The mold exclusion in a builders risk insurance policy was held to be applicable to mold damage that resulted from covered water damages that resulted when vandals turned on water taps of a new house just after substantial construction had been completed. Although the water damage was a covered loss and was the concurrent cause of the mold damage, the mold was nevertheless barred from coverage due to a clearly stated anti-concurrent causation clause of the policy.
In Builders Mut. Ins. Co. v. Glasscarr Props., Inc., 688 S.E.2d 508 (N.C. 2010), the court held that the anti-concurrent causation clause excluded coverage for mold even where the mold resulted from an otherwise covered loss, such as water damage from vandalism.
Facts and Allegations
Builders Mutual Insurance Company brought a declaratory judgment action to declare that mold damage was not covered under a builders risk policy. The insured was a property development company that completed construction of a house and later discovered that, following the construction, vandals had broken in and left water taps running. This caused extensive damage to the house. The insurer paid approximately $102,000 for the property damage claim for water damage.
Subsequently, the developer discovered that mold had developed as a result of the water damage, and it incurred $39,000 to remediate the mold damage. When it submitted its claim for indemnity under the policy for the mold damage, the insurer denied the claim on the basis that a specific mold exclusion in the policy applied regardless of whether the underlying cause of the damage (water tap vandalism) was itself covered.
The policy contained an anti-concurrent causation clause that provided in relevant part as follows:
A. Coverage. We will pay for direct physical “loss” … from any Covered Cause of Loss[.]…
3. Covered Cause of Loss means risks of direct physical loss … except those causes of loss listed in the Exclusions.
B. Exclusions. 1. We will not pay for a “loss” caused directly or indirectly by any of the following. Such “loss” is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the “loss.” (Emphasis in original.)
f. The presence, growth, proliferation, spread or any activity of “Fungi,” wet or dry rot or “microbes.”
This type of exclusionary language is referred to as an “anti-concurrent causation” clause because it excludes coverage for certain losses, regardless of whether the loss arises from more than one cause of sequence of events that might otherwise be themselves a covered loss. The insurer argued that this clause excludes coverage for the mold remediation costs. The trial court agreed and found that the policy did not cover mold and that the above anti-concurrent causation clause entitled the insurer to summary judgment. The appellate court agreed and affirmed the decision accordingly.
The Effect of an Anti-Concurrent Causation Clause
An anti-concurrent causation clause “excludes coverage for certain losses, regardless of whether the loss arises from more than one cause or sequence of events.” The insurance company argued that because mold remediation was specifically excluded from coverage under the policy, every occurrence of mold damage was excluded from coverage regardless of whether it flowed from other causes, such as the water damage, that were covered under the policy.
Even though the noncovered mold damage was caused by the covered vandalism claim, a strict interpretation of the clause in the defendant’s policy prevented the defendant’s mold claim from being covered. Although, as a general rule under North Carolina law, coverage will extend to other areas of damage when such damage results from a cause that is covered, the courts honored an anti-concurrent clause specifically excluding coverage. Where there is an anti-concurrent clause such as the one here, coverage will be excluded regardless of the cause of the uncovered loss.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, (Nov 2010).