Mold Updates

Panel to Study Remediation Issues

TDI has appointed a panel to study appropriate claims handling and remediation issues arising from mold claims. The panel consists of consumer advocates, insurance industry representatives, remediation and air quality control contractors, and construction industry groups. More information about the panel and its mission is available at the TDI website.

Mold Cases in the Courts

Mold cases are beginning to filter through the courts, although there are few reported opinions. In a recent decision, however, a federal court in Dallas concluded that mold was an irritant or contaminant within the meaning of an exclusion under a commercial property policy. In Lexington Ins. Co. v. Unity/Waterford-Fair Oaks, Ltd., 2002 WL 356756 (N.D. Tex., Mar. 5, 2002), Judge Fitzwater of the Northern District concluded that no coverage was afforded for mold damage at an apartment complex. The commercial property policy at issue included a “Pollution-Contamination Debris Removal Exclusion Endorsement.” The exclusion provided, in pertinent part, that the policy did not cover loss for damage “caused by, resulting from, contributed to or made worse by actual, alleged or threatened release, discharge, escape or dispersal of contaminants or pollutants, all whether direct or indirect, proximate or remote or in whole or in part caused by, contributed to or aggravated by any physical damage insured by this policy.” The definition of contaminants or pollutants was broad, and specifically included “bacteria, fungi, virus, or hazardous substances as listed in the Federal Water, Pollution Control Act, Clean Air Act, Resource Conservation and Recovery Act of 1976, and Toxic Substances Control Act or as designated by the U.S. Environmental Protection Agency.”

Apparently, tests of the apartment units showed elevated levels of mold spores in the air. Lexington argued that the mold spores unambiguously fell within the exclusionary definition. The insured contended that, even if fungi was included, the spores were not released, discharged, dispersed, nor did they escape. The insurer argued that mold and mold spores exist in safe levels in all apartment environments, and were simply allowed to thrive because of the moisture levels. The court disagreed. Looking to the process of mold proliferation, the court concluded that mold exists at dangerous levels only when an influx of water causes the mold to proliferate and to give off reproductive spores, which are then dispersed into the surrounding environment. The court also accepted that the mycotoxins, contained in several of the mold species, are dangerous to human health.

The opinion will undoubtedly lead to arguments that pollution exclusions not specifically identifying “fungi” should not be similarly construed. The court, however, indicated that it was in line with other pollution exclusion cases. In addition, the recognition of mold spores as a health hazard, and the recognition of the method in which damage is caused as a release, discharge, dispersal or escape, should be useful to insurers who seek to categorize mold as a pollutant.