Associations are becoming all too familiar with the increasing difficulty in obtaining and keeping insurance coverage. As the insurance market gets more and more difficult, the need to minimize claims for expensive items such as toxic mold litigation becomes more and more important. No association can completely safeguard itself from lawsuits, however, there are steps the association can take to minimize its risks.
Arm yourself with knowledge
The more association managers and boards of directors know about mold, the more likely they are to spot a problem before it advances to the point of a lawsuit. Being knowledgeable about how and where mold grows, for example, should prompt the association to take even minor flooding seriously. Mold is the most prevalent in moist, contained areas, and needs an organic food source to thrive, such as building paper, wood, or insulation.
Homeowners and board members should be made aware of the urgency of the situation and understand that premiums are going up, coverage is diminishing, and associations' efforts to prevent claims must double or triple or they risk being "blackballed" and losing coverage altogether.
Routine maintenance is the best means of preventing a mold problem. Take steps to reduce the possibility of a water leak from occurring in the first place by performing monthly maintenance inspections. Install water pressure regulators. Do random site checks of buildings in areas where water can potentially cause problems, such as roof eaves, around soffits, below windows, decks and balconies-anywhere water might be leaking. If affordable, hire a general contractor to do an evaluation of your community from the ground up to identify possible risks. Be proactive! An inexpensive "checkup" now could lend valuable insight into preventing potential costly problems down the road.
Create a Paper Trail
Associations that maintain detailed records about exactly how they responded to a member's complaint of mold or water leaks are in a much better position if a claim is filed. For every possible mold claim, it is important that the association documents:
- Time of first report of mold or leaks;
- Response to report (what was done to investigate the complaint);
- Work done by maintenance staff to mitigate the damage;
- Name, date, and even time a specialist contractor was notified for consultation, and the time the specialist addressed the problem; and
- Certification that the specialist completed the work and corrected the problem.
Make sure to document the facts, but do not speculate about the cause of mold infestations or leaks, or the possible health effects the mold has had on the homeowner. A board member’s educated guess about where the leak originated could come back to haunt the association if the matter goes to trial. It is always better to seek the opinion of a professional.
Develop a Risk Management Plan
Reducing your association's susceptibility to insurance claims includes having a risk-management plan in place. A risk management plan could include any of the following action items:
- Adopt a mold resolution that among other things puts the responsibility on owners to report mold problems promptly.
- Raise the policy deductible and changing loss limits;
- Switch to a bare walls insurance policy, excluding certain improvements, such as floor and wall coverings, cabinetry; and
- Review the association budget carefully, eliminating unnecessary expenses, and using the savings to fund a deductible account.
