says Dean Brand, spokesman for State Farm's South Texas region.

The testing of mold and investigation of its source can range from $300 to $2,500.

Usually mold removal is covered by insurance if it is a result of an immediate and accidental loss, such as a bursting pipe or air-conditioning unit going out and causing water damage, says Sandra Ray, public affairs director with Southwestern Insurance Information Service in Austin.

On the other hand, if mold results from the condensation of a leaky pipe, it may not be covered, Ray says.

"Insurance can't be held responsible for poor building maintenance," she says. "They shouldn't be."

For Allstate Insurance Co., claims for property damage as a result of mold are emerging in Texas, says Justin Schmitt, spokesman for Allstate.

"While mold is not in and of itself a covered peril, when mold results from a covered water loss, we will clean up the mold and seek to prevent further damage as part of our claims process," he says.

Ray says people have gotten into a "panic mode" about mold, and the property/casualty insurance companies that her organization represents have seen a slight increase in mold claims.

If claims get out of hand because of unscrupulous contractors who clean it or people with "opportunistic ailments," she says there could be a 30 percent increase in commercial and homeowners insurance rates.

May Marie Co. at 4319 Medical Drive was able to settle a claim with its insurance company, State Farm, for about $3,500 after water had leaked several times through the company's walls and caused mold to grow on the carpet.

Marie Lewis, owner of the company that makes bras for women who have had mastectomies, says she hasn't replaced the carpet because water is still leaking, and she doesn't know where the water is coming from.

Her landlord, RFM Commercial Inc., recently installed a new roof and sent a plumber, who found that there was not a roof leak, says Dick McCaleb, RFM's president.

Landlord concerns

Landlords' responses vary, and some are resistant to paying for a mold investigation because of its cost, says Miller of Argus/King.

"There is a natural disincentive to deal with the issue, but they are under a potential liability to deal with things like this," he says. "Once they understand that, they tend to deal with it quickly. Subsequent health claims can far exceed any property loss."

The biggest concern landlords have is whether remediation companies, which are the contractors that clean up the mold, are providing unnecessary work, says David Fritsche, an attorney and general counsel of the San Antonio Apartment Association. He suggests that landlords get at least three proposals before selecting a contractor.

"It's very critical for landlords or building owners to prepare a very detailed scope of work in a request for proposals, so that they are comparing apples to apples," he says.

Fritsche also cautions landlords and building owners to review the credentials of those conducting the tests.

He says mold issues related to insurance coverage and remediation companies are coming up more regularly in his practice.

Remediation contractors should not write the scope of work, conduct the testing themselves nor hire the engineering firm, says James Gregory, president of the Gerloff Co. Inc., a San Antonio-based company that restores buildings after fire and water disasters.

Blackmon-Mooring Steamatic, a company that cleans mold, has seen an overall 25 percent increase in mold inquiries in the last year, says Robert Steele, commercial account representative in San Antonio.

Steele expects commercial business in San Antonio to continue rising since the Dallas-Fort Worth area and Austin have seen more growth in the area.

The process and cost to clean up mold are comparable to asbestos abatement, Steele says. However, mold could grow to become a bigger problem than asbestos, since asbestos is no longer put in new buildings and mold exists wherever there is a concentration of moisture, says Robertson of Mycotech.

Preventing mold growth

To avoid mold damage in the first place, Raba-Kistner gives seminars to teach people, such as architects, about what to do to encourage indoor air quality.

Architects need to let walls breathe, says Bob Harris, chairman on the committee on the environment with the San Antonio chapter of the American Institute of Architects and a project architect at Lake/Flato Architects Inc.

Harris says there is a new awareness by architects to use certain wall and ceiling coverings that will allow moisture that does come in from the outside to escape into the inside where the air-conditioning system can dry it, instead of the moisture getting trapped inside the walls.

Prevention through design that promotes indoor air quality may be the answer to the mold problem, Sheets says, since even remediation does not totally eliminate the fungus.

"The spores are like mosquito larvae," he says. "Once they form, they're permanent, and all they do is look for some place else to grow again, and it may take years for a mold spore to find some place to live, but it will."

June 8, 2001