Idaho Supreme Court Holds That Property Damage Caused By Mold Is A Separate Loss Subject To Second Homeowner's Policy
April, 2007
The Supreme Court of Idaho holds that a mold outbreak at the insured’s home caused by inadequate repairs necessitated by prior water damage constitute a separate, second loss. Melichar v. State Farm Fire & Cas. Co., 152 P.3d 587.
Facts
Plaintiff insureds had two homeowner’s insurance policies from State Farm: one covered the period of July 12, 2001 to July 12, 2002 (“the first policy”), and the other covered the period of July 12, 2002 to July 12, 2003 (“the second policy”). The two policies were identical except that the first did not contain a mold exclusion endorsement, and the second did.
In March 2002, plaintiffs’ home suffered water damage because of a toilet overflow. This water damage was repaired by Western Building Maintenance (“Western”) in March and April 2002. In late July 2002, plaintiffs informed State Farm and Western of a mold outbreak in their home. Western conducted the necessary mold remediation. This repair work ended in December 2002. State Farm provided coverage under the first policy for the costs associated with the water damage and the mold remediation arising out of the March 2002 incident.
In late December 2002, plaintiffs noticed that the floor near the washing machine was beginning to ridge and buckle. On December 26, they notified State Farm of the problem, and upon inspection State Farm learned that Western had improperly inserted a drain hose from the washing machine into a wall cavity where there was no drain pipe. As a result, water from the washing machine had drained into the wall cavity causing structural and mold damage. Because the December 2002 damage was discovered during the period of the second policy -- which contained a mold exclusion -- State Farm denied coverage for any mold-related expenses. Plaintiffs filed suit thereafter alleging breach of contract, breach of implied warranty, and breach of express warranty.
At trial, the court entered a directed verdict for State Farm at the close of plaintiffs’ case. The trial court found that the damages sought--the cost associated with remediation of mold-related damage resulting from the December accident--constituted a second loss subject to the second policy, which excluded coverage for such damages.
Analysis
On appeal, plaintiffs argued that the trial court erred in finding that two separate losses occurred under the policies’ terms because it is reasonable to interpret all the damages as a single, continuing loss resulting from the March accident. The Idaho Supreme Court disagreed and affirmed the trial court.
First, the Supreme Court stated that plaintiffs’ position was contrary to the language of the policy and established case law regarding the meaning of the terms “loss” and “occurs:”
The plain language unambiguously establishes that the term ‘loss’ is contemplated by the policies to mean the resulting physical and direct damage caused by an accident. … [E]ven though the term ‘occurs’ is not defined in the policy, our case law makes clear that an accident occurs during the policy period in which the policy holder was actually damaged, and not the period in which the event giving rise to the loss occurred.
Second, the Supreme Court held that the trial court correctly concluded that there were two separate losses--the first covered by the first policy and the second covered by the second policy:
The physical and direct cause of the December mold outbreak was the water released in December from the improperly plumbed washing machine. The record reveals that sometime in December, as Western was concluding the remediation of the July mold, it improperly inserted a drain hose from the [insureds’] washing machine into a wall cavity where there was no drain pipe, resulting in a water release, and a subsequent mold outbreak. Both the event directly causing the loss, the improper placement of the hose, and the resulting loss itself, the mold outbreak, occurred during the policy period of the second homeowner’s policy … Undoubtedly, the December accident would not have occurred had Western not been present … to repair the damages resulting from the March accident. However, while the water released as a result of the March accident may have been an indirect cause of the December accident, it certainly was not the physical and direct cause.
Learning Point
The Supreme Court also rejected plaintiffs’ argument that State Farm was liable for breach of warranty because it told them that State Farm-approved contractors such as Western warranty their work for 5 years and Western provided plaintiffs with no such warranty. “That Western did not provide a warranty to [plaintiffs] in this case is uncontested. However, State Farm did not warrant the repairs; it only indicated that the contractor would give a five-year warranty. Although the [plaintiffs] did not receive a warranty, . . . their remedy was to pursue the contractor for improperly reconnecting the washing machine hose.”
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