Premium Instead of Prayer Needed for Mold Coverage
July 2006
In a claim by a church for coverage under
its all-risk policy for losses caused by mold, the insurer, Cincinnati Insurance,
denied coverage based on a fungus exclusion in the policy and based on an exclusion
for "faulty, inadequate, or defective design, specifications, workmanship, repair,
construction."
by J.
Kent Holland Jr.
ConstructionRisk.com LLC
The church filed suit against the insurer for breach of contract. Both the
church and insurance company moved the court for summary judgment on the question
of whether the exclusions were properly applied to loss and whether the policy
language was ambiguous. In granting summary judgment to the insurance company,
the U.S. District Court in Florida found the policy language was not unambiguous
and it did not cover the damages the church suffered.
The Church of the Palms—Presbyterian (U.S.A.), Inc., was covered by an all-risk
policy which excluded losses directly or indirectly caused by "rust, corrosion,
fungus, decay, deterioration, hidden or latent defect or any quality in property
that causes itself to damage or destroy itself" or for losses resulting from
"faulty, inadequate, or defective design, specifications, workmanship, repair,
construction …" unless the loss results in a covered cause of loss. After discovering
mold in various parts of one of its buildings, the church hired an expert to
study the problem. He determined the building's negligent construction and design
most likely caused the mold infestation.
The court explained that the expert identified several likely reasons for
the mold. This included:
- roof deficiencies and improper installation of flashing; HVAC system
disrepair and poor design that caused excess humidity; mold contamination
in the walls between the drywall and the insulation; mold/microbial contamination
of the interstitial wall space and metal stud framing system; mold/microbial
contamination in the mechanical rooms and within the air conditioning duct
work; improperly installed vapor barrier on exterior walls allowing moisture
into interior side of exterior walls and inside air conditioning allowed
temperature within wall cavity to reach the dew point causing condensation
and excessive moisture; intrusion of unconditioned, hot moist air into space
above the second floor ceiling due to lack of a ceiling separating the "attic"
space from the inside space; and improperly vented bathrooms and laundry
facilities.
In addition to excluding coverage where loss is caused by "fungus," the policy
excluded loss caused by negligent work and "inadequate or defective design,
specifications, workmanship, repair, construction, renovation, remodeling, grading,
compaction …"
The court considered first the church's argument concerning the omission
of the word "mold" in the exclusions and its argument that the type of fungus
complained of by the church is not the type intended to be excluded under the
"fungus" exclusion of the policy. "Fungus" in the context of the exclusion of
this policy included mold even though the term "mold" was not expressly included
in the policy language.
The church argued that fungus contemplated by the party is the type of fungus
caused by the natural decay of the building materials. Or, as the church claimed,
the policy's fungus is part of an "inherent vice" clause that "excludes coverage
for losses flowing from the latent and inherent tendency of most organic and
inorganic matter to decay."
The court was obviously not impressed with the church's argument when it
concluded that:
- Having logically stepped out this far, the Church bootstraps this premise
to argue the policy's negligent construction exclusion (P 3(b)(3)(c)(2))
does not apply. Namely, because the Church's mold is not the type contemplated
by the policy's exclusion, the policy covers it. And, therefore, because
the Church's fungus is a covered cause of loss, the negligent construction
exclusion does not apply. This is an exclusion-to-the-exclusion argument.
In rejecting the church's argument, the court found "the Church presents
a strained, unnatural interpretation to the mold exclusion, especially since
it concedes negligent workmanship or design flaws likely caused the mold. Indeed,
neither exclusion is ambiguous."
The purpose of "all-risk policies" like the one involved here, says the court,
is to cover losses for "fortuitous events" that are dependent upon chance. Here,
the church's mold problems developed gradually, and the court found the problems
were not associated with a single "covered fortuitous event."
Because the court found there to be no disputed material facts as to the
dominant causes of the mold, and because it found, "To interpret the exclusion
as the Church argues would very nearly destroy the exclusion," the court granted
the insurance company's motion for summary judgment. Church of the Palms-Presbyterian (U.S.A.), Inc. v. The Cincinnati Ins. Co.,
404 F. Supp. 2d 1339; (U.S.D.C., Fl. 2005).
Comment
It continues to be a vexing question as to why a sophisticated buyer of insurance
would choose not to purchase mold coverage (either by policy endorsement to
an appropriate policy or by separate pollution legal liability (PLL) policy
with no mold exclusion) rather than instead preferring to litigate and offer
complex arguments to convince a court that mold coverage was intended under
a policy that clearly, on its face, states that coverage is excluded pursuant
to multiple exclusions. It may be that more education is needed so that owners
of commercial buildings and churches understand that mold coverage is often
available—for a premium.
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.