Ninth Circuit Reverses Multi-Million Dollar Punitive Damages Award In Mold Case
December, 2002
The Ninth Circuit, applying California law, reversed a significant punitive damages award entered against an insurer in a mold case holding that “Allstate’s conduct does not reach the level required for an award of punitive damages. There is no substantial evidence that Allstate acted with malice, oppression, or fraud in handling Anderson’s [the insured’s] claim.” Anderson v. Allstate Ins. Co., No. CV-00-00907-PAN, 2002 WL 2021617 at *5 (9th Cir.).
Facts
Plaintiff insured purchased an Allstate Deluxe Homeowners Policy in June, 1996. The policy covered water damage from freezing, but contained an exclusion for freezing damage if the house was unoccupied and the owner failed to take reasonable care to maintain heat.
At some point in January, 1997, a pipe broke in the insured’s attic and sprayed water throughout the house. On January 17, 1997, a neighbor noticed water streaming down the outside of the insured’s home and called the water district to have the water turned off. The insured discovered the water damage on February 1, 1997, and reported the loss to Allstate. Allstate sent an emergency service to the insured’s home to survey and repair the damage: “ServiceMaster pulled up the carpet and applied a substance to remove the mold on the walls and floor.”
Allstate assigned an independent adjuster to the claim. The adjuster documented the damage, but paid special attention to the fact that the house appeared to be vacant given the “near-total absence of furniture or other amenities.” The adjustment process became quite contentious shortly thereafter. The insured complained that Allstate was “jerking [him] around,” and “Allstate contended that Anderson and his son were being evasive and had overstated claims for damages to contents.” Eventually, a “take it or leave it” check was delivered to the insured on the basis that Allstate would require its return should it determine that there was no coverage.
Later, much more extensive mold damage was discovered. The insured submitted evidence of the additional mold damage which was ignored by Allstate. The mold at the insured’s home rendered it uninhabitable. The insured then brought this action in June, 1999. The jury awarded plaintiff $484,853.96 in compensatory damages and punitive damages of $18 million, which the district court subsequently reduced to five times the compensatory award (approximately $2.7 million).
Analysis
The Ninth Circuit affirmed the bad faith finding against Allstate stating: “[t]he record contains sufficient evidence for a jury to find that Allstate’s conduct amounted to more than a simple mistake or legitimate dispute as to coverage and damages.” Specific to the supplemental mold claim, Allstate contended that “its actions in failing to respond to the supplemental claims of mold damage were reasonable because much less was known about treatment of mold at that time than is known now.” Evidence to the contrary was presented at trial indicating that “there was sufficient awareness in the insurance industry concerning the problems of mold ....”
However, the Ninth Circuit reversed the punitive damages award, finding that Allstate’s conduct did not demonstrate “malice, oppression or fraud” as required to sustain punitives:
The health hazards of mold were less clear at the time of Allstate’s actions than they later became. Some of Allstate’s actions are inconsistent with a finding of malice or extreme indifference to Anderson’s rights, including its payment of $28 per hour to Anderson’s son for cleanup work when he had put in a claim at a lower rate, and its advice to Anderson’s contractor to raise his original estimate to meet that of Allstate. ... [T]here was not enough evidence for a jury to find that Allstate engaged in such despicable conduct that it should be punished with punitive damages.
Learning Point:
Even with an active plaintiff’s bar that is continually pursuing mold claims to significant extremes, courts have been applying well-settled and predictable law in their analysis of coverage issues, the admission of expert evidence, and, as indicated in Anderson, the assessment of damages.
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