Mold Exclusions — Conflicting Court Decisions

A Video Explaining How Insurers Avoid Mold Litigation

Insurance companies in most states have been permitted to exclude mold coverage from new and existing policies. There are hundreds (perhaps thousands) of pending cases against homeowner insurance carriers seeking coverage for losses incurred as a result of mold contamination. In many of these homeowner policies, damage “caused by” mold contamination is expressly excluded from coverage. In the face of this exclusion, homeowners often take the position that their claimed damages were not “caused by” mold, but rather that the damage was caused by some form of water intrusion which resulted in mold contamination, or some other covered peril, and therefore the loss is covered. Insurers often contend that the exclusion applies to any claimed damages concerning mold, arguing either that the damage itself was caused by mold or some other excluded cause or event.

State courts that have faced this issue cannot agree. Some have held that the “caused by” exclusion applies to all mold damage, while other courts have found an ambiguity in the exclusion. Summary judgment for either party is almost impossible because coverage decisions are determined by the facts presented at trial.

The most recent ISO forms, which are used by many insurers in their homeowner policies, contain the following exclusion regarding mold:

We will not pay for loss or damage caused directly or indirectly by [mold]. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. But if [mold] results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

Courts across the country have reached different conclusions regarding its meaning and applicability. The video details some of the cases that deal with mold exclusions and the ensuing loss clauses.

ZALMA OPINION

Insurers, by carefully writing their policies, have been able to avoid most mold claims and the resulting litigation after the claim is denied. Some decided to provide coverage for mold claims but set low limits of liability while others drafted clear and unambiguous exclusions. Those insurers have avoided some litigation while most have found the new exclusions or limitations of liability to allow the insurer to successfully defend the suits.

© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or media
tor for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

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He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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