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OREGON MOLD LITIGATION (cont'd)

E. Unreported trial court cases.

Many cases settle before or during trial and that is a good thing. Settlements bring certainty. Juries are unpredictable and the cost of a trial can be staggering. In this chapter you will see that settlements are discussed after stating the gist of a claim. That is not meant to imply that a claim is proven or that the settlement was based on an admission of liability. Often, settlements are made to avoid further expense or for other reasons. In fact, usually a settlement agreement or release contains a specific denial of liability. The following reports should not be taken as a statement that claims were proven in court or at arbitration, or that the defendant was actually liable.

Hawks v Hartley, Lane County case no. 16-99-08461.

This case is generally considered to be the first toxic mold case in the State of Oregon. The case arose from contaminated wood pellet stoves that the mold victims imported from overseas to sell in a retail distributorship. The store owner and his wife became ill after being around the contaminated stoves. This case resulted from that exposure. The case settled in trial for an undisclosed sum. But the case was significant far beyond that result in that it opened the door to future mold litigation and provided cases that followed with trial court rulings on the admissibility of expert testimony from physicians who treat mold patients, as discussed above. Mr. and Mrs. Hawks, like many other mold victims, also shared their accumulated knowledge about mold with their attorney and many other mold victims, including Mark and Mary Jane O’Hara, who also passed on that knowledge to others.

O’Hara v Cockram and Stangeland Construction et al. Case No 16-00-12848

The Mark O’Hara family of Eugene, Oregon hired a building contractor to remodel their house. They brought a toxic mold/construction defect case against the builder who remodeled their home. They asserted that, due to a defective remodeling of their previous home, they were exposed to toxic mold and micro-toxins. Defendant Stangeland filed a petition in bankruptcy before trial, which led to the imposition of the automatic stay provisions of the U.S. bankruptcy code. Plaintiffs had to go to the bankruptcy court and obtain relief from that stay to be able to proceed in their case against the defendants. The defense then moved to exclude certain evidence, claiming spoliation. Plaintiffs moved pretrial to exclude a number of the defendant’s affirmative defenses. There were also motions filed concerning whether disclosure of some expert witness information led to waiver of the attorney client privilege and work product doctrine. The case also involved pretrial challenges to plaintiffs’ experts, as noted above. Plaintiffs overcame most of these hurdles but the case settled confidentially during trial.

The Cipollone case.

The Cipollone family of West Linn, Oregon, built a large complex multi-level house. Unfortunately, there were many things wrong with the house once it was completed, including instances where flashing was omitted from virtually every spot where a vertical wall or surface would attach to a horizontal surface. In addition, the roof system was defectively constructed and leaked substantially. The house was severely contaminated by several types of mold. The laminated support beams experienced extensive dry rot, as did other parts of the house.
The homeowners made a claim against their insurer for coverage under their homeowners policy and sued the general contractor and several of his subcontractors for negligence, among other claims. The insurer eventually decided to pay out a substantial settlement, knowing that the construction defect claim was being prosecuted and that it could receive subrogation from the money recovered in that case for the monies it paid under the homeowner policy. Somewhat unusually, the insurer did not even require a release for the money it advanced its policyholder, because it felt so confident about the construction defect claim, and its subrogation rights. The construction defect claim later settled for an undisclosed sum.

 Prudential v Lillard

In February 1998, Mike and Pamela Dalton owned a two story home in McMinnville. Mr. Dalton attempted to repair the roof of the house before selling the house to Mrs. Lillard in March 1998, but he neglected to install flashing around the chimney and dormers to prevent roof leaks. That mistake left gaps in the roof through which rainwater would pass during 1998 and afterward. Approximately 48.5 inches of rain fell in McMinnville in 1998, but it was not until a large storm on Thanksgiving 1999 that Mrs. Lillard discovered water dripping from the ceiling of her downstairs dining room. She contacted a roofer and other experts to determine the scope of the problem. She also advised her insurer, and her agent told her it would not be covered, even though he had earlier promised her that the policy he sold her covered such water damage. Plaintiff had a witness to the discussion between her and her agent who testified at a deposition that he heard he agent promise to sell her a policy that covered water damage from rainfall.

Her insurer, Prudential, sued her in a declaratory judgment action to obtain a ruling that the claim was not covered. She counter-sued, alleging that the claim was covered and, if not, then her agent was negligent for failing to procure the coverage he had promised he would sell her. Prudential relied on a “faulty workmanship” exclusion, claiming that the leak resulted from faulty or defective repair. However, the policy also contained an “ensuing loss” clause that stated that if the loss was excluded any ensuing loss would still be covered so long as it was not excluded elsewhere in the policy. The policy contained a mold exclusion in the section of the policy that extended coverage. Under the Fleming v USAA case cited above, Mrs. Lillard argued that the mold exclusion was invalid and that she had coverage under the ensuing loss clause for everything but the repair to the roof itself.

The federal judge granted Prudential’s motion for summary judgment, stating that the roof leaked due to a defective repair, which was excluded. Plaintiffs asked the court to consider staying the decision and allowing an interim appeal to the Ninth Circuit on the issue of whether the ensuing loss clause extended coverage notwithstanding the faulty repair exclusion. This issue was also up on appeal in the Fifth Circuit. Otherwise, plaintiff was prepared to go forward on the negligent failure to procure claim against Prudential’s agent. The trial judge appeared willing to stay the case pending appeal of the ensuing loss issue, and Prudential then offered a settlement sufficient to cover most of the costs of repairs. Personal injury was not an issue in the case as a typical homeowner policy covers property damage, not personal injury. Mrs. Lillard’s and her daughter’s personal injury claims are addressed below.

Johnson v Dykehouse

This case involved a modest two bedroom house in North Portland of the type that would appeal to first time homebuyers. Defendant purchased the house in March 2004 for $63,900 and, after remodeling it, sold it several months later for $154,900. The house had a defectively constructed roof and other defects, a few of which were caught by the Johnson’s home inspector. But the real essence of the claim was that defendant covered up a considerable mold problem and then sold the house under a disclaimer, saying he was unaware of any problems. Neighbors familiar with the house explained that for a number of years previous owners had a hot tub in the unvented family room. The humidity in that room caused extensive visible mold to grow on the inside walls of the room and throughout other areas of the house. There was also mold in other areas of the house from a leaking roof. During defendant’s upgrades, a new layer of drywall was installed over the existing moldy sheetrock.

The Johnsons moved in and began having symptoms. Luckily for them, they detected the problem very early in their ownership period and moved out of the house before they became very ill. Mr. Johnson discovered the two layers of drywall after responding to a roof leak. The inner layer (new layer) was mold free. The layer closest to the stud wall was covered in mold. He took pictures of the new layer of drywall over the moldy old layer and contacted a mold investigator who tested the house and found a number of marker taxa molds that have been implicated in human health problems. They commenced an arbitration pursuant to their earnest money agreement’s arbitration provision. In discovery, the defendant was compelled to produce his invoices for the repairs he made to the house. These included invoices for many sheets of new drywall.
The case settled in mediation in early 2007 after the Johnsons revealed their evidence. The Johnsons elected the remedy of rescission and restitution over money damages. The defendant agreed to buy back the house and pay the Johnsons $ 32,500 for their personal property, which was presumed to be contaminated.

George v Western Homes, U.S. District Court (Eugene Or.), Case No. 05-6150 AA

Buddy and Mary George bought a Silvercrest manufactured home form a dealer in McMinnville in 1995. They had many problems with the house, usually from cracked drywall. In the first couple of years that they owned the house, the dealer sent out a man to repair the drywall cracks which the company blamed on the house “settling.” The dealer later went out of business and the Georges began dealing with the manufacturer, Western Homes. Later, further instances of cracked drywall resulted in the manufacturer sending a repairman out to the house. As with the dealer, the drywall cracks were blamed on the house “settling.” In the summer of 2003 the George’s developed symptoms consistent with mold exposure. They were unaware of the possibility of mold contamination until after the roof developed leaks in April 2004. They contacted the manufacturer who sent out an employee to inspect the roof. He removed a roof vent and replaced it. Later, when the leaks worsened, they again reported this to the manufacturer, which sent out an inspector who determined that the roof was installed improperly and that the manufacturer’s representative who has previously removed the roof vent must have cracked it as he tried to replace it on the roof.

The Georges also called their insurer, Allied Insurance, which arranged to have an inspection performed by a local contractor. The insurer’s inspector opened up the ceiling in the family room during his inspection, without first installing a containment field of protective plastic sheeting. When he opened up the ceiling, black slimy mold was found on the ceiling drywall and the rafters above it. Upon discovering the mold, the insurance inspector begged off the job and left. The Georges then hired a mold investigator and a construction defect expert and engineer. They determined that the mold had contaminated the inside of the home, and that the roof was incorrectly installed for a number of reasons.
Western Homes initially agreed to repair the roof and a time was set to have the company come to the house to fix the damage. By this time, however, the George’s mold expert suspected that the damage went beyond damage to the roof. When I asked to reschedule the repairs so that the Georges’ mold expert could be present to observe the repairs, Western Homes refused to repair the roof and accused me of canceling the repairs. The Georges were forced to file suit and did so in Douglas County, Oregon. Western Homes then removed the case to federal court and the Georges also joined their homeowner’s insurer under the theory that the insurer was obliged to cover the loss and was negligent in hiring someone with no mold training to inspect a water infiltration claim.

Western Homes’ own roofing expert admitted that the roof was improperly installed. Its engineer also noted in his report that the roof beams at the marriage line of the double wide house may not have had a sufficient number of bolts holding the two sections of the house together. But the defense experts also opined that the rain gutters may have been plugged and the free standing garage may have weighed down on the house, causing the roof leaks. The latter two theories did not explain why the roof leaked dozens of feet away from the garage on the other side of the house or why the windows on the other side of the house leaked. We prepared for trial.

A mediation was held on November 22, 2006 but was a non starter as neither the insurer nor Western Homes made a significant offer. The insurer later settled with the Georges for the cost of repairing the roof, drywall and carpeting. Western Homes would not settle and, instead, filed a motion for summary judgment asserting that the Georges had waited too long to sue; that although they filed suit within 2 years of discovering the leak and mold damage, the case involved a product (manufactured home) rather than construction defects. Western Homes argued that the 8 year statute of ultimate repose for product liability cases applied rather than the 10 year period for construction defects. The trial judge agreed with Western that this manufactured home was a product and not a constructed home, but also found that because the Georges discovered their damage within two years of filing suit, their claim fell within a narrow exception to the products liability statute of repose. The court ruled that they needed to show that the mold damage was occurring between May and September 2003 for the suit to be timely. As it happened, Buddy George had testified in his deposition that he and his wife began having symptoms in the summer of 2003, so the facts were within that narrow window of time established by the court. A few months later, in a mandatory settlement conference, Western finally agreed to add to the amount the George’s had previously recovered against their insurer, so the case settled, thanks to the efforts of Federal Judge Tom Coffin.

 

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