Three Recent Mold Cases Indicate Courts Are Adhering to Established Principles of Law Despite the Public's Growing Concerns About Mold
April, 2002
Public concern over the effects of mold is growing across the country. Newspapers, magazines, and television news programs are focusing on hazards that stem from mold on an increasingly frequent basis. Recent case law, however, indicates that courts which have ruled on mold cases are following well-established principles of insurance law, rather than responding to the public concern with unprecedented decisions. The following three cases illustrate courts’ responses to mold claims in Texas, Minnesota, and Louisiana.
Lexington Ins. Co. v. Unity/Waterford - Fair Oaks, Ltd.
In Lexington Ins. Co. v. Unity/Waterford-Fair Oaks, Ltd., 2002 U.S. Dist. LEXIS 3594, *6 (N.D. Tex.), the Northern District of Texas held that the plain language of a policy’s Pollution, Contamination and Debris Removal Exclusion Endorsement excluded coverage for mold damage at the insured party’s apartment units, and granted summary judgment in favor of the insurer. The Endorsement provided as follows:
This policy does not cover loss or damage caused by, resulting from, contributed to or made worse by actual, alleged or threatened release, discharge, escape or dispersal of CONTAMINANTS or POLLUTANTS. . . .
CONTAMINANTS or POLLUTANTS means any solid, liquid, gaseous or thermal irritant or contaminant, including, but not limited to, bacteria, fungus, virus. . .
The Lexington court stated “Texas law is clear ... that ‘when terms are defined in an insurance contract, those definitions control.’... Here, the policy expressly includes ‘fungi’ within the list of contaminants or pollutants that trigger application of the exclusion.” Id. at *10, quoting, Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex. 1997). The court further noted that because mold emits mycotoxins in its growth process, the language in the Pollution, Contamination and Debris Removal Exclusion Endorsement requiring the pollutant to be released, discharged, or dispersed, was met. 2002 U.S. Dist. LEXIS 3594, at *9.
Sather v. State Farm
In Sather, et al. v. State Farm Fire & Casualty Ins. Co., 2002 Minn. App. LEXIS 277, *5 (Minn. App.), a Minnesota appellate court upheld the district court’s reading of the plain language of a homeowner’s policy that expressly excluded “mold, fungus or wet or dry rot.” “The plain language of the policy provision supports the district court’s interpretation that the policy excludes coverage for mold-related damage.” Id.
The insurer in Sather was sued by its insured for breach of contract and bad faith. The insurer had already paid its insured close to $400,000 for repairs that were necessary for storm damage to the insured’s home under the insured’s homeowner’s policy. After mold began to develop, the insurer’s adjuster “told appellants to dry the house thoroughly before making repairs.” Id. at *2. Approximately two years after the storm damage, mold proliferated through the insured’s home. The insurer made a payment of approximately $38,000 for mold related damage to the insured’s home, and then subsequently denied further payment, citing the clear mold exclusion in the insurance policy. Litigation ensued.
The appellate court upheld denial of the breach of contract claim based upon the clear policy language excluding coverage for mold damage. The court also affirmed rejection of the bad faith claim: “An insurer and its insured owe correlative duties of good faith in their dealings with each other. ... But bad faith refusal to pay a first party claim is not actionable, absent an independent tort . . . The district court did not err by rejecting the appellants’ [the insured’s] bad faith claim.” 2002 Minn. App. LEXIS 277, *14-*16. The court in Sather followed established Minnesota rules of insurance law despite ample evidence of significant property damage, as well as health-related injuries allegedly experienced by the insured party.
Liberty Mutual v. Ravannack
Finally, in Liberty Mutual Fire Ins. Co. v. Ravannack, 2002 WL 441334 (E.D. La.), the Eastern District of Louisiana considered whether to apply the “manifestation theory” or the “exposure theory” in its determination of insurance coverage under a CGL policy. In Ravannack, the insured sought damages from various home developers, alleging that the construction of their home was defective and that “water had intruded into their home, saturating various areas of their carpeting. ... [M]oisture had intruded through the exterior insulation and finish system (“EIFS”) installed on the outside of the home and caused extensive structural damage and wood decay.” Id. at *1. Further, the insured’s children also allegedly suffered bodily injury. Id. at *3.
Matherne Plastering, Inc., through its insurer, General Agents Insurance Company of America, Inc. (“GAINSCO”), sought summary judgment because “their CGL policy was not in effect when the home was constructed, when the Ravannacks discovered water infiltration in the home, when the Ravannacks discovered the cause of the water infiltration, nor when the Ravannacks put Liberty Mutual [the homeowner’s carrier] on notice of the damage.” Id. The court, applying the “exposure theory,” denied summary judgment, stating as follows:
[T]he Louisiana Supreme Court has utilized both the ‘exposure theory’ and the ‘manifestation theory’ to determine coverage under a CGL policy requiring that the damage occurs in the policy period ... The court [in Korossy v. Sunrise Homes, Inc., 653 So.2d 1215 (La.App. 1995)] also presented the ‘manifestation theory,’ which provides that ‘property damage would be considered to have occurred when it became manifest, regardless of when the act from which it resulted occurred...Although a court may apply the manifestation theory when property damage is at issue as the court did in Korossy, when a victim allegedly suffers bodily injuries during multiple policy years, the exposure theory is to be applied. ... the alleged bodily injury to the Ravannacks may have occurred during the GAINSCO policy year, and there may be both bodily injury and an occurrence which would trigger policy coverage. (Id. at *4-*5)
Under the “exposure theory,” “‘the damage would be considered to have occurred when the act which resulted in damage took place, not when the damage was discovered.’” Id. at *4, quoting, Korossy, 653 So.2d at 1225-1226.
Learning Point:
These three jurisdictions adhered to well-established principles of insurance law in their determination of the applicability of insurance coverage to property damage and bodily injury as a result of a relatively new culprit. Although the public’s concern about mold is increasing, courts that have addressed insurance coverage claims for mold damage have rendered decisions rooted in standard tenets of insurance law.
Clausen Miller will keep its clients and friends well-informed as mold litigation continues to develop.
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