Canadian Underwriter

Preventing Mold Losses

March 1, 2005   by Andreas Wagner, and Tom Park

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Historically, mold has not been considered a serious issue. Built of wood, stone, brick and plaster, older buildings were far from airtight. Any moisture that seeped into the interior, generally evaporated right back out again. Mold had little chance to become a danger to the health of the building or its inhabitants.

However, from the 1970s, buildings have been increasingly designed to be airtight to achieve greater energy efficiency. An unpleasant side effect of this development has been that water entering a building is often locked in, forming a welcoming home for mold. Now, health and safety experts, along with trial lawyers, are looking to mold as the next possible “asbestos risk” – which has generated thousands of class-action lawsuits and highly costly insurance claims.

The biggest obstacle facing individuals who want to advance mold claims has been related to proving causation and negligence. However, changes to legislation, such as those to the “Criminal Code of Canada” made in March 2004, have placed new pressure on building owners and landlords to deal with air quality issues including mold contamination.


The response of many insurers to water damage and flood claims is generally generous in paying for repairs rather than fight a claim. Basically, many insurers would rather pay the insured’s demands now than risk having the situation rebound if mold is ultimately found to be a serious problem.

A way to circumvent possible mold-related losses is to respond quickly to water damage incidences. This could be from burst pipes, a leaking dishwasher, groundwater infiltration, sewer backup or a host of other reasons. In this respect, it is therefore important to assess and deal with damages within 24-48 hours.

In commercial construction, building managers often have systems in place to notify them quickly of sudden water damage, but there is still the problem of slow leaks or hidden/concealed leaks that often cause a serious mold contamination issue before the insurer is notified. Many times, the initial response is from a general contractor who will look at the situation and feel that not much damage to the building has occurred. However, most contractors are not trained in recognizing signs of mold contamination, or are able to see when a problem will likely become more serious with time.

Some construction professionals are better prepared to deal with the problem, having been trained in water-damage restoration and mold remediation. Unfortunately, with mold exclusions being attached to commercial general liability (CGL) policies, contractors may not have proper insurance to protect them from mold-related claims.

It is often necessary to engage a third type of professional, the “hazardous materials abatement consultant”. This person will be highly trained in issues such as mold assessments and remediation techniques. Note that there is no legal requirement for specified qualifications for doing this work, so it is often necessary to go by reputation when engaging someone to investigate water and mold damage.


A water management plan for a commercial or institutional building can often do double duty as a way to manage, or preferably prevent, mold. Reacting promptly and appropriately to incidents is a good start, but a preventive plan needs to go further. The plan should call for periodically checking areas of risk, such as dishwashers and laundry machines. Check for recurring problems, such as a corner of the basement that gets damp after heavy rains.

In new construction and renovation of an existing structure, be sure that building materials that have been stored outside are protected from snow and rain so that when incorporated into the building, they do not bring a mold problem along with them. Find out why problems such as water damage occur, and then set out to deal with the root cause. Often, such causes turn out to be problems with the building “envelope”, including the tops of walls and roofs. Furthermore, fixing water damage and mold growth is not enough – it is important to make sure that once cured, the problem does not come back. This is a big difference between dealing with asbestos and dealing with mold.

Experience indicates that the biggest mistake made by building owners, managers and insurers is not ensuring that appropriate measures have been taken to prevent the return of mold. Insurers can reduce the number of claims, and the dollar value thereof, by making sure that their adjusters are trained to spot signs that can point to mold damage, and understand where rectifying the problem will be a particular challenge. They also need to be trained to spot the potential for recurring problems – for example, if a basement gets damp or floods each spring when the water table gets high with snowmelt, better waterproofing of the basement may help reduce damage claims.

Insurers also need to provide training in recognizing pre-existing damage and staying away from the dreaded “maintenance losses”. Consider a claim for water damage stemming from a burst water pipe, and the insurance company is asked to pay for extensive damage to the building. Only a trained professional would be able to determine that the damage is actually of longstanding duration, due to water seepage each spring, and thus the water from the burst pipe is not to blame for most of the problem. Based on sound professional advice, the insurer may be in position to deny the claim or negotiate to reduce the dollar amount.


Building science investigators, like detectives on a crime scene, look for “opportunity”, “means” and “motive” in studying cases of water damage. “Opportunity” can mean a rainstorm, burst pipe or other event, with the “means” often involving a path for the water to move along (such as a crack in a concrete foundation), while the “motive” can include a difference in hydrostatic pressure or gravity, causing water to move from one place to another.

Water-damage investigators, again like criminal investigators, will develop various theories on what occurred, and test them to determine the most likely scenario. The result is a scientifically-appropriate report that can be relied in all parties to the dispute. This part is important because the investigators must be ready to take the stand in a court of law or arbitration to describe and defend their findings. Even if a case does not go to court and is settled through mediation, a well-grounded, “leak-proof” report can help all involved understand the facts of the situation. The result can be that both an insurer, and an insured, engaged in a dispute may well feel that they have been treated fairly and the insurance relationship can continue.

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