Where a homeowner sought to recover under his homeowners insurance policy for mold damage that occurred from water from a burst pipe, the insurer denied the claim on the basis of a mold exclusion in the policy. The homeowner filed suit against the insurer seeking a declaratory judgment that the policy covered mold. The trial court found that the mold damage was subject to a clearly worded, and broad exclusion that specifically addressed mold. Mold was excluded from coverage even if it resulted from an otherwise covered event such as a water line break.
In DeVore v. American Family Mut. Ins., 891 N.E.2d 505 (Ill. App. 2008), the homeowner appealed from the trial court’s judgment. The appellate court affirmed that there was no coverage based on a careful review and analysis of the policy exclusion that included a discussion of decisions by other state jurisdictions that have found coverage for homeowners under similar language.
Quoting from the policy, the court stated: “The policy does not cover ‘a loss to the property … resulting directly or indirectly or caused by … mold.'” In addition, the policy provided that “[s]such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” The court stated:
We do not understand how much clearer American Family could have been in excluding coverage relating to an event such as this one, wherein water caused damage to a home and created mold in the home.
The homeowner argued that the trial court should have recognized a distinction between mold that results from an otherwise covered event and mold that results from some other source or event. Courts in some jurisdictions have recognized such a distinction. According to the homeowner, the mold damage was not a loss excluded under the policy since it was damage caused by a covered loss. A case cited by the homeowner in support of that proposition was an Arizona case of Liristis v. American Family Mut. Ins. Co., No. 1 CA-CV 00-0539 (Ariz. App. 2002), a case which interestingly enough addressed the exact same exclusionary language from the same insurance company’s policy.
In Liristis, the homeowner sought coverage for mold that grew after a house fire was extinguished with water. The Arizona court held that “mold damage caused by a covered event is covered under the American Family policy … On the other hand, losses caused by mold may be excluded.” The court reasoned that the exclusion language:
[D]oes not exclude all mold. Rather, it excludes loss “resulting directly or indirectly from or caused by” mold. If American Family had intended to exclude not only losses caused by mold but also mold itself, it could have easily expressed that intention. * * * If American Family had added the words “either consisting of, or …” to its exclusionary language, then loss “consisting of” mold as well as loss caused by mold would be subject to this restrictive language.
The Illinois appellate court in the DeVore case stated: “We respectfully reject this reasoning.” The court went on to explain that it found the language of the exclusion is “clear and unambiguously indicates that a loss from mold from any cause at any time is excluded.” “The losses in this case were twofold: (1) water damage; and (2) mold damage. Under the plain terms of the policy, the former was covered and the latter expressly was not.” For these reasons, the court held in favor of the insurance company to exclude coverage for mold.
The issue of whether the otherwise clearly stated mold exclusion is ambiguous when it comes to addressing mold that arises from an otherwise covered event is a question that continues to be litigated in various jurisdictions—with surprisingly different results as seen here between Arizona and Illinois. In the view of this author, the reasoning of the Illinois court excluding coverage provides the more reasonable interpretation of the policy language. As suggested by the Illinois court, the Arizona decision is not “well reasoned.”
The Arizona court did linguistic gymnastics to create a convoluted interpretation of the policy to hold that “only losses caused by mold” are excluded, but that the actual “mold” in and of itself is not excluded. To reach that conclusion, the court must have affirmatively chosen to ignore what the Illinois court calls the “plain, ordinary, popular meaning” of the policy language, in perhaps a subconscious effort to rewrite the contract to make it read the way it would prefer to have it applied to help out the homeowner. The Illinois court, in contrast, chose to honor the obvious intent of a contract (insurance policy).
This article was originally written by Kent Holland for the International Risk Management Institute (IRMI) and published in the IRMI expert commentary as an article dated May 2009. See http://www.irmi.com/expert/topics/insurancelaw/environmental.aspx for additional environmental insurance law articles by Mr. Holland.