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WASHINGTON MOLD LITIGATION (cont'd)
4. Reported Mold Cases
There are not a lot of reported decisions involving mold cases in Washington. In most of the decisions that are in the books, the mold issues took second place to other procedural issues which governed the disposition of the case. For example:
Mercer Place Condo. Ass'n v State Farm, 104 Wn. App. 597, 17 P.3d 626 (2000)
In late 1996, Mercer Place discovered structural rot to its wood frame structures. A structural engineer determined that Mercer Place was in a state of progressive structural decay. After Mercer Place notified State Farm of the damage, the insurer conducted investigative tears of the structure to determine which portions were in a collapsed state. State Farm recognized that coverage could be provided for such damage under the policy's "collapse" provision. But State Farm only wanted to extend coverage for parts of the buildings facing “imminent” collapse, not deteriorating parts that may collapse in the future.
The condominium association sued State Farm contending that coverage for loss under its insurance policy was not limited to damage involving collapse that occurred during the policy period. It argued that coverage also extended to that damage not yet in a state of collapse during the policy period but that will eventually reach a point of collapse, unless repaired.
The trial court found that the language of the policy only extended coverage to those portions of the property shown to be in a state of collapse during the policy period. The court granted partial summary judgment to State Farm, and conducted a bench trial limited to the issues of the extent of "collapse damage" that occurred during the policy period and whether State Farm fulfilled its obligation to investigate Mercer Place's claim fully and fairly. The court determined that State Farm fully and fairly conducted its investigation, that State Farm paid for all collapse loss which occurred during the policy period, and that there was no credible evidence of any collapse loss "which has not been reasonably and adequately investigated and repaired" by State Farm. The decision was appealed.
The Court of Appeals held that while the policy covers loss commencing during the policy period, the loss that is covered is "collapse" or substantial impairment of structural integrity. It further held that the trial court correctly observed "collapse cannot commence before it occurs. The structure is either in a 'collapse' condition or it is not." Looking at the policy as a whole, the court found that adopting Mercer Place's argument would defeat the purpose of the policy's exclusionary provisions. The policy specifically excludes those losses flowing from such conditions as decay, continuous or repeated seepage or leakage of water, or faulty construction or design, except to the extent that such conditions are found to have created substantial impairment of structural integrity during the policy period. The result is that the trial court decision stood, and State Farm’s responsibility was limited.
DePhelps v. Safeco Ins. Co. of America, 116 Wn. App. 441, 65 P.3d 1234 (2003)
This was an insurance coverage case where the homeowner had converted the use of the home to a bed and breakfast. The homeowner’s policy insured the dwelling for use principally as a private residence, but the policy also covered various aspects of room rentals.
In March 1997, heavy accumulations of snow and ice on the roof shifted, which loosened part of the metal roof. The homeowner attempted to fix the damage himself, but realized the damage was more extensive than he had originally estimated. He reported the damage to his insurance carrier, Safeco, and submitted a claim. He also submitted a contractor's estimate of $40,000 to repair the roof. Safeco inspected the damage and approved the estimate. It paid $28,432 for the repairs in November 1998. But additional damage appeared. Mr. DePhelps and Safeco argued over the extent of that damage. Safeco paid an additional $49,163 in August 1999. But the roof still leaked. The owner’s contractor temporarily repaired it. Safeco paid for those temporary repairs. In December 1999, the home and its contents were found to be contaminated by toxic mold caused by water leaks resulting from defective repairs. In January 2000, the homeowners moved out of the house and submitted more claims for mold damage and loss of use.
Safeco estimated the repair costs at over $600,000 and paid $536,446.86. The DePhelpses submitted a repair claim for $1,724,650 and sued for breach of contract, bad faith, and Consumer Protection Act (chapter 19.86 RCW) violations. Both sides moved for partial summary judgment on the coverage issues. The trial court held that the claim was not covered by the policy. The Court of Appeals reversed the trial court's decision. The Court of Appeals held that the policy anticipated that rooms will be rented out and defined the limits of Safeco's liability in the event they are. Nothing in the policy suggested that the presence of renters limited Safeco's liability for structural damage. The policy did not distinguish between "business pursuits" and "rental or holding for rental."
Because the homeowners lost income from renting out the premises, they claimed that lost income under the ”loss of use” provisions of the policy. Safeco argued that they were only entitled to loss of their use as a residence, not lost rental income. The Court noted that, in a tort action, loss of income is recoverable "if the proof is adequate.” Proof of lost profits or business income may be considered as evidence of the value of the loss of use in an action for damages. The DePhelps’ policy provided that, in the event of a claim, the insured must provide "records supporting the fair rental value loss." But the policy contained separate loss of use provisions: one for the loss of the insureds' own housing and another for lost rental income. The court then held that the DePhelpses may recover the rental value of the home as a single-family rental, or they can recover the reasonable cost of equivalent housing for themselves (as reduced by the rental activity) plus an estimate of the amount they would have earned from the rented portions.
The court took an actual cash value approach to the loss of the building. The policy defined actual cash value as "the market value of property in a used condition equal to that of the destroyed property, if reasonably available on the used market." The court then held that additional costs to upgrade the house to comply with new building code provisions applicable to use of rental premises or hotels were not covered. Replacement cost considerations - such as building code upgrades - did not apply. The court stated that a determination of market value of the destroyed property will depend on whether it was saleable as a bed and breakfast when the damage occurred. This depended upon whether it was in compliance with the then existing building codes for that purpose, and whether that code compliance would pass to a buyer - or whether the county could or would require upgrades as a condition of sale (as well as for reconstruction). The key holding was that cash value applied to the property as it stood at the time of loss. Replacement costs, including code upgrades, were not included.
O'Neill v. Farmers Ins. Co. of Washington, 124 Wn. App. 516 (2004)
In September 2001, the O'Neills discovered a water leak in their residence and filed a claim for coverage against their homeowner's policy. Their homeowner’s insurer, Farmers, retained Flare Corporation (Flare) to prepare a scope of work and submit a bid to repair the damages caused by the leak. Flare estimated that the repairs would total $23,557.10. The O'Neills retained AACE Contracting (AACE) to do the repair work. Farmers agreed to pay AACE, which began the repair process in January 2002. The O'Neills alleged that Farmers required the company to try to dry the walls by forcing warm air through the wall cavities. They alleged that this practice, along with other cost-saving measures authorized by Farmers, damaged their home, that Farmer's delay and defective work caused "the retention of excess moisture, and attendant decay and mold growth."
The O'Neills' attorney delivered copies of the complaint to the secretary of Farmers' legal counsel, at his office. Farmers was, apparently, never personally served with process. In its October 31, 2002 answer, Farmers listed insufficiency of service of process among its affirmative defenses. Farmers later filed a motion for summary judgment alleging that the O'Neills' case should be dismissed because they had not served Farmers within 90 days of filing their summons and complaint. The O'Neills filed a motion to amend their claim. The trial court granted Farmers' motion for summary judgment and did not consider the O'Neills' motion to amend. The O'Neills appealed.
The O’Neills’ policy had a “suit against us” provision, which mandated that all suits against Farmers under the policy must be filed within a year. Their claims were deemed untimely because service was never perfected within a year. But they also asserted that the statute of limitations on their bad faith and CPA claims had not expired as of September 13, 2002, and that the trial court erred in dismissing those claims with prejudice because they could still bring those claims as if they had never filed a prior suit. Under RCW 4.16.080, claims for bad faith are subject to a three-year statute of limitations and claims under the Consumer Protection Act are subject to a four-year statute of limitations. RCW 19.86.120. Farmers asserted that the trial court properly dismissed all claims before it because the O'Neills failed to complete proper service.
The trial court dismissed all of the O'Neills' claims with prejudice. But the Court of Appeals reversed dismissal of the bad faith and Consumer Protection Act violation claims with prejudice, holding that, because the statute of limitations had not run on those claims, they should have been dismissed without prejudice.
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