Already dubbed "asbestos II" by lawyers for some plaintiffs, litigation over injuries caused by lead paint is growing rapidly. Residential landlords are the prime targets, but mortgage lenders are close behind.
To them, this litigation is a double threat. The expense will cause many landlords to default on their mortgage loans. And lenders themselves may be sued after their borrowers default.
Lead paint has not been used in residences since the late 1970s, but it remains in millions of public and private housing units. When ingested by young children, mainly by eating chips of peeling paint, lead can cause permanent injuries, including loss of intelligence.
Several million children, most from lower-income families, are thought to have lead levels in the blood higher than the Centers for Disease Control think safe. Hundreds of these children have sued their landlords; thousands more probably will.
What Constitutes Liability
In most states a landlord is liable if he knew or should have known there was a lead-paint hazard in the building yet did nothing about it, and if the child was injured by ingesting the lead.
In practice, landlords have lost most of the cases tried against them. A few have persuaded the jury that the child was not really injured by lead paint, but once the child proves he was injured, he is usually able to prove the landlord had reason to know there was dangerous lead paint on his property.
And the verdicts against landlords have not been small. They average over $500,000 per child, with out-of-court settlements in the same range.
Landlords might fare better with some fellow defendants in these cases, but in most cases they won't have any. Rarely can a landlord identify the specific company that made the lead paint used in its property.
Going It Alone
So far courts have rejected "market share" or "enterprise" theories of liability that would allow a landlord to sue several paint companies without proving whose paint was used on its walls. Some landlords have tried to sue the parents of the injured child for their own negligence in letting the child eat paint chips. Some states permit this, but most do not. So most landlords will face these claims alone.
Even the landlords' own insurers may soon be out of the picture. Most landlords carry liability insurance to protect them from claims for "bodily injury."
But these policies also exclude coverage for "pollution." Many insurers argue that lead is a pollutant and lead poisoning is pollution, so there is no coverage under these policies.
The highest court of Massachusetts has rejected the insurers' argument, but a lower court in New York has just accepted it. In any case, many insurers are expressly excluding lead-paint cases from new policies, even if lead poisoning is not "pollution" under the old ones.
No Choice but to Default
Especially for landlords without insurance, the cost of defending and paying these claims will be prohibitive, causing many of them to give up their properties and default on their mortgages.
But where a landlord's exposure may end with default, its lender's exposure is just beginning. And the lender's exposure may not be for just the defaulted loan, nor for any lead poisoning that occurs after the default, but for the very claim that drove the landlord to default in the first place.
A recent case in New York illustrates this risk.
The child plaintiff began to ingest paint chips when a leak in the roof of the building caused peeling of the paint in her family's top-floor apartment. Complaints to the landlord had no effect. Four months later the City of New York took title to the building under a tax foreclosure. The child continued to ingest the paint chips, and the tenant continued to complain, now to the city.
Three months later the city de-leaded the apartment. The jury awarded damages of $1,700,000, for which the landlord was 80% responsible and the city 20%. The landlord was insolvent, of course, so under the rule of "joint and several" liability, the city had to pay the entire verdict.
A foreclosing lender will likely be in the same spot: sued because it did not completely delead a residence immediately upon default, and forced to pay the insolvent landlord's much larger share of the damages.