Homeowners Policy Unambiguously Excluded Coverage for Mold
October 2004
Where mold damage allegedly arose out of shoddy
roofing work, a homeowner attempted to recover under its homeowners policy for
the mold as an "ensuing loss" despite a provision of the policy specifically
excluding coverage for mold contamination. In reviewing the policy language
the court concluded that the mold exclusion was clear and unambiguous, and therefore,
losses caused by mold were not covered.
by J.
Kent Holland Jr.
ConstructionRisk.com LLC
In Brick v Lexington Insurance Company (No.
ATL-L-1285-03 (April 2, 2004—Superior Ct of NJ)), a homeowner sought to recover
property damage under its homeowners policy allegedly caused by poor work performed
by a roofing contractor. There was a dispute as to whether the damage was due
to vandalism or poor workmanship. The policy had an exclusion for damage or
losses resulting from poor workmanship. The plaintiff argued that the damage
was caused by vandalism by the contractor when it walked off the job. In addition,
the plaintiff argued that the policy did not exclude coverage for mold contamination
which was an "ensuing loss" to loss caused by vandalism.
The Lexington policy under Coverage A (Dwelling) and B (Other Structures)
provided in pertinent part as follows:
- We insure against risk of direct loss to property described in Coverages
A and B only if that loss is a physical loss to property. We do not insure,
however, for loss: 2. caused by: e.(3) smog, rust or other corrosion, fungus,
mold, wet or dry rot; [or] 3. Excluded under Section 1—Exclusions.
The policy also stated: "Under items 1 and 2, any ensuing loss to property
described in Coverages A and B not excluded for excepted in this policy is covered."
In analyzing whether Lexington should have been granted a motion for partial
summary judgment, the court reviewed the language of the policy and stated that
there is no ambiguity about exclusion of mold so that "losses caused by mold
are not covered to the structure." The court went on to explain, however, that
the dispute focuses on the "ensuing loss" coverage of the policy. The plaintiff
argued that while losses directly caused by mold are not covered, that where
the loss is caused by vandalism which would be a covered loss and where mold
ensues from vandalism, then mold damages would be covered. The court concluded
that this position was not supported by case law or any reasonable interpretation
of the policy. Decisions by courts in several other states were reviewed and
quoted by this court in explaining its decision.
One decision reviewed by the court was from the case of Fiess v State Farm (SD Tex), in which the Texas
court held that "for coverage to be restored via the ensuing loss clause an
otherwise covered loss must result or ensue from the excluded loss." The Texas
court held that the "ensuing loss" language in the Fiess policy:
- means mold itself because it is specifically excluded is never covered
but if mold caused a "covered loss," then that "covered loss" would be covered
under the "ensuing loss" language.
The New Jersey case in Lexington referenced
four other decisions from various state courts and concluded that courts hold
that:
- the ensuing loss provision does not reinsert coverage for excluded losses,
but affirms coverage for secondary losses ultimately caused by excluded
perils.
The ensuring loss provision means that if one of the specified uncovered
events takes place, an ensuing loss that is otherwise covered remains covered
but the uncovered event itself is never covered. Applying that reasoning in
this case, the New Jersey court concluded that mold damage to the residence
would not be covered under the terms of the policy or under the ensuing loss
exception to the mold exclusion. To hold otherwise, said the court, "would render
mold exclusions basically meaningless since mold always is caused by other events
and therefore is always an 'ensuing loss.'"
Practice Note
Although this particular decision dealt with a homeowners policy, the principles
of policy interpretation explained by the court apply equally in the context
of contractors' general liability policies and design professional errors and
omissions policies. Where there are clearly stated exclusions for damages arising
out of mold growth or contamination, it should be anticipated that exceptions
to the exclusions will be narrowly interpreted so as not to make meaningless
the plain intent of "mold exclusions." Contractors and design professionals
that are concerned about coverage for mold may pursue various options for obtaining
coverage by adding endorsements to their policies to specifically cover damages
arising out of mold.
There are a number of ways that insurance carriers may be willing to provide
mold coverage, including for example, a separate lower sublimit for mold or
a higher deductible for mold. Other endorsements may provide mold coverage provided
it does not result from poor workmanship or poor maintenance of a building.
Whether mold coverage will be made available to a specific account will also
depend on the nature of the construction (residential or commercial) and the
location of the construction, and a number of other factors that insurer include
in their underwriting guidelines.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.