Disaster restoration1 is an important sector of general contracting, and when an attorney represents a general contractor performing disaster restoration, one major objective is to limit exposure to mold claims. Can mold liability be limited by the contractor? It all depends. It depends on who is paying whom for what, and whether all parties to a restoration contract understand what that contract covers. Since many disaster recoveries are funded by insurance, the contractor ends up dealing with another layer of business relationship: the carrier, who is manifested through the adjuster.
Mold protocols are 10 times more expensive than non-mold remediation procedures.
3 Main Points:
1. Every water job can be a mold job.
2. Just when the insurance industry finished training contractors to report mold jobs to adjusters, adjusters were summarily ordered to shut off any funds for mold remediation procedures.
3. Contractors and owners are on their own to define the scope of the contractor’s duties to clean up mold.
The famous physicist Werner Heisenberg gave us the insight that the very act of looking at something changes what you look at. With mold and insurance funding, something similar takes effect. In the last few years, most of the major insurance carriers have amended their standard policies to exclude coverage for mold. This is a shift by the insurance industry, which used to encourage contractors to integrate their contract processes more closely with the carriers by immediately notifying the adjuster of mold on a job site. Then they would come up with an agreed protocol for dealing with it. This is no longer the case. Now the contractors and the policy holders are told in effect "Oh, you have mold? That’s terrible, but we don’t pay for mold work. Look at your policy. We just pay for water damage."
This leads to a Heisenberg corollary: The very act of refusing to pay for something may change what the owner and the contractor agree to see. The house has mold, but the carrier will only pay for standard water restoration. No proper indoor air quality pre- and post-tests conducted by an industrial hygienist; no acronym-laden written protocol; no HEPA vacs; no plastic containment areas; and no guys in space suits. What used to be a $20,000 somewhat cosmic mold remediation effort will now be funded as a plain old $2,000 flood job including a little drywall demolition and replacement. The owner could always fund the $18,000 shortfall in order to get a New York Guidelines2 level of work, but most owners don’t. This is the economic reality. Can legal reality also be compressed this way?
The contractor needs to know. The contractor must determine if agreeing to recast a mold site as a flood job is worth the risk, since the owner already knows or will in the future find out about someone who "had the sniffles and got a quarter million3" and may want to be next in line to win the quarter-million jackpot. Performing $2,0004 flood dry-out jobs5 isn’t worth this risk. The contractor already knows what it’s like to be served with a summons six years after drying out someone’s basement, by a homeowner who has (in the intervening time): 1) installed illegal plumbing that leaks; 2) altered the grade of his yard to create chronic foundation infiltration; 3) been victimized by a power washer who has blown the siding off the house and soaked the insides; or 4) failed to use a dehumidifier.6 The contractor wants to know if he should just stay out of this line of work. Will our law let him stay in business?
"Can mold be contained with documents agreeing to skip mold protocols?" That’s one way to phrase the question. Here’s another way to say it: "Can the damage done by this mold be fixed using the same procedures we would use if it was simply wet?" Drafting protective documentation to answer these questions can be attempted, but is not as simple as forcing the owner to sign something saying, in effect, "I will not sue for mold damage." Several statutory and common-law issues must be considered.
Courts are torn between, on one hand, the laissez faire ideal that these parties bargained for every term of the contract, and those terms should be honored; and on the other hand, the reality that these are form contracts, administered by people who may not understand them and may or may not be able to explain them to owners. Then again, owners can’t really expect to get $20,000 of work for $2,000. If the owner is urging the contractor to do what can be done for the $2,000 limit of insurance available from the adjuster, the following legal issues arise:7
Statutory Limits on Waivers
A waiver of liability for one’s own negligence is unenforceable for construction work in Illinois. "[E]very covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable."8 In states where there is no statute on point, such waivers may be unenforceable as a matter of common law. Is it negligent to deal with a mold job by doing a flood job? The key to answering this question is whether any duty of the contractor to the owner can be limited by a contract.
Moorman and Negligent Misrepresentation
Moorman Manufacturing Company v. National Tank Company, 9spawned the "Moorman doctrine." Simply put, the Moorman doctrine prevents a party from bringing a suit in tort (as opposed to contract) for a purely economic loss. A party may desire to bring a suit in tort for several reasons, including the availability of punitive damages and the lack of any contractual privity requirement. Another reason to go with a tort is to circumvent a contractual damages limitation clause. The main reason Moorman sued National Tank in tort after the tank National sold to Moorman started to crack, was because the statute of limitations on a breach of warranty action has already run out, and Moorman wanted a new tank without a crack in it. The Moorman doctrine functions to essentially say "no, you can’t just start throwing torts around if what you really have is a breach of contract." The subtext of this is "and if it’s too late under the contract, or the contract doesn’t allow you to get what you want, then that’s tough."
There are three exceptions by which a plaintiff can still sue in tort, to get around the general rule of Moorman: One, when the plaintiff has sustained personal injury or property damage as a result of a sudden and dangerous occurrence; two, the plaintiff’s damages are proximately caused by the defendant’s intentional, false misrepresentation; and three, the plaintiff’s damages are proximately caused by a negligent misrepresentation made by a defendant in the business of supplying information for the guidance of others.
The exception that may challenge a water mitigation contractor most seriously is the negligent misrepresentation exception. To avoid falling into this exception, the contractor needs to position itself, not as a provider of information or of mixed information and services, but as solely a service provider.
The water mitigation contractor must make it clear to the customer that the contractor is merely performing water mitigation services at the direction of the customer, rather than providing any information to the customer concerning mold remediation or prevention. This can be problematic, as it is the contractor’s job to determine when an area is "dry enough." As a matter of fact, the central problem with water and mold remediation, and the source of much mold litigation is that there is no accepted standard10 for how much mold is too much mold, or for how much work needs to be done after mold is detected.
A purpose, then, of the mold damage waiver is to make it clear to the property owner that the contractor isn’t providing any information concerning whether enough work has been done. The owner can be referred to an industrial hygienist or other indoor air quality consultant if that information is desired. Similarly, the owner can be advised to talk to a physician for accurate information on the effects of fungal contamination on human health.11 The property owner should then contact someone who is in the business of providing information concerning mold, and obtain an opinion from that person. Meanwhile, if the owner wants certain drywall or ceiling material torn out and replaced, the contractor will do it.12
One common method of managing the plaintiff’s tort bar is by requiring disputes arising out of the water mitigation contract to be resolved in arbitration. The advantages of arbitration include simplified procedures, shorter and simpler discovery, and large cost savings. The main disadvantages are the unappealability of arbitration proceedings and the lack of discovery tools. Arbitrators are frequently professionals or businessmen themselves, and may identify more with the business being sued than the individual doing the suing—at least compared to a "runaway jury" of biased, lottery-playing individuals familiar from popular literature.13 Contract provisions requiring arbitration are nearly always enforceable.
Contractual Limitations on Damages and Remedies
Despite problems with contractual waivers of liability for one’s own negligence, courts are very receptive to contractual limitations on damages and remedies. For instance, the contract may state that the damages from any breach be limited to the value of the work provided14, or that the remedy be limited to only the value of repairs. These limits are typically enforceable.
In conclusion, the physics of disaster restoration contracting have become more complex in response to proliferating mold litigation. Root causes of mold in structures include changes in building materials, architectural design, and energy efficient HVAC systems. Can the owners of these structures in our communities afford to address each incidence of fungal contamination15 with only the most comprehensive tools, equipment, materials, and procedures? Not according to most insurance companies, and not in the opinion of most property owners. If these two parties to a mold claim have made this decision, should the contractor have to do its work exposed to the unlimited fury of litigation seeking to prevent such limited work by making it essentially illegal? Not if we business attorneys can help it. Contractors must be able to limit their liability, and to deliver a promised scope of work within these contractual constraints. Property owners and insurance carriers must share this objective, particularly if they wish to have responsible contractors available to assist them to recover from their next fire16, flood, or pipe burst.
1 Defined as emergency work to restore the structure and contents of a home or business that has been damaged by a catastrophic event, typically a fire, flood, or water damage from burst pipes.
2 New York City Department of Health, "Guidelines on Assessment and Remediation of Fungi in Indoor Environments" (hereafter, the "New York Guidelines"). The New York Guidelines are used all over the United States. The U.S. EPA also issues guidelines. Any guidelines serve to categorize mold jobs by size, intensity, and type of risk to the public. Guidelines are used by indoor air quality (IAQ) consultants or industrial hygienists to generate protocols tailored to the specific work site to guide the contractor through the sequence of remediation specified in the protocol.
3 Actual quote reported to the author from an attendee at an ecumenical industry mold conference.
4 The typical charge for the typical minor flood job in DuPage County to get the basement dry and to replace limited drywall areas.
5 This $2,000 must pay for the variable costs of the estimator, crew chief, technicians, vehicle, equipment, and supplies; then for the worker’s compensation insurance, CGL and vehicle insurance, employee bonding, FICA and SUTA, and if possible, a contribution to general overhead costs (office space, depreciation). If anything is left for profit by the time payment is made, the business may have a chance to expand to serve more property owners to recover from disasters. These perilous economics are easily overwhelmed by attorney fees.
6 All fact patterns from actual litigation in Cook and DuPage Counties. In each case, the restoration contractor on the premises years prior to the intervening trigger of additional water damage was sued by the homeowner for causing the subsequent mold.
7 This is not an exhaustive list.
8 740 ILCS 35/1.
9 91 Ill.2d 69 (1982)
10 The New York guidelines are not "standards."
11 Whereupon the owner will learn from the physician that no consensus exists among epidemiologists on the effects of mold on humans.
12 Contractors will usually—but not always—incur the added expense of equipping their laborers with protective suits and respirators. Protecting the workers is not the same thing as assuming a duty to protect the owner or occupants.
13 See, John Grisham, The Runaway Jury.
14 Or even for cash actually received against the billed work.
15 A more scientific term for mold.
16 Fires create water jobs when water (or water plus foam or other additives) is used to extinguish the fire.
Edward N. Tiesenga is a partner with the law firm of Tiesenga & Tiesenga, P.C. located at 1200 Harger Road, Ste. 830, Oak Brook, IL 60523