`The most common cause of mold related losses for restoration contractors starts with an insurance consumer who is angry that his or her insurance company will not cover a mold loss. In looking for sources of money to help pay for the mold damages, it is common for a property owner to sue the insurance company for unfair claims adjusting and sue the contractor for poor work. If the contractor has good pollution liability insurance, at least the property insurance company is not in the defense game alone which is why some of the smarter insurance companies are asking for pollution insurance.
But simply buying pollution liability insurance is not the best risk management solution in the above scenario; the best solution for the contractor is also risk avoidance. Pollution liability insurance should be the backstop in cases where risk avoidance does not work. Knowing that universal mold exclusions increase the likelihood there will be no insurance money available for property owners to pay for a mold loss that property owners are likely to be angry about this situation, and that trial lawyers are targeting restoration contractors as soft targets.
What can restoration contractors do to manage liability losses? Here are some useful risk management tips:
1. Carefully evaluate potential customers; if they are angry with their insurance company about the loss you are contemplating working on, avoid having the customer’s potential wrath being targeted towards you. It is best to avoid these jobs entirely because they are very high risk. Any restoration contractor loading up on jobs with these dynamics will not be your competitor for long. Also, do not plan on your customers’ insurance companies indemnifying you in a liability suit against both of you. Invariably you will be on your own and the damages being sought will be for a lot more money than your job billings.
2. Carefully resolve and document each stop work order. If the insurance company tells you to pack up your equipment and go home because they are not paying any more of the claim, do not do it without fully advising the claims adjuster and customer of the ramifications of stopping the work. Seek competent legal advice in this situation; you are in a high-risk situation if you are performing drying or mold work. Nobody can expect you to work for free. But shutting down a water drying or mold job without warning the customer of the ramifications of doing so exposes you to potential liability. Mold has created a toxic tort cottage industry with claims well over $1,000,000 being common. Avoid starting work on jobs that do not have sufficient funding to complete them without cutting corners.
3. Make sure your contracts fully explain your scope of work and that the customer fully understands the scope. Communicate all change orders quickly and make sure there is agreement from the customer. Do not make assumptions of understanding. A normal contract dispute with overtones of exposure to toxic mold is a plaintiff’s lawyer’s dream, especially if the defendants have money. Never act with arrogance and indifference in these situations. Doing so creates a plaintiffs lawyers dream on steroids.
4. Make sure the scope of work includes fixing the source of the water intrusion problem that created the mold growth. Doing partial or incomplete mold remediations is a ticket to a lawsuit with toxic tort overtones.
5. Have a qualified, independent professional set the scope of work for mold remediation and then stick to the scope. Deviations from the scope of work open the contractor up to allegations of negligence if something goes wrong with the job. It is a good idea to check if the indoor air quality professional setting the scope has professional liability insurance covering mold.
6. Never use uninsured subcontractors. Every subcontractor should have a good quality GL policy with at least $1,000,000 in limits. Those working with water and mold should carry pollution liability insurance. Both types of insurance should include you as an additional insured and you should have a contract with the subcontractor indemnifying you for losses as a result of their work. First, the insurance underwriting process screens out unqualified firms much more efficiently than any due diligence you can perform on your own. Second, if a subcontractor causes a loss it will be infinitely better for you to have their insurance to pay for it rather than have a claim on your insurance. Past insurance losses haunt a firm for years after the insurance company pays them. There are some restoration firms that cannot find insurance for today because of historical loss problems caused by uninsured subcontractors three years ago.
7. Get good quality Contractors Pollution Liability insurance in place on your firm. Essentially anyone working in the built environment. Certainly all mold remediators, asbestos and lead paint remediators and drying contractors at a minimum need pollution liability insurance.