Whether Mold Cleanup Costs Are Covered Depends on Causation
April 2005
An insurer on a homeowners policy denied coverage
for mold damages. It was held by an appellate court that if the homeowner proved
the mold resulted from a covered peril, then the cost of removing the mold would
be covered by the policy so long as it was not a loss separate from or caused
by the covered peril or loss.
by J.
Kent Holland Jr.
ConstructionRisk.com LLC
In Simonetti v Selective Insurance, 372 NJ
Super 421, 859 A2d 694 (2004), a trial court found that there was no coverage
under a homeowners policy for mold and other damages allegedly caused by water
intrusion following a severe rainstorm in June 2001. The pertinent language
of the policy contained an exclusion for "loss caused by … mold" and for damages
resulting from "faulty design … workmanship … [and] maintenance."
The Facts
It was about 2 months following the rainstorm that the homeowner discovered
the mold and notified the insurer, Selective Insurance Company. The environmental
claims unit of the insurer initially determined that the mold contamination
and other water damages would be covered under the policy. Subsequently, however,
the claims adjuster changed his mind upon learning that there had been water
damage to the house several years earlier during 1997.
It appears that following the rainstorm damages, the homeowner initially
made a claim against its homebuilder who tendered the claim to Royal Specialty
Underwriting, its general liability insurer. Royal had a professional engineer
inspect the house, and he wrote a report detailing his findings in September
2001. The report concluded that the water damage occurred from a time in 1997
when the homeowner had first noticed water intrusion around windows and had
the builder caulk and otherwise repair the windows. The report further concluded
that the leakage was due to a combination of design defects and waterproofing
workmanship defects.
The homeowner had his own expert engineer also examine the house and write
a report, dated October 1, 2001. That report also determined that the water
intrusion resulted from poor workmanship during original construction of the
house, and that, "The method of stucco and flashing application resulted in
gaping holes in the wall permitting water entry into the wall cavity."
Based on the information from these two expert reports, the homeowners insurer
in November 2001, issued a denial of coverage on the basis that the damage "resulted
from wear and tear, deterioration, latent defect, inherent vice, corrosion,
mold, wet or dry rot, settling including resultant cracking of walls; neglect,
faulty, inadequate, or defective specifications, workmanship, construction,
repair, materials used in repair, construction or maintenance." The homeowner
responded by filing suit against the insurer for breach of contract and bad
faith.
The Decision and Appeal
The trial court granted summary judgment for the insurer against the homeowner.
This was reversed by the appellate court which concluded that mold damage caused by a covered event is covered under
the Selective policy even though losses caused
by mold may be excluded. The difference is whether the damages are caused
directly from the covered event or from the mold itself. As stated by the court,
"Mold can be both a loss and a cause of loss."
The court explained its reasoning as follows:
- This distinction between mold damage and loss caused by mold is supported
by the very language of Selective's policy [which provides]: "we do not
insure, however, for loss caused by … mold…." This language clearly focuses
on "cause" of the loss. But mold which is the loss is not mentioned. If
Selective had intended to exclude not only losses caused by mold, but also
mold itself, it could have easily expressed that intention.
Conclusion
As the court reverses and remands this case back to trial, it states that
if the homeowner proves that the mold resulted from a covered peril, then the
cost of removing the mold is not a different loss separate from or caused by
the mold but rather is within the coverage for the basic loss. "In other words,"
says the court, "When a covered event causes mold, the mold damage includes
the cost of removal."
It will be necessary for the trial (jury) to decide whether the mold and
other damage claimed by the homeowner was caused by a covered peril or covered
cause of loss. It is possible, explains the court, that two or more identifiable
causes may contribute to a single property loss—with one of the causes being
covered by the policy and one not being covered. This would not necessarily
bar coverage since the policy did not contain an anti-concurrent or anti-sequential
clause in its exclusions dealing with faulty design, workmanship, and maintenance.
For these reasons, the appellate court remanded the case back to trial for a
decision as to the actual cause of the damage (which will determine whether
or not there is coverage).
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