New Jersey Court Holds That Mold Damage is Not Covered Under the Express Terms of the Policy or Under the Ensuing Loss Exception to the Mold Exclusion
December, 2004
A New Jersey trial court recently held in Brick v. Lexington Insurance Company, Docket #ATL-L-1285-03 (April 2, 2004), that mold and the damage caused by the mold to plaintiffs’ house were clearly and unambiguously excluded under the policy and not revived by the ensuing loss language of the policy.
Plaintiffs commenced a declaratory judgment action against Lexington Insurance Company seeking coverage for damage to their home allegedly caused by inadequate roofing work. Plaintiffs alleged that the roofers vandalized the home by drawing graffiti on the exterior stucco, marking and cutting the exterior stucco and masonry, staining the exterior decking and living room windows, removing a part of the roof and tearing out a speaker built into the exterior masonry before completing the job. Because of the alleged roofers’ actions, the house was exposed to the elements; subsequently, Plaintiffs discovered mold.
A dispute arose as to whether the alleged damage was vandalism or the result of incompetence/poor workmanship. The policy expressly excluded damage or losses as a result of poor workmanship.
Lexington filed a motion for summary judgment in which it asserted that the policy specifically excluded coverage for mold contamination. Plaintiffs argued that the policy did not exclude coverage for mold contamination when the loss was caused by vandalism, which was covered, thus the mold contamination was an “ensuing loss” and covered under the policy.
The policy at issue provided:
We insure against risk, direct loss to property described in the coverages A and B only if that loss is a physical loss of property. We do not insure, however, for loss:
2. Caused by:
e(3) smog, rust, or other corrosion, fungus, mold, wet or dry rot;
3. Excluded under Section 1 - Exclusions
Under items 1 and 2, any ensuing loss to property described in coverages A and B not excluded or excepted in this policy is covered.
The parties disagreed on the interpretation of the ensuing loss provision. Plaintiffs alleged that even though losses directly caused by mold are not covered, where a loss such as the one alleged herein was caused by vandalism, which is covered, the mold damage is also covered since mold ensued from vandalism. The court disagreed with Plaintiffs’ interpretation and referred to out of state cases for authority on the issue. The court cited Fiess v. State Farm, 2003 WL 21659408 (S.D. Tex.), where the plaintiff argued that the alleged mold damage was caused by the covered loss of water intrusion. The mold was covered under the exception to the mold exclusion because it was an “ensuing loss.” The court explained that the “ensuing loss” language included the mold itself, because it is specifically excluded under the policy. If the mold caused a “covered loss” then that ensuing covered loss would be covered under the ensuing loss language in the policy. The New Jersey court further cited to the Fiess case for citations to other cases in California, Maryland, Massachusetts and Washington, which courts have interpreted the ensuing loss clause to not revive coverage for excluded losses, but “reaffirms coverage for secondary losses ultimately caused by excluded perils.” See Aims Privilege Association v. Utica Mutual Insurance Company, 742 F.Supp. 704, 708 (D. Mass. 1990); Schloss v. Cincinnati Insurance Company, 54 F.Supp.2d 1090, 1094-95 (M.D. Ala. 1999); Broadkin v. State Farm Fire and Casualty Company, 217 Cal. App.3d 210, 218, 265 Cal. Rptr. 10, 714 (Cal. Ct. App. 1989); McDonald v. State Farm Fire and Casualty Company, 119 Wash.2d 724, 734, 837 P.2d 1000, 1005 (Wash. 1992).
The court held that the exclusion for mold was not ambiguous and it was clear that losses caused by mold were not covered under the policy. The court further explained that a contrary holding would render the mold exclusions in the subject policies meaningless because mold is always caused by other events and can always be considered an “ensuing loss.”
Learning Point:
In New Jersey, at a minimum, where mold is expressly excluded in a policy, losses caused by mold are not covered, and the ensuing loss provision cannot be used to revive coverage for an otherwise excluded event. •
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