No Coverage in Homeowner's Policy for Mold Damage from Water Pipe Leak
May 2009
Where a homeowner sought to recover under
his homeowners insurance policy for mold damage that occurred from water from
a burst pipe, the insurer denied the claim on the basis of a mold exclusion
in the policy. The homeowner filed suit against the insurer seeking a declaratory
judgment that the policy covered mold. The trial court found that the mold damage
was subject to a clearly worded, and broad exclusion that specifically addressed
mold. Mold was excluded from coverage even if it resulted from an otherwise
covered event such as a water line break.
by J.
Kent Holland Jr.
ConstructionRisk.com
LLC
In DeVore v. American Family Mut. Ins., 891
N.E.2d 505 (Ill. App. 2008), the homeowner appealed from the trial court's judgment.
The appellate court affirmed that there was no coverage based on a careful review
and analysis of the policy exclusion that included a discussion of decisions
by other state jurisdictions that have found coverage for homeowners under similar
language.
Quoting from the policy, the court stated: "The policy does not cover 'a
loss to the property … resulting directly or indirectly or caused by … mold.'"
In addition, the policy provided that "[s]such loss is excluded regardless of
any other cause or event contributing concurrently or in any sequence to the
loss." The court stated:
We do not understand how much clearer American Family could have been in
excluding coverage relating to an event such as this one, wherein water
caused damage to a home and created mold in the home.
The homeowner argued that the trial court should have recognized a distinction
between mold that results from an otherwise covered event and mold that results
from some other source or event. Courts in some jurisdictions have recognized
such a distinction. According to the homeowner, the mold damage was not a loss
excluded under the policy since it was damage caused by a covered loss. A case
cited by the homeowner in support of that proposition was an Arizona case of
Liristis v. American Family Mut. Ins. Co., No.
1 CA-CV 00-0539 (Ariz. App. 2002), a case which interestingly enough addressed
the exact same exclusionary language from the same insurance company's policy.
In Liristis, the homeowner sought coverage
for mold that grew after a house fire was extinguished with water. The Arizona
court held that "mold damage caused by a covered event is covered under the
American Family policy … On the other hand, losses caused by mold may be excluded."
The court reasoned that the exclusion language:
[D]oes not exclude all mold. Rather, it excludes loss "resulting directly
or indirectly from or caused by" mold. If American Family had intended to
exclude not only losses caused by mold but also mold itself, it could have
easily expressed that intention. * * * If American Family had added the
words "either consisting of, or ..." to its exclusionary language, then
loss "consisting of" mold as well as loss caused by mold would be subject
to this restrictive language.
The Illinois appellate court in the DeVore
case stated: "We respectfully reject this reasoning." The court went on to explain
that it found the language of the exclusion is "clear and unambiguously indicates
that a loss from mold from any cause at any time is excluded." "The losses in
this case were twofold: (1) water damage; and (2) mold damage. Under the plain
terms of the policy, the former was covered and the latter expressly was not."
For these reasons, the court held in favor of the insurance company to exclude
coverage for mold.
Commentary
The issue of whether the otherwise clearly stated mold exclusion is ambiguous
when it comes to addressing mold that arises from an otherwise covered event
is a question that continues to be litigated in various jurisdictions—with surprisingly
different results as seen here between Arizona and Illinois. In the view of
this author, the reasoning of the Illinois court excluding coverage provides
the more reasonable interpretation of the policy language. As suggested by the
Illinois court, the Arizona decision is not "well reasoned."
The Arizona court did linguistic gymnastics to create a convoluted interpretation
of the policy to hold that "only losses caused by mold" are excluded, but that
the actual "mold" in and of itself is not excluded. To reach that conclusion,
the court must have affirmatively chosen to ignore what the Illinois court calls
the "plain, ordinary, popular meaning" of the policy language, in perhaps a
subconscious effort to rewrite the contract to make it read the way it would
prefer to have it applied to help out the homeowner. The Illinois court, in
contrast, chose to honor the obvious intent of a contract (insurance policy).
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