Retail Traffic

SCW FEATURE: Beware What Lies Beneath

It started with a small leak. Water seeped under a patch in the roof of a Landover, Md., strip mall and trickled down the cinderblock wall separating a food store and a real estate office. By the time the tenants noticed the problem and arranged for repairs last October, mold was growing along one wall in the real estate office and mildew infested the carpets.

To fix the damage, crews had to rip out 100 square feet of drywall, insulation, ceiling tile and carpeting, clean out the ductwork and, of course, repair the roof. The total cost — $50,000, not counting lost revenue while repairs were under way. The landlord, the tenants and their insurers are still arguing over who should pay the bill.

“It's obviously an issue of great concern to our members,” says Bill Hoffman, director of environmental issues for the International Council of Shopping Centers. “We don't want to see this become the next asbestos.”

Mold isn't new. But in recent years, the microscopic fungus has been gaining notoriety thanks to a string of highly publicized studies — and lawsuits — linking it to such health problems as skin irritation, chronic headaches, nausea, respiratory ailments and even neurological disorders.

Today, the Insurance Information Institute estimates, there are more than 10,000 mold-related lawsuits pending. While only a small percentage of the suits so far involve retail properties, the multimillion-dollar awards handed out by juries in some of the residential mold cases have made shopping center owners sit up and take notice.

“Mold is a front-burner issue for all owners of commercial and retail property,” says Arthur Siegal of Detroit-based law firm of Jaffe, Raitt, Heuer & Weiss.

Because of the potential liability and negative publicity associated with the slimy fungus, owners and managers are reluctant to talk about problems they may be experiencing.

But keeping mum about this problem won't make it go away. Mold cleanup consultants and shopping center insurers stress that it can be quite damaging if it's left to fester. Jeff Boggs, a consultant for EMG Corp. in Hunt Valley, Md., who worked on the Landover cleanup, points to one recent case at an Austin, Tex., strip mall. Mold developed unchecked in a bank and an adjoining restaurant. It took three months to clean up the mess at a cost of $70,000.

That was simple compared to the difficulties one California shopping center encountered. In 1999, the owners of the Market on the Lake in Mission Viejo found that rain trickling through faulty roofs, doors and windows had turned many areas into a breeding ground for mold. They began an 18-month renovation aimed at eliminating the mold and correcting the construction defects and modernizing the center.

Not surprisingly, the infestation caused hardships for some of the center's retailers. Several stores shut down, some employees complained of illnesses they attributed to mold and a number of merchants had to be relocated while the renovations took place. At least three lawsuits were filed by employees who claimed that they got sick working at the center. The estate of James Campbell in Hawaii, which owned the development at the time the mold was found, would not comment because lawsuits are still pending — four years after the problem first surfaced. A spokesman for the center's current owner, Birtcher Properties, did not return a phone call seeking comment.

If you do suffer mold damage, don't expect your insurance company to pick up the tab for the cleanup, no questions asked. Insurers, stung by the explosion in litigation, now exclude mold from general coverage, insisting that it is, instead, a pollution or maintenance issue. Some insurers will sell separate mold coverage, but experts are divided as to whether it is worth the extra cost.

Practices vary from insurer to insurer, but most tend to offer mold coverage as an add-on to environmental insurance policies covering a variety of indoor air quality conditions. Mold coverage can add 10 percent to the cost of environmental insurance for commercial properties and 20 percent for residences. Mold policies vary in terms and payback. Most pay for removing mold but not all of them cover the costs of rebuilding or defending legal claims.

That's why experts say it is vital to be aware of potential mold problems before they start. “Nip it early,” says John Ix, a member of the environmental practice at the Philadelphia law firm Dechert LLP. “If you address a water problem when it is just a water problem and not a mold problem you will save yourself a real headache.”

Acting fast will also forestall complaints of negligence in the event that a tenant later claims to have a mold-related illness.

To protect themselves, some owners now insert requirements into leases making tenants responsible for reporting water damage immediately. Lawyers and consultants suggest that both tenants and maintenance crews be trained to recognize moisture problems and act swiftly, especially in the South and West, where warm weather can promote mold growth year-round.

Says Boggs: “Raise the bar on maintenance people.”

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