Does Your Disaster Plan Include Your Lawyer?

By Alexander Robertson IV,, September 2005
Although damage estimates are still preliminary, Hurricane Katrina is already one of the most costly natural disasters in U.S. history. The images of flooding, building collapses, and fires that streamed virtually non-stop from 24 hour cable news outlets tell only part of the story of Katrina's damage. The hospitality and gaming industries were among the hardest hit along the Gulf Coast, with many of their structures either partially or completely damaged by the storm's fury. Now that the flood waters are receding in New Orleans and debris removal has begun at the major hotels along the Gulf Coast, important decisions need to be made which will impact the ability of owners and operators to recover their financial losses.

Unfortunately, many owners and operators have not considered including experienced legal counsel as an important member of their disaster response plan. Why include a lawyer? The answer is simple. History has proven that recovery from insurers, municipalities and other responsible parties must frequently be resolved in the courts, and in many cases, years after the wind, rain and flooding have stopped. A small cadre of attorneys experienced in insurance, construction and mold claims have been busy during the past weeks up and down the Gulf Coast, helping owners and operators assess and document the damage, collect evidence of causation, and marshal forensic experts who may be needed to testify in the inevitable legal battles that will surely follow in the ensuing months and years.

According to the U.S. Environmental Protection Agency (EPA), mold growth can begin on any organic substance, such as wood, paper, carpet, food and insulation, within 48 hours of water damage.1 The most important first step to protect a building damaged by a large water loss event such as a flood, wind-driven rain or other water intrusion is the dehumidification process (commonly known as "dehu" in the restoration industry). The goal is to reduce the indoor relative humidity (RH) to below 60%.2 This process involves blowing either super-heated air (typically 90-110 degrees Fahrenheit) or chilled air into the building through a system of compressors and flexible ducts. Typically, because electrical utilities have been knocked out, temporary power must be provided by large truck-mounted diesel generators. Stairwells and elevator shafts are used as conduits to pressurize the building's core, and doors to all rooms in a high rise are propped opened in order to allow dehumidification of building materials such as drywall, insulation, carpets, etc. To promote the "dry-out" process, a series of commercial air blowers, such as the ones typically used to dry out wet carpet, are placed in each hallway to facilitate air movement.

Depending on the type and size of the structure, the "dehu" process could take weeks before the relative moisture content of the walls, ceilings and carpets return to pre-existing ambient levels. However, even after the "dry-out" process has been achieved, the building must remain in a dehumidification mode until the facility's HVAC system is operational, or else in humid climates, the unconditioned indoor air could cause the moisture content of building materials to once again become elevated and promote mold growth.

A trap for the unwary is the heavy reliance on moisture meter readings of drywall to detect moisture and resulting mold damage in a building that has undergone dehumidification. Moisture meters are an acceptable tool to detect elevated moisture in building materials. However, the "dry-out" process that is so critical in the first 48 hours after major water damage will often mask hidden damage behind vinyl wallpaper or within wall cavities because materials that once had very elevated moisture levels that promoted mold growth may have dried out by the time investigative personnel get a chance to take moisture meter readings throughout a large high rise.

Mold actually destroys carbon-based substrates, and thus constitutes property damage in and of itself.3 Inhalation exposure to mold can also cause health problems for certain individuals. Molds produce allergens that can trigger allergic reactions and even asthma attacks in people allergic to mold.4 A recent study published by the Institute of Medicine, commissioned by the National Academy of Sciences and Centers for Disease Control and Prevention, found "sufficient evidence of an association" between health outcomes and the presence of mold or other agents in damp indoor environments. These adverse health outcomes include upper respiratory tract symptoms, cough, hypersensitivity pneumonitis in susceptible persons, wheeze and asthma in sensitized persons.5

While no federal, state or local regulations exist governing the assessment and remediation of mold, there are several "standard of care" guidelines that have been published by industry trade groups and public health agencies. For instance, in May of 1993 the New York City Department of Health published guidelines on the Assessment and Remediation of Stachybotrys Atra in Indoor Environments, and then revised those guidelines in 2000 to include all species of fungi. See, Guidelines on Assessment and Remediation of Fungi in Indoor Environments, New York City Dept. of Health, (2000).

Thereafter, the EPA adopted many of the recommendations contained in the New York City Dept. of Health guidelines when it published, Mold Remediation in Schools and Commercial Buildings in 2001. In 2003, the restoration industry also promulgated standards to define the criteria and methodology to be used by professional remediators for investigating and remediating abnormal moisture and mold contamination. These standards are known in the industry as the IICRC S520.6

Failure to follow these published guidelines can expose a hotel owner or operator to civil liability to employees, remediation workers and hotel guests. Highly publicized lawsuits against hotels have been filed around the country, many of which have resulted in large financial settlements and adverse publicity for the owner/operator.7

Additionally, in 2004 OSHA published a Safety and Health Information Bulletin entitled, A Brief Guide to Mold in the Workplace. Although the bulletin is not a standard or regulation, it states that it was created to assist building managers, contractors and environmental consultants who respond to mold and moisture situations in buildings. The Occupational Safety and Health Act requires employers to comply with hazard-specific safety and health standards as issued and enforced by either Federal OSHA or and OSHA-approved State Plan. Additionally, Section 5(a) (1), the General Duty Clause, of the Act requires employers to provide their employees with a workplace free from recognized hazards likely to cause death or serious physical harm. Employers can be cited by OSHA for violating the General Duty Clause if there is such a recognized hazard (e.g. mold) and they do not take reasonable steps to prevent or abate the hazard.

The OSHA Bulletin categorizes mold remediation into four (4) categories, depending upon the square footage of contamination. For most buildings that suffered serious water damage from Katrina, Level IV, also called "Extensive Contamination" will apply. This level applies to mold growth that is greater than 100 contiguous square feet. According to OSHA, the following procedures should be implemented under Level IV conditions:

   1. Personnel trained in the handling of hazardous materials and equipped with:
         1. full face piece respirators with HEPA cartridges;
         2. disposable protective clothing covering the entire body including head and shoes; and
         3. gloves.
   2. Containment of the affected area:
         1. complete isolation of work area from occupied spaces using plastic sheeting sealed with duct tape (including ventilation ducts/grills, fixtures and other  openings);
         2. the use of an exhaust fan with a HEPA filter to generate negative pressurization; and
         3. airlocks and decontamination room.
   3. If containment practices effectively prevent mold from migrating from affected areas, it may not be necessary to remove people from surrounding work areas. However, removal is still recommended for infants, persons having undergone recent surgery, immune-suppressed people, or people with chronic inflammatory lung diseases (e.g. asthma, hypersensitivity pneumonitis, and severe allergies).
   4. Contaminated materials that cannot be cleaned should be removed from the building in sealed impermeable plastic bags. The outside of the bags should be cleaned with a damp cloth and detergent solution or HEPA vacuumed in the decontamination chamber prior to their transport to uncontaminated areas of the building. These materials may be disposed of as ordinary waste.
   5. The contaminated area and decontamination room should be HEPA vacuumed and cleaned with a damp cloth or mopped with a detergent solution and be visibly clean prior to the removal of the isolation barriers.

In addition, after Katrina the CDC, OSHA and NIOSH all published fact sheets and guidelines for hurricane recovery and clean-up. It is important that all workers involved in the clean-up and remediation of damaged properties be informed of these health advisories and that their employers incorporate these latest guidelines and health warnings into their health and safety plan in order to comply with the General Duty Clause of the Occupational Safety and Health Act.8

Unlike many owners and operators of hotels, casinos and restaurants, the insurance industry has had plenty of experience investigating and handling property losses from hurricanes. Last year alone, the industry was required to respond to claims from the "hurricane trifecta" in Florida - Charley, Frances and Jeanne- as well as Ivan in Alabama. The task of sorting out the cause of Katrina's destruction will involve forensic experts that must apportion damage from a myriad of potential concurrent causes, including flood, wind, rain, looting, vandalism, pollution, fire, power failure, governmental action, mold, further deterioration of property that was inaccessible for weeks, etc. In addition to property damage, business interruption claims could be staggering.

The insurance coverage analysis will likely focus on the "proximate cause" of the damage. Because some causes of damage may be excluded under particular insurance policies, it is not difficult to predict long and expensive legal battles between insureds and their insurers over causation. One commentator has already predicted much litigation over the terms "efficient proximate cause" and "anti-concurrent causation."9 In the first party context, some courts have adopted the "efficient proximate cause" doctrine, which provides that if a covered peril causes an excluded peril, coverage is available even for damage caused by the excluded peril. For example, if mold is an excluded peril, but wind-driven rain causes mold to grow as a result, then the damage caused by both the wind and rain and resulting mold growth is covered under the policy. However, mold that did not grow as a result of a covered peril (e.g. wind-driven rain) would not be covered. The Louisiana Supreme Court adopted the efficient proximate cause analysis in Lorio v. Aetna Insurance Company, 232 So. 2d 490 (La. 1970), a Hurricane Betsy case.

On the other hand, some ISO insurance forms contain anti-concurrent causation clauses to override efficient proximate cause by precluding coverage for a specified peril, even if caused by an otherwise covered peril. Recently, a Mississippi appeals court analyzed such an anti-concurrent causation lead-in clause in a policy and found no coverage for property damage. See, Boteler v. State Farm Casualty Insurance Company, 876 So. 2d 1067 (Miss. App. 2004).

Much effort will be focused on trying to determine whether property damage was caused by wind and rain versus flooding. Typically, private insurance covers wind and rain damage, but not flood damage. Instead, flood insurance is offered by the National Flood Insurance Program (NFIP). As reported by the Wall Street Journal, according to data from the NFIP, only one-fifth of the homes and businesses in Mississippi in the areas most at risk for flooding were covered by flood insurance before Katrina. In Louisiana, the Journal reported that less than half of such properties were covered.10

Based upon past hurricane cases, the task of allocating the amount of property damage caused by wind and rain, and thus potentially covered by private insurance policies, versus damage caused by flooding that may be covered under the NFIP, will likely be resolved in the courts. In Urrate v. Araonaut Great Central Insurance Company, 881 So. 2d 787 (La. App. 2004) a restaurant located in Jefferson Parish, La. was damaged from Hurricane Georges in 1998, which made landfall near Biloxi, Mississippi. Part of the restaurant was swept away. The owner had a flood insurance policy issued by Omaha Property and Casualty, which covered damages from flooding and tidal waves. The owner also had a policy issued by Argonaut, which excluded such damage. Each insurer determined the amount of damage it believed was caused by covered perils, however, the owner was not satisfied and filed suit. The court was forced to make factual determinations as to what caused certain types of damage and allocate the repair costs to each policy.

For example, the court concluded that $35,000 of glass damage was caused solely by wind, and thus covered only under Argonaut's policy. The court disagreed with Argonaut's assessment that its share of business loss was only $9,500 while electricity was knocked out, and instead ruled that the restaurant suffered a business loss for the last quarter of 1998 of $80,000 and attributed 25% of that loss to wind damage. The court also determined that the plaintiff suffered a business loss in 1999 in the amount of $70,000 and attributed 15% of that loss to wind damage. The Louisiana Court of Appeal affirmed the trial court's decision. It should be noted that the final resolution of this hurricane loss took six (6) years from the time of the hurricane until the time the Louisiana Supreme Court denied review of the lower courts' decisions.

Further, the importance of an insured protecting itself and documenting damage, and the cause of that damage, was highlighted by the federal court in Southern Hotels Limited Partnership v. Lloyd's Underwriters at London Companies, et. al. (1997 U.S. Dist. Lexis 8384 (E.D., La.). In that case, the Travelodge Hotel in Harvey, Louisiana sustained wind, rain and flood damage from Hurricane Andrew in 1992. The hotel was insured by a policy that covered wind and water damage, but flood damage was subject to a $200,000 deductible. The hotel had a separate flood insurance policy up to $200,000 in coverage from the NFIP. The court stated, "The plaintiff has the burden of proving both the damage and the causal connection between the damage and the covered cause of loss. This proof must be shown by a reasonable preponderance of the evidence, and with some detail and specificity. A mere possibility of causation and damage are insufficient." Id at 16. In analyzing the claim for damage to furniture, the court looked to whether the walls and roof were blown away to determine if the damage was caused by wind-driven rain or flooding.

This case underscores the importance of hotel and casino owners doing their homework by retaining experienced legal counsel and forensic construction and mold experts early in their disaster response, before critical evidence is destroyed in the salvage and remediation process. These experts can assist the insured in documenting the damage, as well as navigating the tricky causation issues dealing with pre-existing defects, wind, rain and flooding. In most cases, the insured's policies will actually cover the cost of the insured's investigation.

1. Mold Remediation in Schools and Commercial Buildings, U.S. EPA (2001)

2. Mold Remediation in Schools and Commercial Buildings, U.S. EPA (2001)

3. Mold Remediation in Schools and Commercial Buildings, U.S. EPA (2001)

4. Mold Remediation in Schools and Commercial Buildings, U.S. EPA (2001)

5. Damp Indoor Spaces and Health, Institute of Medicine of the National Academies, (2004); copies available at

6. Standard and Reference Guide for Professional Mold Remediaton, IICRC S520, Institute of Inspection, Cleaning, and Restoration Certification (December, 2003).

  1. Bayer v. Omni Hotels Management Corp., et. al.,
      No. 2003-17354 (2004 La Dist. Ct., Parish of Orleans)
      $4,250,000 settlement reached 3 months after former employees sued owner/operator for mishandling mold remediation
   2. Powell v. Credit Suisse First Boston Mortgage Capital, LLC, et al.,
      No. 2002-13738 (2005 La. Dist. Ct., Parish of Orleans)
      $7,700,000 settlement with former guests and employees of Crescent on Canal hotel in New Orleans for alleged personal injuries to mold in hotel sustained between 1995 and 2002
   3. DIV LLC v. La Strada Inn, Inc.,
      No. 05-1436 (2005 E.D., La.)
      Owners of former Quality Inn Midtown in New Orleans alleged the previous owner of concealing mold problems in hotel and seek rescission of $3.1 million sale
   4. Hilton Hotels Corp. v. Wimberly Allison Tong & Goo
      (2003 Hawaii Cir. Ct., 1st Cir.)
      Hilton sued the general and subcontractors that built the Hilton Hawaiian Village hotel, which was forced to close for approx. 8 months for mold remediation and repair at a cost of $55 million
   5. Jleff Moffett and similarly situated persons v. Hilton Hotels Corp.,
      No. 03-1-1053-05 (2003 Hawaii Cir. Ct., 1st Cir.)
      Family filed class action lawsuit against Hilton alleging his wife and infant son were injured by the hotel's non-disclosure of toxic mold in guest rooms, which Hilton allegedly rented to guests even after the hotel was aware of the contamination. The class action was later certified by Circuit Court Judge Sabrina McKenna in December, 2004 on behalf of a putative class of 2,000 guests who may have rented rooms at Hilton's Kalia Tower between June 14th and July 23, 2003, when the hotel was closed for mold remediation.

   1. Key facts about Hurricane recovery: "Protect your health and safety after a hurricane", CDC;
   2. "Natural Disaster Recovery Facts Sheet, OSHA;
   3. NIOSH Interim Guidance on Personal Protective Equipment and Clothing for Flood Response of Workers", NIOSH
   4. "Disaster Safety", CDC;
   5. "After a Hurricane; Key Facts About Infectious Disease", CDC;
   6. "Interim Immunization Recommendations for Emergency Responders: Hurricane Katrina", CDC;

9. Randy Maniloff, Esq., "Unraveling Insurance Coverage for Hurricane Katrina", National Underwriters' FC&S Bulletin, September, 2005

10. Theo Francis, "Many in Areas Hard Hit by Flooding Lack Insurance," The Wall Street Journal, August 31, 2005, at A5