Mold Coverage Under Your Property Policy

When Mold Grows On Property, It Uses That Property As Food

Leaky copper pipe

Floods, hurricanes, pipe leaks, and other water-related events can saturate your company's property, creating a breeding ground for mold. Mold that grows on your building or personal property can be difficult or impossible to remove. Some mold-damaged property may need to be replaced. Unfortunately, most commercial property policies provide very limited coverage for mold-related claims.

What It Is and Why It's a Problem

Mold is a type of fungi, organisms that reproduce by releasing spores into the air. The spores are distributed by wind and air currents. They may begin to grow if they land in an environment that provides mold's four basic needs: food, heat, moisture, and oxygen.

Mold has several characteristics that make it hazardous to property. First, it can grow on virtually any building material, including wood, drywall, carpet, and paper. Secondly, mold feeds on the material on which it is growing and may eventually destroy it. Thirdly, mold often grows behind walls, under floors, in ducts, behind ceiling tiles, and in other places where it isn't visible. By the time you realize it's there, the mold may have caused extensive damage to your property.

Prevention

Because mold can't grow in a dry environment, you can keep it at bay by controlling excessive moisture. Here are some steps OSHA recommends for preventing mold in a commercial building:

  • Conduct regular inspections of the building's exterior, including vents, seals, and drainage systems. If you find any wet spots, clean them up promptly.
  • Reduce moisture in the air by repairing leaks, increasing ventilation, or using a dehumidifier.
  • Regularly inspect the building's ventilation system. Follow the manufacturer's recommendations for maintaining its components such as drainage pans, coils, and cooling towers. Keep ducts clean.
  • Remove visible mold on surfaces. If you suspect the mold is extensive, consult a qualified professional.

The CDC offers a Dampness and Mold Assessment Tool that business owners can use to find sources of excessive moisture in a commercial building. The tool is available on the CDC's website.

Commercial Property Insurance

Most commercial property policies, including the standard ISO form, contain a broad fungus exclusion. The exclusion eliminates coverage for loss or damage caused by the presence, growth, proliferation, or spread of fungus, wet or dry rot, or bacteria.  The definition of fungus includes mold or mildew, toxins, spores, scents, or by-products produced or released by fungi.

The ISO policy provides limited coverage for mold losses via three exceptions to the fungus exclusion. The exclusion does not apply to:

  • Fungus, mold, dry rot, etc. that results from fire or lightning
  • A specified cause of loss that results from fungus. Specified causes of loss is a defined term that includes perils like windstorm, riot or civil commotion, vandalism, sinkhole collapse. water damage, and leakage from fire extinguishing equipment. If fungus triggers one of the perils listed in the definition, the loss is covered.
  • 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 a flood is also covered if the policy includes flood coverage via an endorsement.

The limited fungus coverage is available only if you use all reasonable means to save and preserve your property from further damage before and after the triggering event occurs.

Example

Suppose a plumbing pipe breaks inside a wall in your building. The break is small and you don't know it's there until the drywall becomes moldy. The ISO property policy should cover 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 moldy drywall and replacing it with new drywall.
  • The cost to tear out and replace any part of the building or other property as needed to gain access to the fungus. Suppose the mold has infiltrated insulation behind the drywall. To gain access to the damaged insulation, workers need to remove some drywall that isn't moldy. The policy should cover the cost of tearing out and replacing the undamaged drywall.
  • The cost of testing performed after the removal, repair, replacement, or restoration of the damaged property is completed. The policy should cover the cost of testing needed to ensure that no mold remains after the damaged insulation and drywall have been replaced.

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. Your insurer will not pay more than $15,000 under Limited Fungus Coverage in any one policy year.

Article Sources

  1. Occupational Safety and Health Administration. "Preventing Mold-Related Problems in the Indoor Workplace," Pages 9-12. Accessed June 18, 2020.

  2. Property Insurance Coverage Law. " Causes of Loss--Special Form," Page 2. Accessed June 18, 2020.

  3. Property Insurance Coverage Law. " Causes of Loss--Special Form," Page 9. Accessed June 18, 2020.

  4. Property Insurance Coverage Law. " Causes of Loss--Special Form," Page 7. Accessed June 18, 2020.