WASHINGTON MOLD LITIGATION
By Kelly Vance, Attorney at Law
There are not a lot of reported decisions involving mold litigation in Washington. As in Oregon, most cases which have been filed in court have settled before trial and verdict. Many of the reported “mold cases” in Washington are actually insurance coverage cases that have arisen in a mold setting. Also many of the insurance issues that apply in Oregon also apply in Washington, although there are some differences between the states.
1. Insurance Issues
While this chapter is not designed to be an overview of insurance issues arising in mold litigation, a brief discussion of insurance issues is appropriate to illustrate the importance of insurance in mold cases.
a. Coverages vary within a homeowner’s policy.
Many mold cases arise in the context of first party homeowners’ insurance claims. Typically a loss occurs where a homeowner has suffered a roof leak or a burst water pipe, which may or may not be covered by their homeowner’s policy. Usually a homeowner notifies his insurer of the loss. The insurer usually then investigates the problem and determines whether or not the loss is covered. The insurer then either arranges for repair work (if coverage exists) or sends the customer a letter saying the loss is not covered. Many homeowners receiving such a denial letter are shocked. Like many of us, they probably did not read their policy thoroughly when they received it and expected that almost any damage to their house from an unexpected source would be covered.
Washington has adopted the ”efficient proximate cause” test for insurance coverage disputes. Generally, if a claim arises from a covered event, the loss is considered covered under the efficient proximate cause doctrine even though other excluded events may play a part in or increase the level of damage. This doctrine may be relevant in a mold context when, for example, a water line bursts, which is usually covered under a homeowner’s policy. Mold may grow after the leak as the wetted building materials in the house presents a fertile ground for mold growth.
The issue of insurance coverage for mold claims is a hotbed of litigation nationally. Many insurers have taken great pains to write exclusions in their policies for damage caused by mold. Insurers began writing mold exclusions to their policies around 2002, after the celebrated Texas verdict in the Ballard case against Farmers Insurance. But what if the damage was caused by a covered peril and mold is simply another part of the damage? A policy excluding coverage for damage “caused by mold” would not seem to exclude mold damage resulting from a covered peril which is the efficient proximate cause of the loss.
A few courts have held that policies which exclude coverage for damage caused by mold would still cover damage resulting from a covered peril, even if that damage was mold related. In those cases, mold was found to be both the damage and a cause. At least some courts held that such policies covered the loss, despite the exclusion. There is no reported decision on point in Washington.
In the wake of these rulings finding mold was both a cause and a loss itself, some insurers have changed their policies to say that they cover mold, but only up to some small amount, such as $ 10,0000. Other insurers have revised their mold exclusions to say that they exclude any coverage for mold, regardless of cause. The problem with such broad exclusions is that a policy saying it covers one kind of loss but excludes damages from that kind of loss if mold is involved could be interpreted as being ambiguous.
Under most homeowners’ policies, where a loss is to the dwelling itself, the loss is usually presumed to be covered unless specifically excluded. This is an “all risk” type of policy. However, that coverage rule does not apply regarding personal property insured by the same policy. Where the loss relates to personal property in the house, the property must usually be specifically named as a covered item or category of items under the policy’s personal property coverage. This is usually referred to as “named perils coverage.” Unless a specific item of personal property is named in the policy, it may not be covered. As with any generalization there can be exceptions, but generally the building damage is presumed to be covered unless excluded and personal property loss is presumed to be excluded unless specifically “named” in the policy.
Most homeowner’s policies exclude damage caused by construction defects, unworkmanlike repairs or design defects. The general idea is to lay responsibility for such problems at the feet of the contractor who caused them, not the homeowner’s insurer. Often those exclusions have an exception for ensuing losses that arise from the defect. The ensuing loss clauses in some states allow the exclusion to govern a roof leak resulting from a shoddy roofing job, for example, but the homeowner’s insurer can be called upon to repair ensuing damage to the house even in the wake of the faulty repair. Generally, these clauses result in the homeowner insurer not being required to repair the shoddy workmanship, but to repair ensuing losses resulting from it. Washington takes a narrow view of the “ensuing loss” doctrine, however. In Washington ensuing losses must be more or less unrelated to the initial defect to extend coverage.
b. Coverage issues for claims against contractors.
Insurance coverage problems are cropping up more frequently in claims against builders as well. When a homeowner sues a contractor for defects in the building and resulting loss to the house and its contents, the contractor usually tenders the defense of the claim to his liability insurer. More and more often the contractor finds out to his dismay that his insurer denies coverage for such claims.
Some insurers refuse to render coverage after a house is completed because their policies may include a “completed operations” exclusion. The rationale behind these exclusions is that the contractor’s liability policy is only intended to be in effect during construction and once a house is completed, the reason for the liability coverage expires. Many other policies include exclusions for “your work” or workmanship. Still others contain specific exclusions for any damage caused by mold.
Contractors also find themselves in trouble if they do not promptly report the claim to the insurer. Some contractors fear their rates will rise if they report the claim and try to handle it on their own. An insurer can terminate coverage for a contractor’s failure to promptly disclose the claim or cooperate in his own defense. In Washington, the duty to defend a contractor has been considered to be very broad. Even where there is serious doubt that a claims is covered, an insurer is held to the duty to defend any claim that would possibly be covered. The same is not true of the insurer’s duty to pay after a case is over. Often a claim may trigger the duty to defend, but the court later rules that the insurer’s policy does not cover the loss so it has no duty to pay the verdict.
Practice tip: Lawyers representing clients against builders or any defendants with insurance should always request a defendant to produce any insurance policies and letters regarding coverage from his insurer. That way the lawyer can analyze a claim to see if it is covered. This may factor heavily in settlement strategy. Defense counsel should tender the defense of a claim to the contractor’s insurer immediately and determine whether the insurer who refuses to defend a claim has breached the policy.
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