New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

The Politics of Mold

The media is in a mold frenzy. Like a sequence from a 1950s horror film, newspapers, magazines, and television broadcasts trumpet the purported dangers of the creeping fungus: "Beware! Mold causes death!" "Warning! Mold lawsuits everywhere!" "Danger! Mold sickness spreads! Health risks rise!"

With such warnings spreading faster than the fungi itself, boards of co-ops and condos should be on high alert. They are prime targets. Not for disease but for legal action by fearful residents inflamed by the media, their sometimes legitimate concerns, and their active imagination.

If you don't think it can happen to you, look at the scenario at one Manhattan condo where the board attempted to stop mold from spreading through its building. After learning of an infestation, the directors alerted the unit-owners and started an aggressive remediation program. Despite its best efforts, however, the board is now facing a worst-case situation: doing the right thing - and still getting sued by a tenant, who is alleging that his child has been sickened by the mold.

For some attorneys and environmental consultants, the case of 515 Park Avenue is another prime example of the panic politics of mold, this time fueled by a very real threat. While only minor amounts of the fungus were visible, according to one industrial hygienist called in, the bigger problem was the infestation behind the walls.

One of the suspected causes was that the devices that attached the brick facade to the poured concrete were not sealed properly. With that opening, the kitchen and bathroom exhaust systems, which created a slightly negative air pressure, were drawing air in from the outside. Moisture was being pulled in, condensing on the sheetrock, and mold spores were growing. With each apartment in the luxury building boasting several air conditioning and exhaust systems, environmental consultants feared the mold infestation had grown exponentially by floor. Panic-time? Yes, and the building owner needed to act.

Ken Burns, an industrial hygienist with Action Environmental Group, a Manhattan-based company which does hazardous material remediation, points out that mold has been an ongoing problem for a long time. The only difference now is that, with the growth of lawsuits, more co-op and condo owners are conscious and concerned.

In one case, the management company of an upscale building located near the United Nations ignored a leaky roof for months. The situation got very bad in a short period of time, says Burns, and the parquet floor in one apartment ended up buckling a foot high off the ground. Concerned that the water damage may have spread mold, the homeowner, who suffered from an allergic reaction each time he was in his apartment, called in an environmental consultant. When the air in the unit was finally tested, it revealed an elevated concentration of mold spores, says Burns. But the building only took action after a lawsuit was filed.

All of which means one thing: boards can't wait to act; they need to wake up. Following several high-profile lawsuits in California and Texas, where homeowners have sued and won large damages for mold infestation, the fungus has become, in the words of one managing agent, "the new asbestos." According to the Policyholders of America, a nonprofit organization, in 2002, New York State ranked fourth in the country for the number of mold-related lawsuits filed by homeowners against their insurance companies (1,023). In 2001, the state ranked ninth.

How is a board to tackle this newest type of legal threat? "People in the building, when they hear the word mold, have a tendency to panic," observes attorney Jeffrey Schwartz, a partner at Wolf Haldenstein Adler Freeman & Herz. "The thing that I tell people is not to panic. Let's really examine the situation. Let's make sure of the problem."

While a board cannot stop an owner from filing a lawsuit, there are steps it can take to make loss in a lawsuit, or a lawsuit itself, less likely.

STEP ONE: HAVE A PLAN

When a board member gets a phone call about a possible outbreak of mold, the board needs to know how to respond, both to the shareholders and to the problem itself, stresses attorney Mark Diamond, a partner in Diamond & Diamond, which has been handling indoor air quality litigation for the past 16 years. When alerted by a shareholder to a potential mold problem, the board should:

(1) call the insurance company (so it shifts responsibility to the people who should know about it);

(2) call the managing agent;

(3) send out a form to the shareholder to pin them down on the issue ("which is good in addressing the problem if there is litigation later on," says Diamond);

(4) photograph the mold; and

(5) keep a log of all the actions taken.

Make sure you respond with all deliberate speed. "The key is to find the leak, fix it up, and clean it up," Diamond notes. "If you do it quickly, you can staunch the problem of mold. The problem that co-op boards have is that they don't move on it fast enough. Mold grows very quickly, and if you have a shareholder who is susceptible to it, then you have a big problem."

The most important thing, agrees attorney Joseph Colbert, partner at Rosen & Livingston, is that when the board learns of a complaint, it "responds on an expedited basis." The board should send in the managing agent to examine the situation, and, if it is serious, an indoor air quality specialist should be brought in. "If that inspector believes something else might be developing, then get someone else to do the testing," Colbert notes. "If there is reason to believe it is going into another apartment, diligence tells you [that] you should be telling that other apartment."

Indeed, if it's a harmful condition that could spread, the board has to notify the shareholders. However, until the board knows the extent, the attorney says he wouldn't recommend publicizing it. That could create a panic. Get the information and then decide how much you should reveal. And when you do communicate, tell the shareholders how you intend to deal with it.

"I would investigate, and do it quick, because the courts are not clear on how much time a property owner can take before remediating a condition like that," adds the attorney. "And certainly, you don't want to take a chance that a shareholder will get ill."

INSPECT IT

Make sure you have regular inspections. That means checking the roof, repairing suspect pipes, making sure that wall air conditioning units are pitched so water leaks out. Replace ventilation filters. If a board can address the underlying situations that can lead to the creation of mold they can nip the problem in the bud, maintains Diamond.

Co-op boards ignore repeated water damage only at their own risk. Where there is recurrent water damage, there is a 90 percent chance of mold occurring. "The only way to get rid of contamination is to remove the sheetrock. If it's readily accessible, it's a fairly easy job, but it has to be done under containment," says Bill Sothern, an industrial hygienist with Manhattan-based Microecologies, an indoor air quality firm that specializes in mold and asbestos remediation. Containment means floor-to-ceiling plastic sheeting, creating a barrier to prevent mold spores from getting in the air, and adding an air filter to suck the spores out of the air and into the plastic sheeting.

An initial investigation of whether a building has mold can cost several hundred dollars, while the abatement itself can range from $1,500 to $5,000, says Sothern, though he has worked on the rare job where the infestation is more intense, costing upwards of $25,000.

Educate your residents. No need for them to panic every time mold is discovered. People live with common types of mold every day. According to the New York City Department of Health, there are over 100,000 different types of mold, with about 1,000 occurring in the United States. Some of the most common include cladosporium, typically found on windowsills or in the grout around tubs; stachybotrys, which grows on sheetrock, and aspergillus, of which one strain in particular, aspergillus niger, can be lethal if it gets a foothold in a person's lung.

"All you need is water and sheetrock and you have the growth of mold," points out May Dooley, an environmental consultant who runs a website, http://www.createyourhealthyhome.com, where homeowners can find out how to do remediation for nearly half the cost of calling in an expert.

DEALING WITH LAWSUITS

Some of this may help you deal with a lawsuit. Showing the board acted promptly and responsibly can help reduce liability. But mold litigation is a new area that is evolving every day. There is no clear course charted by the courts on how a board member might deal with it. If a shareholder is looking for a deep pocket, then the co-op board is vulnerable, because the building is seen as a cash cow for a large damage award, warns Jeffrey Moerdler, a real estate attorney with Mintz Levin Cohn Ferris Glovsky & Popeo.

Diamond recommends that board members consider redrafting their bylaws to exclude for liability on mold, a move which is difficult - since you generally need a super-majority to amend those documents. Other attorneys suggest that boards take another look at directors and officers liability insurance and request a mold rider to protect members from lawsuits. Some lawyers, however, disagree, that a board can exclude itself from liability.

Insurance companies are already moving to tighten restrictions on mold coverage, and banks are reacting. In a letter to clients in December, HSBC Realty Credit Corporation, a lender, warned co-op owners that they had to purchase a separate rider for mold coverage in order to maintain their mortage with HSBC. If the borrower couldn't find coverage at a reasonable cost, then the bank would give a one-year waiver on the requirement. But to get the loan, the co-op would have to institute a mold abatement program, developed by an environmental consultant or engineer, and could not have any preexisting complaints of mold.

There is some existing coverage in the section of a policy covering water. But boards need to read the fine print. If the damage results from faulty maintenance and mold occurs, the building will not be covered. Part of the determination is based on the issue of causation, points out Moerdler. Did a leaky pipe that the co-op failed to repair after repeated complaints cause the mold? Or was it something that they remedied as soon as they heard about it?

One of the ways a board could protect itself, suggests Diamond, is to "have an agreement with the managing agent that spells out that they have to respond to indoor air quality complaints. Establish an action plan that goes into effect when a claim is reported." Set up a response team with designated duties: one person investigates the claim, another calls the insurance company, a third sends out a form to the shareholder, having him or her describe in specific detail what the problem is.

Of course, you can do everything correctly and still get sued. And it's for the courts to determine whether the board acted promptly and appropriately. In the end, says a board member who has dealt with mold, "Don't focus on the potentiality of a lawsuit, focus on doing the right thing. It's the best defense."

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