Federal Court in Arizona Upholds Insurance Policy Exclusion for Mold
February, 2002
Cooper v. American Family Mutual Ins. Co., 2002 WL 169276 (D. Ariz. Jan. 25, 2002), the United States District Court for the District of Arizona denied insurance coverage under the exclusion for “smog, rust, corrosion, frost, condensation, mold, wet or dry rot...” in a homeowner’s policy. The Cooper court stated that the mold exclusion displayed “simplicity and clarity,” and was rightfully followed by the insurer.
Facts
American Family issued a homeowner’s insurance policy to plaintiff Shirley Cooper. Cooper reported a plumbing leak to American Family which damaged portions of Cooper’s dry wall and flooring in her master bedroom and closet. As a result of the plumbing leak, Cooper’s home also experienced mold damage in the areas that sustained water damage. American Family provided coverage for the repairs to Cooper’s dry wall and flooring, but denied coverage for the damage caused by the mold. This lawsuit ensued. Both American Family and Cooper moved for summary judgment.
Also before the court was a motion for summary judgment filed by an intervening party (“Intervener”) who was a plaintiff in a similar lawsuit against American Family. Intervener argued that Cooper’s mold damage was a covered loss, and should be indemnified as such (most likely to secure a positive settlement in his case under principles of collateral estoppel).
Cooper and Intervener attempted to secure coverage for the same damage, but under slightly different theories. Cooper first argued that under the “efficient proximate cause” rule, the resulting mold from the initial introduction of water was a covered loss. Cooper also claimed that the resulting loss provision in the policy contradicted the exclusionary language relied upon by American Family. Finally, Cooper argued that coverage for her mold damage existed under the Supplementary Coverage section of her policy, which provided coverage for pollutant clean up and removal.
Intervener first asserted that Cooper’s mold damage was a resulting loss caused by a plumbing leak, a covered loss, thereby triggering coverage for all damage under the resulting loss provision. Intervener additionally claimed that the mycotoxins produced by mold are a pollutant, as well as a separate and independent loss resulting from mold; therefore, under the resulting loss provision, coverage is provided. Finally, Intervener argued that even if the policy definition of pollutant does not include mold, mold’s mycotoxins are a “recognized environmental pollutant,” and should be covered under the Supplementary Coverage portion of Cooper’s policy.
Analysis
The court considered and rejected each and every theory presented by Cooper and Intervener in support of coverage. The court summarized its reasoning as follows: “Unlike some coverage issues, where analysis and rhetoric move one from a state of complexity to a state of simplicity and clarity, the reverse is true with the mold exclusion in this policy. The policy says loss caused by mold is excluded. Enforcing the policy as written, this Court concludes loss caused by mold is excluded.”
In response to Cooper’s arguments, the court held that mold damage was not covered for the following reasons. First, Arizona has not adopted the efficient proximate cause rule that Cooper argued established the existence of coverage. Although Cooper effectively identified that the water damage (the insured peril) was the proximate cause of the mold damage, in Arizona, “an insurer is permitted to limit its liability with a concurrent causation...clause” in an insurance policy. Second, the court held that the resulting loss provision in Cooper’s insurance policy simply does not contradict the policy’s exclusions. The court noted that “[o]ther courts which have interpreted this clause similarly hold that the resulting loss provision does not reinsert coverage for excluded losses, but reaffirms coverage for secondary losses ultimately caused by excluded perils.” Relying on the seminal case on ensuing loss, Acme Galvanizing Co., Inc. v. Fireman’s Fund Ins. Co., 270 Cal. Rptr. 405 (Cal. App. 1990), the court recognized that coverage should be granted when an ensuing loss that is separate and distinct from the original peril is a covered peril; mold, however, is explicitly excluded under Cooper’s policy. Finally, Cooper’s argument that “‘mold clearly falls within the definition of a pollutant,’” which should be covered under the Supplementary Coverage portion of her insurance policy was entirely unsubstantiated. The court considered the policy’s definition of “pollutant,” and held that Cooper failed “to demonstrate how mold falls into any of these [definitional] categories.”
Intervener’s coverage arguments were likewise unsuccessful. First, the court in response to Intervener’s ensuing loss argument held that not only has Arizona not adopted the efficient proximate cause rule, but “the loss caused by mold is excluded.” Second, the court stated that the mycotoxins produced by mold “do not constitute a separate and independent loss resulting from mold” because “removal of the mold would presumably also remove the mycotoxins.” Further, the court stated that “[c]alling it [mold] a pollutant does not change the result. It is still mold...The ‘resulting loss’ clause does not resurrect the excluded peril to provide coverage.’” Finally, the court held that “[e]ven if the mycotoxins are determined to be a pollutant within the policy’s definition, the policy expressly provides coverage only for extraction of pollutants caused by or that result from a covered cause of loss...the mycotoxins are released by the mold, which in of itself is an excluded cause of loss.” As a result, the Supplementary Coverage portion of Cooper’s policy did not apply.
Learning Point:
In contrast to the high-profile, million dollar verdicts being requested across the country for personal injuries allegedly stemming from mold contamination, litigation concerning property damage caused by mold has been far less dramatic. As seen in Cooper, exclusions for mold in first-party property policies are typically upheld. We will continue to monitor the area and update our readers with future developments in the field of mold litigation.
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