Mold & Its Emanations Not Covered on First or Third Party Policies
Michael and Rhonda Sue Foley hired Harry Simons, Jr. to remodel their house. Foleys allege in this lawsuit that their house was rendered uninhabitable because of Simons’ negligence during the remodeling. Foleys sued their own insurer, Wisconsin Mutual Insurance Company, Simons, and Simons’ insurer, Hastings Mutual Insurance Company, asserting claims of breach of contract, statutory interest for delay, bad faith, and negligence.
In Michael Foley And Rhonda Sue Foley v. Wisconsin Mutual Insurance Company, And Hastings Mutual Insurance Company, Defendants-Respondents, Harry “Buddy” Simons, Jr., Russell Zingg And John Zingg, Appeal No. 2017AP545, State Of Wisconsin In Court Of Appeals District IV (March 1, 2018) the trial court ruled that the Wisconsin Mutual and Hastings Mutual policies do not afford coverage for Foleys’ claims.
Foleys hired Simons to remodel their residence, including the addition of a bathroom. In September 2014, Foleys noticed “black mold spotting on the ceiling below” the second-story bathroom. According to Foleys, the mold grew as a result of leaking water caused by the negligent provision of construction services by Simons. The mold released the chemical trichothecene into the residence. The trichothecene contaminated the entire house, rendering it uninhabitable, and caused health problems for Foleys.
Foleys filed a claim with Wisconsin Mutual, the company that issued a farmowner’s insurance policy to Foleys. Wisconsin Mutual denied the claim based on exclusions in its policy.
Following the denial of coverage, Foleys commenced this lawsuit. Foleys sued Wisconsin Mutual alleging breach of contract, statutory interest for delay, and bad faith. Foleys also sued Simons and Hastings Mutual, which insured Simons against damage claims arising out of negligent acts and omissions from his performance as a contractor, alleging negligence.
Both insurers sought declaratory relief that they owed nothing to the Foleys.
Foleys’ Claims Against Hastings Mutual
Hastings Mutual’s request for declaratory relief presents a question of law and turns upon interpretation of the insurance policy in light of relevant facts.
Interpretation of Insurance Policies
The objective in interpreting an insurance policy is to ascertain the intention of the parties. Language in an insurance policy is given its common and ordinary meaning. Therefore, insurance policies are interpreted based on “what a reasonable person in the position of the insured would have understood the words to mean” and not by what the insurer intended. Interpretations that render policy language superfluous are to be avoided when a construction exists that gives meaning to the phrase.
Duties to Defend and Indemnify
The analysis of the Hastings Mutual policy concerns whether Hastings Mutual has a duty to defend, and a duty to indemnify, Simons for his allegedly negligent construction work at the Foley residence.
The “duty to defend” is the insurer’s responsibility to defend the insured from all actions brought against the insured based on alleged facts or circumstances falling within the purview of coverage under the policy, regardless of the suit’s validity or invalidity. The “duty to indemnify” is the insurer’s duty to pay all covered claims and judgments against its insured. An insurer’s duty to defend its insured is broader than its duty to indemnify.
Hastings Mutual argued that the Fungi Exclusion in its policy precludes Foleys’ claims. The Fungi Exclusion applies to the “Commercial General Liability Coverage Form,” which, as just noted, provides the initial grant of coverage.
The following definition is added to the Definition Section: “’Fungi’ means any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or byproducts produced or released by fungi.” (Emphasis added.)
The “proximate result” of water leaking around the shower area was that “mold proliferated,” a species of that mold “in turn released the toxic mycotoxin trichothecene” into the dwelling “contaminating” the house and affecting members of the Foley family, and rendering the house and its contents permanently uninhabitable and unusable. As a “proximate result” of the trichothecene contamination, Foleys incurred medical expenses and sustained permanent damage to their bodies, and Foleys had to abandon their house and “construct a replacement residence on their farm and replace all of its contents.”
Based on the plain language of the Fungi Exclusion and Foleys’ allegations against Simons and Hastings Mutual in their complaint, Hastings Mutual has no duty to defend Simons.
The Hastings Mutual policy explicitly excludes coverage for bodily injury or property damage “which would not have occurred, in whole or in part, but for” the mold and the byproduct “released by” the mold, here, the trichothecene. Therefore, Foleys’ claim against the Hastings Mutual policy fails.
Since the exclusion applies to the “Commercial General Liability Coverage,” it necessarily also applies to the “Products/Completed Operations Liability Part” of the CGL.
The Fungi Exclusion is Not Ambiguous
Policy language is ambiguous where terms or phrases in the policy are subject to more than one reasonable interpretation. The mere fact that a word has more than one dictionary definition, or that the parties disagree as to its meaning, does not render the word ambiguous if only one meaning comports with an insured’s objectively reasonable understanding.
Hastings Mutual’s exclusion does apply to the mere existence or presence of mold. An appellate court will never rewrite an exclusion in a manner that is inconsistent with Wisconsin case law. Since the Hastings Mutual policy unambiguously excludes coverage for the claim described in Foleys’ complaint against Simons and Hastings Mutual Hastings Mutual does not have the duty to defend Simons against Foleys’ claims.
FOLEYS’ CLAIMS AGAINST WISCONSIN MUTUAL
Foleys filed a claim against their own insurer, Wisconsin Mutual, pursuant to a farmowner’s policy that insured Foleys’ home and its contents. Wisconsin Mutual asserts that there is no coverage based on one of the exclusions set forth in its Pollution exclusion. Foleys contend that there is coverage under the Wisconsin Mutual policy because the Pollution exclusion has been “superseded” by the policy’s Virus or Bacteria Exclusion, which does not exclude coverage for the loss claimed by Foleys.
Wisconsin Mutual denied coverage based on the allegations in Foleys’ claim. Whether Wisconsin Mutual is entitled to summary judgment on the issue of coverage requires an examination of all the admissible evidence submitted on summary judgment.
Foleys make no argument regarding the Pollution exclusion – because it is clear and unambiguous – except they claim that it is superseded by a Virus or Bacteria Exclusion. Wisconsin Mutual argues that Foleys’ property damage was caused by a release, discharge, or dispersal of a “pollutant;” that is, a chemical in solid, liquid, or gas form that was an irritant or contaminant.
The Davis affidavit proffered by Foleys confirms that trichothecene is a chemical that is “highly toxic to humans.” As a result, that chemical is a “contaminant” within the exclusion’s definition of “pollutant.” Also since the only property damage claim made by Foleys against Wisconsin Mutual was that the stachybotrys mold disbursed, released, or discharged the trichothecene chemical. As a result, Wisconsin Mutual Pollution exclusion applies and excludes coverage for Foleys’ claim against Wisconsin Mutual.
The Pollution exclusion negates coverage for the release, discharge, or disbursal of any liquid, solid, or gas that is made of chemicals and is also an irritant or contaminant.
Foleys’ reading of the Virus or Bacteria Exclusion, and its effect on the Pollution exclusion, fails because it is contrary to the unambiguous terms of the Wisconsin Mutual policy. Foleys do not mention paragraph 4 of the Virus or Bacteria Exclusion except to assert, in their reply brief, that paragraph 4 “only compounds the ambiguity.”
Foleys neither explain that assertion nor offer any discernable argument that the plain language of paragraph 4 of the Virus or Bacteria Exclusion does not control our analysis of whether the Virus or Bacteria Exclusion supersedes the Pollution exclusion.
The court affirmed the trial court’s grant of summary judgment to Wisconsin Mutual and the circuit court’s grant of declaratory judgment to Hastings Mutual. Foleys’ negligence claim against Simons survives as do any third-party claims brought by Simons.
Mold lawsuits were the popular cause of action a decade or two ago with major multi-million dollar judgments that frightened the insurance industry. As a result insurers changed their policies to exclude all mold, fungi and bacterial infestations from coverage on both first and third party policies. The new exclusions worked as this case makes clear.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
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 mediator 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 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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