United States: Update: Recent Mold And Related Decisions

There is no question that the landmark verdict in Ballard v. Fire Insurance Exchange, No. 99-05252 (Travis County, Texas, filed May 5, 1999), elicits concern among insurers, property owners, landlords, and developers. In Ballard, plaintiff alleged that her homeowners insurer acted in an unfair, deceptive, and fraudulent manner when evaluating her claim that her home had been damaged by mold. The jury awarded plaintiff $32 million. And Ballard is not the only case that ended with the plaintiff recovering a substantial verdict. In Mazza v. Schurtz, No. 00AS04795 (Calif. Super. Crt., Sacramento, 2001), the jury awarded a family living in a mold-infested apartment complex $2.7 million for their personal injuries allegedly caused by mold exposure. Both Ballard and Mazza illustrate that mold cases have the ability to reach the jury, and that plaintiffs are able to recover substantial damages. Cases involving mold are not always a guaranteed plaintiff’s victory, however. The following recent decisions illustrate that mold claims give rise to many different issues and have a variety of outcomes.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

• An insured party’s failure to alter his home environment to protect against the infiltration of mold, after being warned by the insurer of the potential for mold growth, justified the insurer’s decision to deny coverage for mold damage in Rossmanith v. Union Ins. Co. of Providence, 2001 WL 1451050 (Iowa App. Crt. Nov. 16, 2001). Because of the plaintiff’s failure to mitigate his damages, the appellate court held that the carrier did not act in bad faith when it refused to pay plaintiff’s mold claim.

• The insurer must always investigate the property in a loss situation before it determines the amount at which the loss should be assessed. Often, however, mold does not develop, and is therefore not discovered, until months after the initial loss. In Vu v. Prudential Property & Casualty Ins. Co., 33 P.3d 487 (Cal. Nov. 5, 2001), the California Supreme Court held that an insurer is estopped from raising the statute of limitations defense in a coverage dispute if the insured party can establish that he or she reasonably relied on the insurer’s initial representations regarding property coverage before making a claim, and that those representations later turned out to be inaccurate. Applying this principle to a mold case, an insurer may be unable to raise the statute of limitations defense because the insured party was unable to initially determine the extent of its property damage as mold was not present at the onset.

• With the recent proliferation of mold claims, class action suits by a number of apartment tenants against the landlord are becoming common. In Davis v. Henry Phipps Plaza South, Index No. 116331, Supreme Court of New York County, a New York judge recently denied class certification in an $8 billion mold case. Davis involved a similar situation to Mazza, supra, but certification was denied because the common issues of law and fact that were present did not predominate over questions concerning the individual members of the proposed class.

• Experts play an important role in each case wherein the plaintiff alleges personal injuries as the result of exposure to mold. Since the effect of mold on the human body is not well-charted, courts have found that "it is possible that the precepts of science have not caught up with all of the claims of the Plaintiffs." In Minner v. American Mortgage & Guaranty Co., 2000 WL 703607 (Del. Super. Ct. April 17, 2000), a "sick building" case, the court barred many of the plaintiffs’ experts because some of the diseases that were under evaluation lacked a valid scientific foundation. Because the area of mold exposure is not well understood, and as yet, under-researched, defendants must be wary of poor or bad science being employed to link mold with injury.

• In May, 2001, the Delaware Supreme Court affirmed jury verdicts in favor of two apartment tenants who alleged property damage and personal injuries, including asthma, allergies, and neuro-cognitive disabilities. In New Haverford Partnership v. Stroot, 772 A.2d 792 (Del. 2001), the plaintiffs claimed they suffered personal injuries as a result of the mold that was present in their two apartments, but was not removed. The building’s landlord was found liable for his negligence in the upkeep and maintenance of the building. One plaintiff was awarded $1,005,000 and the other was awarded $40,000, although both awards were reduced by 22% because of the plaintiffs’ contributory negligence.
• Mold cases may also give rise to a breach of contract action. In Centex-Rooney Construction Co., Inc. v. Martin County, 706 So.2d 20 (Fla. Ct. App. 1997), the jury found that a construction manager was liable for breach of contract and three surety companies were liable for breach of a performance bond in the construction of two buildings. Martin County, Florida recovered $14 million because construction deficiencies caused leaks which led to the growth of mold and mildew in the building.

• Policy exclusions in first party property insurance policies for "continuous or repeated seepage or leakage of water" are typically honored by courts across the nation. This is important because water damage left undetected and/or unrepaired is one of the chief causes of mold growth. In Trappers Lodge Condominium Assoc. v. Travelers Ins. Co., 2000 U.S. Dist. LEXIS 5382 (W.D. Mich. April 18, 2000), the policy at issue excluded "loss or damage caused by or resulting from...[c]ontinuous or repeated seepage or leakage of water or other liquids that occur[s] over a period of 14 days or more." This policy exclusion accordingly prohibited coverage for water and mildew damage to the insured’s condominiums around doors and windows which resulted from water seepage into the building because of the lack of flashing.

Two cases currently pending in New York are noteworthy because the plaintiffs in both cases are seeking extremely high damages for mold exposure:

• In Chenensky v. Glenwood Management Corp. (Index No. 120461/00, Supreme Court of Suffolk County), a family living in an apartment seeks approximately $180 million for damages allegedly caused by mold. Plaintiffs claim that water leakage and mold have caused personal property damage and structural damage to the interior of their home. They further allege that defendants have known of the toxic mold problem for years, but have failed to take any efforts to remedy the situation.
• In Coiro v. Dormitory Authority of the State of New York (Index No. 25516/2000), Supreme Court of Queens County), a New York state employee seeks approximately $65 million for injuries and damages stemming from mold exposure while he worked in a building with toxic mold, fungus, water leaks, and other allegedly unsanitary conditions. Plaintiff alleges that defendant made no effort to remedy the mold problem in his place of employment. Plaintiff’s wife is also seeking $5 million for services lost.