First-Party Property Insurance Issues Raised by Application of the Standard Pollution Exclusion to a Mold Claim
October, 2002
Introduction
The problems associated with mold contamination have been recognized since biblical times. Insurance claims for mold contamination, on the other hand, are a more recent phenomena, and the number of mold claims is growing considerably. Likewise, the cost of mold remediation, and consequently the value of mold claims, has exploded in recent years. For instance, last year, a Texas judge affirmed a $32 million jury verdict in favor of a homeowner in a first-party property mold damage case. Mary Melinda Ballard, et al. v. Fire Ins. Exchange, et al., No. 99-05252 (Dist. Ct. of Travis County, Texas). Considering the rise in numbers and cost, increasing media coverage, and high profile cases like those of Ed McMahon and Erin Brockovich, the insurance industry is facing a mold claim epidemic.
Questions have accordingly arisen regarding coverage for mold claims under first-party property policies. More specifically, a mold claim may present a variety of coverage issues, such as trigger, timely notice, the existence of direct physical loss, and whether a policy exclusion applies. Despite limited case law addressing mold claims, many of these coverage questions may be resolved by analyzing the same fundamental issues that have been litigated in other contexts, such as asbestos and lead paint. This article highlights the coverage issues that may arise in relation to the standard first-party property pollution exclusion and a mold claim where the definition of pollutant does not include mold and/or fungi.
The Standard Property Pollution Exclusion
Outside of the facts and circumstances of a claim, the primary coverage consideration depends on the particular policy’s language. Most typically, a policy’s pollution exclusion will not expressly address mold. For instance, the 1995 edition of the “standard” ISO pollution exclusion in a first-party property policy provides:
2. We will not pay for loss or damage caused by or resulting from any of the following:
1. Discharge, dispersal, seepage, migration, release or escape of “pollutants” unless the discharge, dispersal, seepage, migration, release or escape is itself caused by any of the “specified causes of loss.” But if the discharge, dispersal, seepage, migration, release or escape of “pollutants” results in a “specified cause of loss”, we will pay for the loss or damage caused by that “specified cause of loss”. (CP 10 30 06 95)
H. 1. “Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed. (CP 00 10 06 95)
Definition Of “Pollutants”
The threshold question is whether mold is a “pollutant.” Based on the standard pollution exclusion definition of a pollutant, mold must be an irritant or contaminant and, more specifically, a solid, liquid, gaseous or thermal irritant or contaminant. In addition, mold must be similar in nature to smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Otherwise, mold is not a pollutant, and the standard pollution exclusion is inapplicable.
Irritant or Contaminant
An “irritant” has been defined as “the source of irritation, especially physical irritation,” and “irritation” as “a condition of inflammation, soreness, or irritability of a bodily organ or part.” Physical reactions to mold range from runny noses and burning eyes to coughing and sneezing to fever and flu-like symptoms. Accordingly, scientific evidence supports the argument that mold is an irritant.
Solid, Liquid, Gaseous or Thermal
Mold, however, must be a “solid, liquid, gaseous or thermal” irritant or contaminant. Mold is a type of fungi that (1) occurs naturally both indoors and outdoors, (2) lacks chlorophyll and is incapable of producing its own food but produces enzymes to break down the carbon-based matter upon which it thrives, and (3) produces spores for reproduction. Accordingly, as an organic substance, mold may not fit neatly into any one of the descriptions of the types of irritants or contaminants excluded in the standard pollution exclusion.
Smoke, Vapor, Soot, Fumes, Acids, Alkalis, Chemicals and Waste
Furthermore, the definition of “pollutants” includes examples of the types of irritants or contaminants (“smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste”) that fit within the definition. According to the doctrine of ejusdem generis, when a contract contains specific examples followed by general descriptive words, the general words are deemed to be restricted to and refer only to those things similar in nature to those specific examples. The enumerated items are primarily inorganic in nature. Mold, on the other hand, is a living organic organism. In addition, unlike the list of examples, mold is universally present and generally harmless, except to certain sensitive people and at certain, as yet undefined, levels. Therefore, mold may not be similar in nature to the types of irritants or contaminants enumerated.
Traditional Environmental Pollutant Versus Unambiguous Plain Meaning Of Pollutant
Even if mold fits the strict definition of a pollutant, some jurisdictions confine the definition of a pollutant to “traditional environmental pollutants.” Those courts have concluded that to apply the word “pollution” outside of the traditional examples of industrial pollution would expand the term beyond common sense because nearly all substances are irritants or contaminants. Often, they refuse to apply the pollution exclusion because (1) the insured is not a traditional polluter, (2) a reasonable insured would not expect the substance to be excluded by a pollution exclusion, (3) the pollution exclusion is limited only to traditional environmental pollution, or (4) the pollution exclusion does not apply to over-the-counter substances used as intended. Conversely, some courts have found the pollution exclusion unambiguous and apply the exclusion as written. Thus, courts across the country are divided as to whether the definition of a pollutant should be confined to “traditional environmental pollutants” or be applied literally as written.
“Discharge , Dispersal, Seepage, Migration, Release Or Escape”
The standard pollution exclusion requires a “discharge, dispersal, seepage, migration, release or escape.” Mold, unlike asbestos for instance, is not directly introduced into a building by a builder or other person. Instead, mold generally grows on the premises as the result of the presence of water and other conducive environmental conditions. Accordingly, one could argue that mold is not “discharged” onto the premises and is not the type of traditional active “discharge” of pollution envisioned by the exclusion. On the other hand, one could argue that mold is “discharged” because the atmosphere can contain mold spores and mycotoxins, and one could characterize them as being released into the air, spreading through the movement of air, people and animals. People may then be exposed to mold via ingestion, inhalation, and skin contact, depending on the circumstances.
Sudden And Accidental Versus Natural Mold
One final issue involves the history of the standard property pollution exclusion. While most property insurance policies today contain a specific exclusion for pollution, that was not always the case. Early on, pollution was not specifically excluded; rather, property insurance often excluded “contamination” as part of the “wear and tear” exclusion. It was not until the late-1980’s to early-1990’s that many first-party property policies included a specific “pollution exclusion.”
In 1990, the standard form added “seepage,” “migration,” and “escape” to the discharge, dispersal, or release of pollutants. While the ISO annotations indicate that this language was added for consistency reasons, The Fire, Casualty & Surety Bulletins claims the language change gives “stronger emphasis to the exclusion of non-sudden pollution losses.” Accordingly, the standard property pollution exclusion will exclude property that becomes mildewed or rotten over time for environmental reasons but not mold that develops from a covered event, such as a sudden and accidental pipe break. Thus, while the general rule of construction in most jurisdictions is that a court should not go outside the four corners of the policy and look to the history of policy language unless the language is ambiguous, some courts will examine this history.
Conclusion
As the foregoing illustrates, there are potential barriers to the application of the standard first-party pollution exclusion to a mold claim, and the resolution of those issues may vary from jurisdiction to jurisdiction. Consequently, insurance companies must be cautious in their application of the standard pollution exclusion to bar coverage for a mold claim.®
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