In response to an explosion of "toxic mold" claims at the turn of the century, universal exclusions for mold, fungi and bacteria related losses were introduced faster and on a wider scale than any exclusion in the history of the insurance business. The exclusions for fungi and bacteria are by far the most onerous total pollution exclusions ever conceived.

These expansive exclusions for a very common cause of loss were slammed into virtually all property and liability insurance policies without instruction manuals on what was being excluded. That left insurance producers and claims adjusters in the dark on the material changes in coverage created by the exclusions. In practice, most producers and claims adjusters missed that anything changed in the insurance policies they worked with on a daily basis. That led to big surprises for insurance buyers when the exclusions were used to deny coverage for losses associated with fungi and bacteria.

To move towards transparency and consistency in the application of fungi/bacteria exclusions, there are some import facts that every claims adjuster should keep in mind.

• Many commercial "mold exclusions" were drafted to apply to both fungi and bacteria because in virtually every place mold grows, bacteria is found using mold as a food source. To avoid covering mold claims as bacteria contamination losses, ISO excluded claims related to both contaminants.

• There is precedence case law in some states where bacteria as a contaminant already falls within the standard ISO definition of a pollutant in pollution exclusions. Therefore, a loss involving bacteria may trigger at least two exclusions in property and liability insurance policies, the fungi/bacteria exclusion and the pollution exclusion.

• Fungi and bacteria exclusions apply to any species or amount of these contaminants. Because the exclusions are silent on type or amount, a speck of either technically triggers the full effect of the exclusion.

• Mold and bacteria are present in every building.

• On commercial general liability policies, most fungi/bacteria exclusions have two parts:

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  • Part (A) applies to losses starting with the threatened existence of fungi or bacteria in a building. It also excludes bodily injury and property damage from the actual exposure to fungi or bacteria. This part of the exclusion has an anti-concurrent causation clause taken straight out of the ISO flood/war exclusion section in a commercial property insurance policy.

  • Part (B) applies to any insured in the business of cleaning up or assessing fungi or bacteria. This part of the exclusion is a job site exclusion for anyone performing this work. It applies to plumbers, carpet cleaners and janitors, not just to mold remediators.

• Anti-concurrent causation clauses apply the exclusion to the entire loss if the excluded cause of loss happens before, during or after an otherwise covered cause of loss.

• In its simplest form the sole purpose of an anti-concurrent causation clause in an exclusion is to eliminate coverage arguments based upon the proximate cause of the loss and ensuing damages not falling under the exclusion.

• Water or high humidity on drywall will create mold growth in 72 hours at room temperature, and sometimes in as little as 36 hours depending on the conditions.

• The IICRC S500 Standard and Guidelines for Professional Water Damage Restoration identify three categories of water most often encountered as part of a water loss:

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  • Category 1 — supply line water (clean water)

  • Category 2 — contaminated but is not grossly contaminated with bacteria (gray water)

  • Category 3 — contaminated with bacteria; triggers fungi/bacteria exclusions (black water)

  • Category 1 and 2 water can morph into Category 3 water over time

• Mold is an allergen. Bacteria can actively attack its host and cause death, e.g., Legionnaires disease is caused by bacteria. Insurance companies routinely exclude Legionnaires disease losses, but routinely ignore Category 3 water even though both are associated with bacteria.

• There are many more Category 3 water insurance claims than claims associated with mold remediation.

• There are a number of documents that comprise the industry standard of care for mold remediation from IICRC, AIHA, the New York City Dept. of Health and Mental Hygiene, the Environmental Protection Agency, OSHA and other organizations.

• Claims adjusters who deviate from the industry standard of care documents are unilaterally deciding not to follow the guidance of thousands of reasonable and prudent practitioners who developed the professional standards and guidelines. Avoidable risk is being assumed by the claims adjusters choosing not to follow generally accepted industry standards for water and mold remediation.

Fungi/bacteria exclusions are simply a combination of a total pollution exclusion taken out of a general liability endorsement and the anti-concurrent causation language in the preamble to the flood exclusion that is found in the commercial property insurance policy.