Are Inspectors Required to Tell All?
By Susan L. Massmann
From the May 2004 issue of Claims Magazine
The British author Samuel Butler once said, “It is seldom very hard to do one's duty when one knows what it is, but it is often exceedingly difficult to find this out.”
That's where the courts must sometimes step in. Some recent decisions examine what duty, if any, inspectors have to disclose their mold discoveries to homeowners.
In Smith v. State Farm Ins. Co., No. 2003-CA-1580, 2004 WL 575058 (La. App. Mar. 2, 2004), a Louisiana appeals court ruled that a contractor owed no duty to warn insureds of mold growth.
Stuart Smith's home was damaged by hail. Smith's insurer, State Farm, used R.J.R. Construction for repairs. R.J.R. subcontracted with Brooks Roofing Company, which made two separate roof repairs. The roof continued to leak and water damaged the home's interior.
Mold began to grow in the house. Smith notified State Farm, which retained Rimkus Consulting Group to inspect for mold. Rimkus tested the home for mold and sent the results to State Farm but not to the Smiths. State Farm subsequently informed the Smiths that toxic mold was found in the home.
The Smiths filed suit against, among others, Rimkus. They claimed that Rimkus “had a fiduciary and legal duty to protect plaintiff's property.” They also stated that Rimkus breached its duty by “failing to adequately assess the level of toxic molds…failing to warn plaintiff of excessive levels of toxic mold on or in plaintiff's property…[and] falling below the level of care required of an environmental consulting group.”
The Smiths alleged that the failures on Rimkus's part resulted in increased mold contamination and their exposure to toxic mold. They argued that Rimkus's legal duty was to warn them of the dangerous toxic mold in their home.
Rimkus countered that, since the Smiths were not third-party beneficiaries to its contract with State Farm, it owed no duty to them.
The court found that the Smiths failed to identify the legal duty owed by Rimkus. Under Louisiana law, contracting parties “may stipulate a benefit for a third person not a party to the contract,' the court pointed out, which is a called a “stipulation pour autrui and gives the third party beneficiary the right to demand performance from the promisor.”
Both parties must intend for such a stipulation to exist, and the third-party benefit must be a contract condition and not merely arise incidentally. In this instance, the Smiths did not show that inspection of their home by Rimkus created a legal obligation to the Smiths or that Rimkus was negligent.
In another case, Sears v. Gregory, No. M2002-02771-COA-R3-CV, 2004 WL 115177 (Tenn. Ct. App. Jan. 23, 2004), a Tennessee appeals court found that pest control operators had no fiduciary relationship with home buyers and no duty to disclose mold growth in their home.
David and Anita Sears were first-time home buyers. They made an offer on a house and closed on the house without having a home inspection. They also made no inspections themselves.
Shortly after moving into the house, the Sears began to experience headaches, nasal irritation, and a burning sensation in their eyes. They also detected odors. They attempted several measures to remedy the problem, including removing new carpeting, installation of a plastic vapor barrier in the crawl space, and installation of new ventilators.
An inspector for Inspection Services by Scott concluded that mold was present throughout the house except where certain “clean room” conditions existed. Noting that the presence of mold did not indicate a problem on its own, he said that “where there is a food source and sufficient moisture the colonies will grow and multiply producing a reservoir of spores.” The increased number of spores, in his opinion, could have posed a health threat from exposure to mycotoxins.
Charles Pest Control conducted an inspection of the Sears' home prior to the closing. They submitted a wood destroying infestation inspection report to the Sears on behalf of the home's sellers.
Charles O'Brien, an employee of Charles Pest Control owner Charles Gregory, inspected the home and noted that there was “no visible evidence of a wood destroying insect infestation.” While he did not include the information on the report, he later stated in a deposition that the house's crawl space contained moisture and 80 percent of it was affected by mold.
The Sears sued Charles Pest Control for negligent misrepresentation and breach of warranty. The court stated that their liability depended “entirely upon the wood-destroying insect infestation inspection report.” According to Tennessee law, the report “evidences the presence or absence of visible wood destroying insects and the presence or absence of visible damage caused by such insects.”
Although moisture is a condition inviting to insects, the damage caused in the Sears' home resulted from the effects of moisture, not insects. Had the moisture led to insect infestation that in turn caused the damage, the court reasoned, Charles Pest Control may have been liable. However, the court pointed out that “the statutorily limited scope of a wood destroying insect infestation inspection report simply cannot form the predicate to extend liability for the effects of excessive moisture completely divorced from wood destroying insects.”
The court further stated that liability for nondisclosure exists only where the responsible party owed a duty to disclose the facts. The Tennessee Supreme Court outlined three classes where the duty to disclose exists, thus making concealment fraudulent:
1. Where there is a previous definite fiduciary relation between the parties.
2. Where it appears one or each of the parties to the contract expressly reposes a trust and confidence in the other.
3. Where the contract or transaction is intrinsically fiduciary and calls for perfect good faith.
The court said, “The facts in this case disclose no fiduciary relationship between the parties.” The Sears had no contract with Charles Pest Control to inspect their home. The insect manifestation report, by law, required only that the inspector reveal the presence of wood-destroying insects, not other detrimental conditions. Thus, they were not liable for reporting the moisture or mold growth to the homeowners.
While much attention is given to mold inspectors and their credentials (or lack thereof), it is also important to note what they must report and to whom. As the Smith case illustrates, experts hired by the insurer may only be required to inform the insurer of mold problems. And those who are not “mold experts” at all may not be required to inform anyone of its existence.