Following a contractor's remodeling of a house, the home owner sued the contractor and its commercial general liability (CGL) insurer, Wisconsin Mutual Insurance, as well as its own homeowners insurer, Hastings Mutual Insurance. The home owner claimed the house was rendered uninhabitable by the contractor's negligent work on a bathroom that resulted in leaking water, which caused mold to grow and then release the chemical trichothecene into the residence.
Both insurers claimed that the alleged damages were excluded from coverage under their policies based on their mold exclusions. Declaratory judgments by the trial court for both insurers were affirmed on appeal—holding that the "damages" claimed in the plaintiff's complaint arose out of a "pollutant" or "mold" and not from covered damages, such as water damage.
In reviewing the exclusions in the contractor's CGL policy, the Wisconsin Court of Appeals concluded that the "fungi or bacteria" exclusion was clear and unambiguous in its application to the situation. Fungi were defined in the exclusion as:
"Fungi" means any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or byproducts produced or released by fungi.
See Foley v. Wisconsin Mut. Ins. Co., 2018 WI App 28, 381 Wis. 2d 471, 915 N.W.2d 455 (March 1, 2018).
Looking at the home owner's complaint, the court quoted its allegations in relevant part as follows:
[Contractor] failed to exercise ordinary care in installing and inspecting the bathroom he remodeled, and that failure resulted in a "shower area condition of which was not watertight and leaked, which condition would foreseeably cause mold to grow." … The "proximate cause" of water leaking around the shower area was that "mold proliferated," a species of that mold "in turn released the toxic mycotoxin trichothecene" into the dwelling "contaminating the house and affecting members of the [ ] family…. As a "proximate result" of the trichothecene contamination, [family] incurred medical expenses and sustained permanent damage to their bodies and had to abandon their house and "construct a replacement residence on their farm and replace all of its contents."
The court explained that the CGL policy explicitly excluded coverage for damage that "would not have occurred, in whole or in part 'but for' the mold and the byproduct released by the mold." Despite the clear language of the policy, the plaintiff made several arguments that the policy nevertheless afforded coverage. The court considered—and rejected—each argument as follows.
The home owners argued that their complaint against the contractor was a "water damages claim," not related to mold, and, therefore, it was not subject to the fungi exclusion. In rejecting that argument, the court focused on the wording of the complaint and found that none of the injuries and damages claimed were based on anything other than the mold's release of trichothecene.
In fact, the court pointed out that the complaint never even used the term "water damage." The court found "no reasonable reading of the allegations of the complaint [ ] no matter how liberal, supports [home owners'] assertion that water caused anything other than the mold proliferation and release of trichothecene."
The home owners also argued that the damages from mold would be covered because they arose out of an insured risk (i.e., water damage). The principle for this argument, said the court, is that "where a policy expressly insures against loss caused by one risk but excludes loss caused by another risk, coverage is extended to a loss caused by the insured risk event though the excluded risk is a contributory cause."
But, according to the court, that argument fails because it is premised on the false notion that water damage not related to mold was alleged in the complaint. Moreover, the excluded risk of mold would not have been merely a contributory cause but was instead alleged to be the sole cause of the home owners' injuries.
The plaintiffs argued that the fungi exclusion applied only to the CGL coverage part of the policy and not to products/completed operations. In rejecting this argument, the court held that the products/completed operations liability is not a separate coverage part of the policy but rather is only a subset of the CGL coverage—subject to all the same exclusions.
In conclusion, the court found nothing ambiguous about the mold exclusion of the contractor's CGL policy. It likewise found nothing ambiguous about either the total pollution exclusion or mold exclusion of the home owners' own policy, which it concluded were correctly applied to deny coverage under the homeowners insurance policy.
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