CM Report Special Update on Mold (2002)
2002 Fall
CM Report Special Update on Mold
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Articles in this report
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.
In Glaviano v. Allstate Ins. Co., 2002 U.S. App. Lexis 9324 (9th Cir., No: 00-56754, May 13, 2002), the Ninth Circuit found potential coverage for property damage caused by the fungus Poria in an exception to an exclusion for collapse in an all risk policy. While the Court found the “dry rot” exclusion took Poria-caused damage out of the policy, the collapse exclusion contained an exception for “hidden decay” which allowed the Glavianos to raise a genuine issue of material fact as to whether the collapse of a portion of their home was the result of such “hidden decay.” As a result, the Ninth Circuit reversed the summary judgment awarded to Allstate by the federal court for the Central District of California, thereby allowing the Glavianos to get their issues before a jury or other fact finder.
Maynard v. State Farm Lloyds: Insurer Obtains Summary Judgment in Bad Faith Action Concerning Mold
On July 2, 2002, a Federal district court sitting in Texas granted State Farm’s motion for summary judgment and held that the insured party’s “allegations of State Farm’s failure to “timely investigate, cover, and remediate mold contamination in her family’s home” were baseless. Maynard v. State Farm Lloyds, No. 3:00-CV-2428-M, 2002 U.S. Dist. LEXIS 12026 (N.D. Tex. July 2, 2002). The Maynard court held that State Farm’s actions were not in bad faith, and that its decision to provide coverage after conducting an investigation was proper and did not violate the Texas Insurance Code.
Mold Claims: Do They Really Trigger Coverage Under a CGL Policy?
If the mildew reappears in the house after the stones have been torn out and the house scraped and plastered, the priest is to go and examine it and, if the mildew has spread in the house, it is destructive mildew; the house is unclean. It must be torn down – its stones, timbers and all the plaster–and taken out of the town to an unclean place. Anyone who goes into the house while it is closed up will be unclean till evening. Anyone who sleeps or eats in the house must wash his clothes. But if the priest comes to examine it and the mildew has not spread after the house has been plastered, he shall pronounce the house clean, because the mildew is gone. (Leviticus 14:33-49)
Regulating Mold Claims State by State - Filings for Exclusions and Limited Coverage of Mold/Fungi Are On the Rise
The increased claims of mold contamination discovered in residential and commercial property has spawned a flurry of activity in state departments of insurance around the country. A recent rash of federal and state legislation introduced and passed in response to the mold claims has caused many state insurance commissioners to react and formulate plans of action. Recently, when the Arkansas Department of Insurance posed three questions to members of the National Association of Insurance Commissioners, there were mixed and varied responses.
The Oregon Supreme Court has denied the insureds’ request for a review of an appellate decision holding that the defendant insurer is not liable for alleged failure to remediate mold contamination that caused personal injuries. Strader v. Grange Mutual Ins. Co., 39 P.3d 903 (Ore. App. 2002),1 reviewed denied, 47 P.3d 485 (Ore. 2002).
Texas Medical Association Concludes Alleged Adverse Health Effects of Black Mold are Unproven
After conducting a search of medical and scientific literature, contacting a number of experts/specialists and reviewing available data, the CSA has concluded that “public concern for adverse health effects from inhalation of Stachybotrys spores in water-damages buildings is generally not supported by published reports in medical literature” and approved a policy paper on black mold and human illness (CSA Report 1-1-02)1 which is to be forwarded to the Texas Attorney General’s Office, Texas Department of Health and the Texas Insurance Department.
The State of Mold Legislation Today
Several months ago, CM’s Special Report on Mold provided our clients and friends with information regarding developing legislation in response to the growing concerns caused by mold. Last year, only six states had initiated mold legislation. Today, the total number of states that have responded with mold legislation has doubled, and the United States House of Representatives has also followed suit with its own comprehensive mold resolution. Following is a brief review of new legislation as well as the present state of pending legislation we reported on in our inaugural Mold Report.
In Thompson v. Fireman’s Fund Ins. Co., 2002 Cal. App. Unpub. Lexis 6511(Cal. App. 2nd Dist. July 16, 2002) (unpublished), the California Court of Appeal held that a property insurance carrier’s failure to perform destructive testing, under the facts therein, rendered the insurer potentially liable for tortious breach of the implied covenant of good faith and fair dealing and punitive damages.
