Mold and Insurance
July 25, 2015
Written by: Stephanie M. Wilson
Attorney, Stoops, Denious, Wilson & Murray, PLC
Mold and insurance are topics that continue to be an issue in real estate. A homeowner or renter who experiences water damage to the property also has to deal with whether there is mold. If the homeowner or renter finds mold, they will have to address not only how to remediate the mold, but whether the costs are covered by insurance. Often mold is not covered by insurance. This article addresses some Arizona cases regarding whether mold damage is covered by insurance.
- LIRISTIS v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY.
Division I of the Arizona Court of Appeals in Liristis v. American Family Mutual Insurance Company, 204 Ariz. 140, 61 P.3d 22 (App. 2002), discussed whether mold damage caused by an event which is covered under the insurance policy is covered. Plaintiffs had a fire in their home in 1996, which resulted in fire damage and also water damage because of the water used to suppress the fire. Plaintiffs noticed mold growth in their home within a month or two after the 1996 fire. Following the repairs after the fire, the roof leaked each time it rained. Plaintiffs reported the first leak to American Family and the contractor attempted to repair the roof. However, the roof continued to leak with each rain, which resulted in water soaking the walls, ceiling, carpet and property inside the home.
In 1998, Plaintiffs retained an expert to perform an environmental assessment of their home, which expert confirmed the presence of mold growth in their home. Subsequently, Plaintiffs made a claim for contamination caused by the mold. American Family denied the claim based on the policy exclusion for mold. The insuring clause of the American Family homeowners policy states in pertinent part:
We cover risks of accidental direct physical loss to property . . . unless the loss is excluded in this policy.
* * *
The policy then sets forth the following losses-not-covered provisions:
We do not cover loss to the property . . . resulting directly or indirectly from or caused by one or more of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.
* * *
- Other Causes of Loss:
- wear and tear, marring, scratching, deterioration;
- inherent vice, latent or inherent defect, mechanical breakdown;
- smog, rust, corrosion, frost, condensation, mold, wet or dry rot;
- smoke from agricultural smudging or industrial operations;
- settling, cracking, shrinking, bulging, or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings;
- birds, vermin, rodents, insects or domestic animals.
Plaintiffs argued that the mold damage was an “accidental, direct, physical loss” to the home, caused by the water used to extinguish the fire in 1996, which is a covered loss. American Family argued, conversely, that mold is excluded under the losses-not-covered provisions because the policy does not cover loss to the property resulting directly or indirectly from or caused by mold, based on the plain language of the policy. In response, Plaintiffs urged the distinction between mold which is a loss or damage from a covered event compared to loss that is caused by mold. In other words, Plaintiffs argued that the loss of the property was not caused by the mold, but rather the loss was the mold and thus the losses-not-covered provisions do not apply under these circumstances.
Both Plaintiffs and American Family brought cross-motions for summary judgment. The trial court granted summary judgment in favor of American Family, finding that mold damage is not a covered event under the insurance policy. The appellate court reversed. The Court of Appeals held that mold may be either damage or a cause of loss depending on the circumstances, and therefore held that mold damage caused by a covered event is covered under the insurance policy in this case. The Court went on to state, however, that losses caused by mold may be excluded.
The Court of Appeals concluded:
. . . on the basis of the overall policy language and the considerations set forth in this decision, that if Plaintiffs prove the mold resulted from the fire, then the cost of removing the mold is not a ‘loss’ separate from or caused by the mold itself but rather is simply the implementation of the mold damage coverage provided to the homeowners under the policy. Phrased differently, when a covered event causes mold, the mold damage includes the cost of removal. Id. at 144.
The appellate court sent the case back to the trial court to determine whether the mold in this case was a cause of loss as opposed to damage from the fire. If the trial court found that the mold resulted from the fire, the Court of Appeals held that then the mold damage would be covered under the insurance policy.
- COOPER v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY.
Prior to the Liristis case, the United States District Court for the District of Arizona in Cooper v. American Family Mutual Insurance Co., 184 F. Supp. 2d 960 (D. Ariz. 2002), also addressed whether mold damage was covered under an insurance policy. In February 2001, Plaintiff reported a plumbing leak which damaged dry wall and flooring in the master bedroom and the hall closet. American Family paid Plaintiff for repairs to the drywall and flooring, but denied coverage for damage caused by mold. Plaintiff’s insurance policy stated “. . . Section I, ‘Perils Insured Against,’ covers ‘risks of accidental physical loss . . . unless the loss is excluded in this policy.” The policy describes the particular losses not covered:
We do not cover loss to the property described in Coverage A — Dwelling and Dwelling Extension resulting directly or indirectly from or caused by one or more of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.
* * *
6. Other Causes of Loss:
* * *
1. smog, rust, corrosion, frost, condensation, mold, wet or dry rot . . .
* * *
Plaintiff claimed that because water damage is a covered loss, under the “efficient proximate cause” rule, the resulting mold from the introduction of water is also covered and, therefore, argued that American Family is liable for the mold remediation as well as the damage to the personal property due to the mold growth. American Family argued that Plaintiff’s alleged damages were caused by mold and, because their policy excluded coverage for mold regardless of the cause, Plaintiff’s claim was properly denied.
The District Court addressed the efficient proximate cause rule and held that courts that have applied this rule conclude that coverage exists when the insured can identify an insured peril as the proximate cause of the loss if subsequent or concurrent events are specifically excluded form the coverage. The court noted, however, that Arizona has not adopted the efficient proximate cause rule and, as such, an insurer is permitted to limit its liability with a clause similar to what was found in this case. The Court held, therefore, that there was no coverage for losses caused by mold, even though a covered water event may have contributed to the loss.
With the continued issue of mold, these cases provide guidance as to whether there will be protection from their insurance policy. A homeowner or renter should carefully read their insurance policy to ascertain whether mold is completely excluded or covered.