Environmental Risk

A Hurricane’s Moldy Legacy

Flooding, humid conditions and power outages make preventing and removing mold a tough mission in the aftermath of disaster.
By: | December 14, 2017 • 8 min read

When Hurricane Katrina hit the Gulf Coast in August 2005, a storm surge dumped at least 15 feet of water onto the city of New Orleans. The National Weather Service and the CDC later reported that 80 percent of the city remained flooded for two weeks.

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It took 43 days to pump flood waters out of lower-lying areas, and the cleanup process was stalled by the arrival of Hurricane Rita one month later.

The standing water and Louisiana’s warm temperatures created ideal conditions for mold growth. Environmental researchers estimated that more than 100,000 homes in the flooded areas experienced significant mold damage.

The Louisiana Department of Health and Hospitals recommended property owners remove and replace any drywall that had been in flood waters.

Similar conditions played out over this year’s turbulent hurricane season. Hurricane Harvey inundated Houston with roughly 50 inches of rain — more than the city had seen in the past several years combined.  According to a report by the Washington Post, 9 trillion gallons of rain fell across Southeast Texas just two days after the storm made landfall.

A previous construction boom in the Houston area covered up much of the surrounding land with concrete and steel, preventing water from draining.

Environmental carriers are ready for an influx of mold claims as cleanup continues in Houston and other hard-hit areas.

“We saw a spike in the amount of mold claims in Florida after previous hurricanes. We saw it in New Orleans after Katrina,” said Jeff Slivka, president, New Day Underwriting Managers.

“In many cases the buildings just weren’t constructed to withstand water intrusion, especially rain driven by hurricane winds. Sometimes the parking lot wasn’t graded correctly, so all of that water drained into the basement of a structure.”

Challenges in Mold Remediation

It doesn’t take much water to cause mold growth. Small leaks or clogged gutters can lead to mold that makes its way into a building’s structure. When several feet of water stand for weeks at a time, the problem is magnified.

Flooded properties typically need to be gutted to remove moldy material, thoroughly dried out, cleaned and usually sprayed with an anti-microbial solution to help prevent further growth. The process can take months and cost millions, but the impact also depends on the type of property and the level of water intrusion.

“An older building that’s wood-framed could be damaged beyond repair altogether. A concrete and steel high-rise building can take several months and even up to a year to remediate after extensive flooding,” said John Matthew Lumelleau, team leader of Lockton’s Texas-based environmental practice.

Lumelleau and his team were on the front lines in the aftermath of Hurricane Harvey — an experience he said he hopes never to repeat.

“When Buffalo Bayou flooded in Houston, it rose about four stories above the subgrade of a high-rise office building that was right across the street from where we were stationed. When the water receded, contractors had to hook up a large conduit and pump water out of the building for 72 hours straight,” he said.

“Then emergency staging began. It’s around-the-clock, 24/7 work to dry out the building with large fans and other drying devices powered by large generators. They’re still engaged in that process now, and it will probably continue for another five months before they can get people back in there in a safe working environment.”

Access issues and lack of power — common obstacles impeding disaster recovery — can extend that timeline. Puerto Rico has felt this most acutely. Two months after Hurricane Maria, half of the island remained in the dark.

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“It’s pretty tough to dry out your building if you don’t have any power. And it’s tough to get emergency contractors out to your site when your entire city needs emergency contractors,” said John O’Brien, environmental insurance veteran and former CEO of Ironshore Environmental.

The longer it takes to remove the water and dry out a building, the worse the mold growth will be.

Most environmental and property carriers align with emergency response contractors and provide those services as part of a property or pollution policy. Post-hurricane, however, the availability of those contractors could grow very limited very quickly.

“To the extent there is widespread damage within a region, there may be a shortage of construction workers and resources necessary to remove water-impacted materials and thoroughly dry out a building after an event, so the potential for mold to grow is amplified,” said Craig Richardson, EVP, Chubb Environmental.

Coverage Evolution

The insurance industry got its mold risk wake-up call in June 2001 when a massive claim settlement turned heads.

Craig Richardson, EVP, Chubb Environmental

In Ballard v. Farmers Insurance, Melinda Ballard and her husband filed suit against the insurer, alleging their claim for water damage and mold throughout their 22-room Texas home was mishandled. The couple claimed mold contaminated their house as well as the surrounding structures, leading to respiratory illness.

A judge awarded the couple an unprecedented $32 million for property and punitive damage and mental anguish. The award was eventually reduced to $4 million, but “the initial verdict sent shockwaves through the industry,” Slivka of New Day Underwriters said. “All of a sudden, insurers were realizing they may have an uninsured exposure.”

Since that case, coverage for mold remediation and removal has become fairly standard in environmental policies and in some property policies. But most carriers typically think about mold risk in the context of a non-CAT event.

“Storms add a layer of complexity,” O’Brien said.

Pollution and Property Overlaps

The circumstances surrounding property damage after a hurricane can call multiple coverages into play. Carriers, adjusters and insureds will need to determine whether mold was pre-existing or a direct result of water intrusion resulting from the storm.

If a structure needs to be demolished and rebuilt anyway, due to the extent of overall damage, is a property policy the sole recourse or will mold coverage pick up any of the reconstruction cost?

“Let’s say there’s a flooding event and you’ve got water damage to your drywall. That drywall will need to be replaced whether or not mold is present. But maybe some mold is growing there too. Is that a property loss or an environmental loss?” O’Brien said.

“There’s no norm in what’s covered under a property policy. Some exclude mold exposure, some include it but with large self-insured retentions. Some cover it with sub-limits. Variation in coverage is the only constant.”

Variation in pollution policies exists as well. Some pollution policies have per-room deductibles; others have one single deductible. Some are triggered by the assessment of an indoor air quality expert; others are still tied to environmental laws.

“There aren’t any bright lines delineating coverages for commercial properties between property and pollution for losses from CAT events,” O’Brien said.

“There’s no norm in what’s covered under a property policy. Variation in coverage is the only constant.” — John O’Brien, former CEO, Ironshore Environmental

Expenses related to the removal of mold are most often covered under pollution liability policies or, in the case of unfinished properties still under construction, contractors’ pollution liability policies.

But Slivka estimates less than half of contractors purchase CPL coverage, relying instead on general liability. Professional liability may also come into play if contractors don’t properly remediate mold growth on unfinished projects.

Coverage for business interruption expenses is another gray area. Some environmental policies cover BI losses related to mold remediation, others don’t. Ditto for third-party claims for bodily injury.

Property owners and risk managers should not assume they have coverage for mold remediation, reconstruction, business interruption and third-party liability in their property or general liability policy.

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“You want affirmative environmental coverage for all microbial matter, including mold, bacteria and viral matter,” Slivka said.

Many property owners, however, are uninsured or underinsured for environmental risks. In manufacturing, energy and construction, the exposures are obvious, but the owner of an office building is more likely to shrug off any environmental exposure as inconsequential.

Lockton’s Lumelleau said there are three types of property owners: those who buy environmental policies now because they had an uninsured loss in the past, those who self-insure or buy insufficient coverage because they don’t think the risk applies to them, and those who are unaware of mold’s expensive consequences altogether and don’t know their coverage options until they have an uninsured loss.

Staring at a flooded property after a hurricane is no time for an owner or risk manager to discover into which bucket they fall.

Risk Mitigation

There’s little property owners can do to protect their buildings from 100+ mph winds and floods that rise multiple stories. In the face of a hurricane, water intrusion is nearly unavoidable, and mold damage is likely.

But owners and risk managers can minimize the damage by having a disaster response plan that pre-emptively lines up emergency resources. Speed is the name of the game in mitigating water and mold damage.

Examining policies for gaps and overlaps can help property owners know who to call and align resources faster post-event.

Matt O’Malley, president, North America Environmental, XL Catlin

“Most carriers have access to experts in mold remediation. Coordinating the resources and services provided by your property, your GL and your environmental carriers is key to minimizing delays in recovery and reconstruction,” said Matt O’Malley, president, North America Environmental, XL Catlin.

“The faster you can get emergency contractors to your site, the more you minimize your loss,” Lumelleau said.

Even if emergency consultants aren’t immediately available or can’t physically get to a site, property owners could ensure backup generators and other equipment are on hand to begin pumping out water and drying materials as quickly as possible.

Additionally, ongoing operations and maintenance plans can help identify ways to make buildings more resilient against water intrusion. Recognizing a structure’s vulnerabilities can help building owners gird their defenses ahead and prioritize actions immediately following a storm.

“Many carriers will help insureds develop or fine tune an [operations and maintenance] plan,” O’Malley said. “So when an event happens, there’s a formalized process in place to ensure quick notification of the loss, so resources get to insureds faster.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]