The Insured's Duty to Mitigate Mold Damages
January, 2002
by Edward J. Ozog and
When the insured suffers mold damage, its effort—or lack of effort—to mitigate that damage affects the carrier’s liability for the loss. This is because the insured has a duty “to mitigate covered losses, either by preventing them or minimizing their extent....” Couch on Insurance 3d §178:10 at p.178-17 (1998). The rationale behind this duty is “virtually common sense: any other rule would provide the insured with the economic incentive to allow the loss to occur, to the detriment of the insurer, quite possibly the insured, and in a fair number of cases, to the general public, as well.” Couch, supra, at p.178-16.
This duty of the insured to mitigate damages may be found in either or both of two places: the policy itself or the common law. We examine each of these below.
Policy Requirements to Mitigate
Many policies contain provisions which expressly require the insured to mitigate damages to covered property. Such provisions usually require the insured to either take affirmative action to mitigate its damages or otherwise protect the property from further damage upon the occurrence of a covered loss. See, e.g., Witcher Constr. Co. v. St. Paul Fire & Marine, 550 N.W.2d 1 (Minn. Ct. App. 1996) (policy required insured to “do everything possible to protect the property from further damage” upon the occurrence of a covered loss in exchange for the insurer’s reimbursement to the insured of such expenses).
The insured’s duty under the policy to mitigate mold damages may also be found in a sue and labor clause, which “provides a form of indemnity separate from the main insuring clause and requires the insured to take steps to prevent or minimize an imminent covered loss.” Witcher Constr. Co., supra, at 7. Many courts have grounded the insured’s duty to mitigate damages in the sue and labor clause. See, e.g., Protection Mutual Ins. Co. v. Silgan Plastics Corp., No. 96 Civ. 4493, 2000 U.S. Dist. LEXIS 11700 (S.D.N.Y. Aug. 16, 2000) (insured’s duty to mitigate found in policy’s sue and labor clause, which stated that “in case of any loss or misfortune, it shall be lawful and necessary for the insured....to sue, labor and travel for, in and about the defense, safeguard and recovery of the said goods and merchandise, or any part thereof....”); Southern Cal. Edison Co. v. Harbor Ins., 148 Cal. Rptr. 106 (Cal. Ct. App. 1978) (“A sue and labor clause makes express the implied correlative duties between insured and insurer regarding losses compensable under an insurance policy. Under penalty of possible forfeiture of policy rights, the insured has the duty of preventing a threatened insurable loss and mitigating such loss when it does occur.”).
Finally, some courts have found the insured’s duty to mitigate damages in a policy’s cooperation clause. For example, in Slay Warehousing Co. v. Reliance Ins. Co., 471 F.2d 1364 (8th Cir. 1973), the court recognized a duty on the part of the insured to mitigate its damages imposed by the terms of its property policy where the cooperation clause required the insured, among other things, to “exercise all reasonable means to protect, safeguard and salvage the property.” See also, City of Edgerton v. General Casualty Co. of Wisconsin, 493 N.W.2d 768 (Wis. Ct. App. 1992).
Common Law Duty to Mitigate
Where the policy does not contain an express provision requiring the insured to mitigate its damages or to protect the property from further damage upon the occurrence of a covered loss, such a duty may nevertheless be imposed upon the insured by the common law. Many courts which have considered the issue have found such a duty. See, e.g., Protection Mutual Ins. Co. v. Silgan Plastics Corp. (“New York’s courts adhere to the universally accepted principle that a harmed party must mitigate damages”); Witcher Constr. Co. v. Saint Paul Fire and Marine Ins. Co., City of Edgerton v. General Casualty Co. of Wis. (finding that the insured has “a common law duty to prevent harm to the insured property”); Southern Cal. Edison Co. v. Harbor Ins. Co. (the insured has a common law duty “to prevent and mitigate insurable loss”); and Slay Warehousing Co., Inc. (“the obligation to pay the expenses of protecting the exposed property may arise from either the insurance agreement itself, or an implied duty under the policy contract based upon general principles of law and equity”), all supra.
Accompanying this duty on the part of the insured, numerous courts have also recognized a converse common law duty on the part of the insurer to indemnify the insured for mitigation expenses. See, e.g., Curtis O. Greiss & Sons, Inc. v. Farm Bureau Ins. Co. of Nebraska, 528 N.W.2d 329 (Neb. 1995) (“expenses necessarily incurred in the course of mitigating damages are recoverable by an insured”); J.A. Harper v. Pelican Trucking Co., Inc., 176 So.2d 767 (La. Ct. App. 1965) (“the insured is entitled to reimbursement of the expenses incurred in protecting his insurer against loss by application of general principles of law and equity”). Where found, this duty exists even if the insured’s mitigation expenses are not otherwise covered under the policy language. See: Couch, supra, at p.178-17.
Reasonableness of Mitigation Efforts
The insured’s conduct in the mitigation of its damages is judged on the basis of “reasonableness,” i.e. what an ordinary prudent person would have done under the same or similar circumstances. See, e.g., Protection Mutual Ins. Co. v. Silgan Plastics, supra; Dox Planks v. Ohio Farmers Ins. Co., 621 A.2d 132 (Pa. Super. Ct. 1993). The burden, however, is on the insurer to show how further loss could have been avoided through the insured’s reasonable efforts to mitigate damages. Some appellate courts have held that the insurer in such a circumstance must prove “not only the [insured’s] lack of diligence, but also the amount by which the [insurer’s] damages were increased by such failure.” See, R.A. Corbett Transport, Inc. v. Oden, 678 S.W.2d 172 (Tex. App. 1984). Most courts, however, have held simply that there must be some evidence in the record from which the jury can make a reasoned calculation about losses from the insured’s failure to mitigate. See, e.g., Hygenia Dairy v. Gonzales, 994 S.W.2d 220 (Tex. App. 1999).
Failure to Mitigate Only Reduces Damages
An insured’s failure to mitigate damages will not typically result in a complete bar to recovery. The duty to mitigate is not an absolute defense, but rather concerns the amount of damages an insured can recover. See, e.g., Aircraft Guar. Corp. v. Strato-Lift, Inc., 991 F. Supp. 735 (E.D. Penn. 1998). The amount recoverable by the insured will thus generally be reduced by the amount of losses which could have been avoided by the insured’s reasonable efforts to mitigate. See, e.g., State Pub. Sch. Bldg. Auth. v. W.M. Anderson Co., 410 A.2d 1329 (Pa. Comm. Ct. 1980). The issue of how much an insured’s recovery should be reduced due to its failure to mitigate is a question of fact. See, Aircraft Guar. Corp., supra.
Rossmanith v. Union Insurance Company of Providence
The foregoing principles are well-illustrated by the Iowa appellate court’s recent opinion in Rossmanith v. Union Insurance Company of Providence, 2001 WL 1451050 (Iowa App. Ct. Nov. 16, 2001).
In Rossmanith, the tile roof and windows of plaintiff’s home were damaged by a hailstorm on May 30, 1998. Plaintiff had homeowner’s insurance through defendant, and notified it of the storm damage shortly afterwards. On June 9, 1998, defendant’s adjuster inspected the house. During that inspection, the adjuster noticed that plaintiff had not had anything put on the roof to prevent further damage to the interior of the house or its contents. He accordingly advised plaintiff to make immediate arrangements for temporary repairs to the roof. Plaintiff did so, and on June 13, a roofer removed a large portion of tiles from the roof and begin installing a temporary plastic tarp. The roofer was not able to complete the job until June 15, leaving the house exposed to the elements on June 14. On that date, it rained approximately two inches, causing additional damage to the interior of the home. After this additional rain, plaintiff moved out of the house and began searching for a contractor to permanently repair the roof, although he could not decide whether to re-install a tile roof or replace it with a less expensive shingle roof. Plaintiff finally decided to re-install a tile roof and he retained a roofing contractor, who, by July 15, had removed the plastic tarp and placed a felt cover over the roof in preparation for laying the final tile roof. This felt cover was damaged by the elements before the permanent roof was installed, allowing additional water to enter the house.
On July 22, defendant’s adjuster conducted a final inspection of the house and wrote a final loss estimate for all of the damage to the interior, exterior, and personal property that existed at that time. He included in this estimate the additional damage that occurred as a result of the June 14 rainstorm. The adjuster and plaintiff went through the house room by room, and the adjuster discussed his estimate with plaintiff. He also warned plaintiff during that inspection about the danger of mold and mildew damage, and told plaintiff that he needed to keep the air circulating and the temperature regulated in the house to avoid such problems. Defendant reviewed and approved the adjuster’s estimate of $57,896.00, and sent plaintiff a check for that amount.
Two months later, plaintiff discovered that mold and mildew had developed in the house, causing additional damage that exceeded the amount he had already been paid. He retained an independent adjuster, who inspected the house and determined that it would cost an additional $154,957.00 to remediate the problem. Plaintiff accordingly submitted a supplemental claim to defendant for that amount. Defendant denied the claim on the ground that the mold damage was more likely the result of the extended delay in re-roofing the house rather than direct loss from the storm, and that it would not have occurred had the roofing been done in a timely manner. Plaintiff then filed suit, asserting that defendant acted in bad faith when it failed to pay his supplemental claim. The trial court granted a directed verdict for defendant, and plaintiff appealed.
The appellate court affirmed the directed verdict for defendant, finding that plaintiff had failed to mitigate his damages as required by the policy. The policy contained a provision which required the insured, following a loss to covered property, to “protect the property from further damage. If repairs to the property are required, you must make reasonable and necessary repairs to protect the property....” Looking to the facts described above – which were undisputed – the appellate court found that plaintiff failed to comply with this policy requirement and was not entitled to recovery of his supplemental claim:
[Defendant’s adjuster] did a thorough appraisal after [plaintiff]’s initial claim and found no mold present at that time; [plaintiff] did not sufficiently regulate the humidity and temperature in the home once he moved out; reroofing the home with a permanent roof, which was the responsibility of [plaintiff] under the terms of the insurance contract, was substantially delayed while [plaintiff] decided what type of roof to use; and damage to the felt covering had created the opportunity for additional water to enter the house and cause damage not attributable to the May 30 storm and water entry....[Defendant] reasonably could and did conclude the mold problem which accounted for the majority of the additional damages requested in the supplemental claim was not caused by the initial storm and water entry....
Suggestions for Carrier Action
The foregoing establishes that an insured making a policy claim for mold damages has a duty to mitigate those damages, and the insurer has a corresponding duty to reimburse the insured for its reasonable mitigation efforts. We thus have the following suggestions for insurers handling mold claims:
- Alert the insured in writing of its obligation to exercise due diligence and dispatch in the preservation and protection of the property.
- Consider the insured’s experience and expertise in relation to the nature of the loss. Where the insurer has access to technical information or expertise, the claim representative should recognize whether it is appropriate to provide the insured with a decision tree and list of qualified experts. Recognize that a jury will allow insureds a reasonable amount of time to identify the various issues through a “learning curve.” An experienced adjuster will already be familiar with the decision-making process and by imparting this information directly and quickly to the insured, the adjuster may ultimately serve to reduce delays.
- If the insured appears to be dallying, it is incumbent upon the adjuster to notify the insured of the perceived delays, the apparent reasons, and the method(s) of remedying the same.
- An advance towards particular remediation activities or a general remediation account is a vehicle to avoid the insured’s claim of insufficient funds.
- Ultimately, the insurer will have to demonstrate the amount of loss that is attributable to delay or other failure(s) to mitigate. Therefore, it is important that the adjuster employ experts who can clearly document the change in either the scope or amount of loss. •
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