Southern District of Texas Considers Whether Failure to Provide Prompt Notice of an Initial Water Event Should Preclude Coverage for Mold Growth in Flores v. Allstate Texas Lloyd's Co.
September, 2003
The U.S. District Court for the Southern District of Texas holds that “while the answer will typically be based on the facts of each case, a homeowner’s failure to provide initial notice of a water event within the home should not, as a general rule, prevent the homeowner from subsequently providing prompt notice of, and receiving coverage for, ensuing mold damage that becomes manifest well after the initial water event, where such initial failure to provide notice is reasonable under the circumstances.” Flores v. Allstate Texas Lloyd’s Co., 2003 WL 22006302 (S.D. Tex).
Facts
Mr. and Mrs. Oscar Flores (“plaintiffs”) contacted an attorney after they became concerned about “wetness and mold in their home…” Plaintiffs’ attorney arranged for an investigation of their home which “revealed several leaks and mold growth in the … air conditioning unit, hall and master bathrooms, and kitchen sink.” Shortly thereafter, plaintiffs filed an insurance claim for losses resulting from these leaks. Allstate Texas Lloyd’s Co. (“Allstate”) denied the claim on the grounds that it was barred by plaintiffs’ failure to comply with certain policy conditions precedent to coverage, specifically prompt notice and mitigation of damages.
Litigation ensued, and Allstate moved for summary judgment on grounds identical to those on which it relied in denying plaintiffs’ claim. Allstate argued that:
[Plaintiffs] had a duty under the Policy to provide prompt notice of each initial water event that they contend caused ensuing mold damage. All of the leaks identified by the Plaintiffs occurred months to years prior to their claim for mold damage… Had Plaintiffs provided such notice, and made necessary repairs, [Allstate] …would not be faced with the ensuing mold claim and present coverage dispute…because Plaintiffs’ water damage claims are barred for their failure to comply with the conditions precedent under the Policy, Plaintiffs’ bad faith claims must also fail as a matter of law.
Analysis
The court divided plaintiffs’ water and mold damage claims into eight discrete areas and granted Allstate’s motion for summary judgment with respect to just one of those areas. In this particular area (mold growth on the ceiling in plaintiffs’ master bedroom), the court held that a six-month delay in notifying Allstate of the damage “was not ‘prompt’ or reasonable as a matter of law.” The court discussed the policy’s notice requirements, noting that “Texas courts interpret insurance policy notice requirements as conditions precedent to coverage.… An insured’s failure to comply with the notice requirements constitutes a breach of contract and relieves the insurer of the obligation to defend or indemnify.” …Whether notice is ‘prompt’ is generally a question of fact, evaluated under a standard of reasonableness.” The insured’s duty to notify its carrier of damage arises when damage becomes “apparent.” The court recognized that in mold cases, which presumably arise from water events, a fine line exists between water events which should be reported to the carrier, and water events which are insignificant and do not need to be reported:
A homeowner cannot sit back and watch mold grow in his home, or observe an obvious mold-instigating event -- such as the flooding of a room in which the baseboards and walls are saturated for several days, or a continuous leak that saturates a surface -- and not notify his insurers. But not every water event will cause mold to ensue. Consequently, an insured is not expected to notify his insurance company each time the toilet overflows or the sink drips, where the insured takes prompt remedial action appropriate to the circumstances.
In denying Allstate’s motion for summary judgment in the other seven damaged locations, the court noted that facts elicited through deposition testimony did not establish that plaintiffs were aware of ongoing leaks, and various fact issues existed which precluded summary judgment in each location. For instance, deposition testimony revealed that while plaintiffs were conclusively aware of leaks and mold growth in their master bedroom, they were not previously aware of all leaks and mold growth present in their home.
Learning Point:
Flores held that six months is beyond that which is considered reasonably prompt notice of mold damage under a homeowner’s policy. Therefore, if an insurer wants to apply a homeowner’s policy notice and mitigation provisions to support a denial, the insurer should be able to establish that its insured waited at least six months before reporting the claim. This analysis is limited to Texas, as other jurisdictions may hold that a six-month delay does not constitute late notice as a matter of law.
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