Mold Coverage Under Your Property Policy
Floods, hurricanes, flash floods and other water-related events may lead to mold. This article will explain what mold is and whether the damage it causes to buildings and contents is covered by commercial property policies. Mold in buildings can also generate liability claims. Mold-related lawsuits are addressed in a separate article.
Mold is a type of fungi, organisms that have characteristics of both plants and animals. There are thousands of varieties of molds. Most are harmless but a few can cause illness, particularly in people that have mold sensitivities.
Mold has some characteristics that make it particularly destructive to property. For one thing, it can grow on virtually any building material, including wood, drywall, carpet, and paper. Secondly, mold breaks down the material on which it is growing to use as food. This process may destroy the material. Thirdly, mold is often insidious, growing in places where it isn't visible. Mold can grow behind walls, under floors, in ducts, in carpet pads, and behind ceiling tiles. By the time you discover it, the mold has caused severe property damage.
How Mold Grows
Molds reproduce through spores they release into the air. These spores are distributed by wind and air currents. Spores may begin to grow if they land in an area that is warm and humid. Besides heat and moisture, spores require oxygen and food to grow.
Molds generally become a problem only when property has been infiltrated by water. Moisture may enter a building through an opening in the structure's exterior, such as a window or a leaky roof. Water may also come from an interior source, such as a leaky pipe or broken water heater. You can prevent mold from growing by eliminating excess moisture and ensuring that buildings have adequate ventilation. Check for leaks often. If you find a leak, repair it immediately. Mold will continue to grow as long as it has access to water.
Commercial property insurers began adding mold exclusions to their policies in the 1990s in response to lawsuits by policyholders. Many of these exclusions refer to fungus rather than mold. A fungus exclusion is found in the standard ISO commercial property policy. The exclusion applies to loss or damage caused by the presence, growth, proliferation or spread of fungus, wet or dry rot or bacteria. Fungus includes mold or mildew. It also includes toxins, spores, scents or by-products produced or released by fungi.
Like many property policies, the ISO policy provides limited coverage for mold losses via exceptions to the fungus exclusion. The fungus exclusion in the ISO policy contains three exceptions. The exclusion does not apply to:
- Fungus, mold, dry rot etc. that results from fire or lightning. While it's conceivable that mold could result from fire or lightning, this doesn't seem very likely.
- A specified cause of loss that results from fungus. Specified causes of loss is a defined term in the policy. It includes perils like windstorm or hail, smoke, riot or civil commotion, vandalism, and sinkhole collapse. These perils are unlikely to result in fungus.
- Fungus that results from a specified cause of loss other than fire or lightning. The coverage provided by this exception is called Limited Fungus Coverage.
Limited Fungus Coverage
Under Limited Fungus Coverage, the ISO policy covers fungus damage, cleanup, and repair. It covers loss or damage by fungus, wet or dry rot or bacteria if the fungus, dry rot etc. results from a specified cause of loss other than fire or lightning. Fungus caused by flood is also covered but only if the policy includes flood coverage via an endorsement.
There are only two perils included in the definition of specified causes of loss that are likely to result in fungus. One is water damage. The other is leakage from fire-extinguishing equipment.
Suppose that the fire suppression system in your building develops a small leak. The leak has existed for several months by the time you notice it. In the meantime, mold has appeared under acoustical tile in the ceiling of the building.
The ISO property policy covers the following:
- Direct physical loss or damage to Covered Property caused by fungus, including the cost of removing the fungus. This coverage would include the cost of removing the damaged ceiling tiles and replacing them with new ones.
- The cost to tear out and replace any part of the building or other property as needed to gain access to the fungus. For example, if a portion of the ceiling needed to be removed to gain access to the damaged tiles, the policy would cover the cost of tearing out and replacing that portion of the ceiling.
- The cost of testing performed after removal, repair, replacement or restoration of the
- damaged property is completed. If testing was needed to ensure that the mold was gone after the ceiling tiles were repaired, the policy would cover the cost of such testing.
The coverage described above is available only if you use all reasonable means to save and preserve the property from further damage both before and after the occurrence takes place. If you discover a leak in your building, you'll need to take immediate action to stop the leak and dry the affected area until repairs can be performed.
The most your insurer will pay for all of the expenses described above that result from any one occurrence is $15,000. This limit is also an annual aggregate. That is, your insurer will not pay more than $15,000 under Limited Fungus Coverage in any one policy year.