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Ronald L. Perl, Partner in Charge, Hill Wallack. What are a board’s obligations when a unit-owner reports a water leak or mold growth?
BACKSTORY A unit-owner complained of leaks in various areas of her home over a period of three years, and each time, the association’s management company hired a contractor to repair the leak. However, the association refused to pay for repairs within the unit. Ultimately, the owner hired a mold-testing company, which reported mold within her unit, on her furniture, and on the exterior of the building. The owner then replaced her furniture, remodeled her kitchen, and demanded that the association reimburse her those costs and clean the mold off the building exterior.
The association refused to reimburse the owner for the remediating efforts within her unit on the grounds that it had not been negligent and that she was responsible for any repairs or remediating in her own unit. It also refused to clean the mold on the building because it was undergoing a major repair project. Buildings were being repaired in sequence based upon the extent of the damage, and the association had no spare funds to perform work on her building out of order.
The owner then sued the association for the costs of her renovation. She also claimed that the mold had caused her to suffer respiratory illnesses and sought damages for bodily injury. Along with the association, she sued the former and current management companies and the contractor. The association referred the claim to its liability insurance company, which provided a defense even though its policy contained a mold exclusion clause. It reserved its right to disclaim coverage, nonetheless.
However, a year and a half into the litigation, the insurance company notified the association that it was going to cease coverage and its defense and demanded that the association refer the case to its own attorney. When the association refused, the insurance company filed a lawsuit against the association, seeking a declaratory judgment that the unit-owner’s claim was not covered by its policy and that it need not provide a defense.
Hill Wallack became involved as defense counsel in the insurance company’s lawsuit. We also filed a counterclaim to compel the carrier to continue to provide insurance coverage, on the grounds that it had failed to submit a proper reservation of rights letter and had delayed too long into the case to attempt to get out. Hill Wallack also began consulting with defense counsel regarding the mold claim.
All parties then agreed to mediation of the underlying case and the declaratory judgment action. Through mediation, the underlying case was settled, with the insurance companies for the various defendants paying an amount to the plaintiff and the association agreeing to remove a tree that was shading the unit-owner’s building and clean the exterior of the building. In addition, the association’s insurance company dismissed its declaratory judgment action and reimbursed the association almost all of its defense costs in that case.
COMMENT Contrary to the claims of some, the accepted science is that only some molds can cause allergic reactions, and they rarely can cause permanent personal injury, generally affecting only certain individuals who have particular types of diseases or who have eaten large quantities. In most cases, once the mold is removed, the allergic reaction disappears. Nevertheless, mold can smell and is unsightly, and it damages property. Thus, most judges and juries will insist that housing owners and managers eliminate mold when it does occur.
In community associations, where owners own their own homes, the association generally is not responsible for dealing with the mold within the units unless the mold was caused by the association’s negligence. If a unit suffers a roof leak and the association repairs it promptly, the fact that dampness within the unit from that leak results in mold does not make the association responsible. On the other hand, if the association is made aware of a leak and fails to take action to correct it, a unit-owner may have a viable claim that the association is responsible for any mold within the unit caused by that leak.
Most insurance companies now exclude mold claims from their policies. In the case referred to above, the association was lucky that the insurance company initially picked up the defense and was convinced that its attempted exercise of the reservation of rights late in the case was improper. Most times, insurance companies will simply decline to cover the mold claim or provide a defense, thus requiring the association to pay its own defense costs.
Therefore, it behooves associations to properly investigate any owner’s claim of leaks or mold, whether it be within common elements or within a unit. That does not mean that the association has to eliminate mold within a unit. However, if the association determines there is a leak from common elements, the association should promptly make repairs. If it determines that the leak is caused by something within the unit itself, the association should advise the owner to remedy the problem to prevent the spread of mold within the unit or to other units. If there is any doubt about responsibility, the association may perform repairs. But the owner must agree to reimburse the association if the source of the dampness is within the unit itself. Prompt attention by the association can avoid potentially expensive claims, especially where the unit-owner is known to have a medical condition that may be exacerbated by the mold.
From the Desk of RLP:
Best lawyer movie: no such thing; all inaccurate. I much prefer Twelve Angry Men, about the jury system.
At an annual meeting someone threw a chair a surprisingly long distance at the board president.