A commercial property insurance policy protects against direct physical loss to your company’s property that results from a covered peril. While some types of property policies protect against a specific named peril, many are termed “all risk” policies. But all risk does not, in fact, mean every risk; these policies typically contain several exclusions. One of the most common of these is the mold exclusion.
The Mold Exclusion
Property policies commonly preclude coverage for damage that is caused by or that results from mold. When mold is the clear and proximate cause of property damage, there is no coverage under the policy.
Disputes over the mold exclusion may arise when the language in the policy contains ambiguities. Generally speaking, insurance policy provisions that limit or exclude coverage are construed liberally in favor of the insured and against the insurer.1 If a provision is subject to more than one reasonable interpretation, it is considered ambiguous and will then be construed in favor of the insured.2 However, where the language in the policy provision is clear and unambiguous, words must be given their plain, ordinary and popular meanings.3
When Losses Have Multiple Causes
Unless there is clear language to the contrary, if both mold and a covered peril contribute to a loss, and the covered peril is the dominant and efficient cause of the loss, the damage may not be excluded under the mold exclusion.
In an Arkansas home, a water pipe froze and burst while the home owner was absent, and between four and six inches of water stood continuously in the basement for a considerable period of time before it was discovered. While the standing water caused only minimal structural damage to the basement, the humidity from the water caused mold to form on all of the interior surfaces of the residence, rendering the home uninhabitable and requiring demolition. The Eighth Circuit found that, since the water from the burst pipe and mold resulting from it both contributed to the inhabitability of the home, this raised a question of fact as to whether the mold or the water leak was the dominant and efficient cause of the loss.4 The court sent the case back to the lower court for further fact-finding.
In another mold exclusion dispute, a Washington appeals court sided with an insured, after the rental property she owned was damaged. Without the property owner’s knowledge, the tenants had set up a marijuana growing operation in the basement, which caused extensive mold damage. The tenants used halide lights and took various measures to divert all heat in the house to the basement marijuana operation. The lack of heat throughout the rest of the house combined with the excessive water condensation from the halide lights and the marijuana operation caused mold to grow rapidly throughout the house. Upon discovery, the marijuana operation was removed by the police. The insured was denied coverage due to the mold exclusion, and the lower court agreed with the insurance company. However, the appeals court reversed, concluding that the actions of the tenants constituted vandalism, for which there was coverage under the property insurance policy. The court further concluded that the tenants’ actions were the efficient and proximate cause of the loss.5
If you are involved in a dispute with your business insurance company, contact Schwartz, Conroy & Hack. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.
1 Pekin Insurance, 367 Ill. App. 3d at 267.
2 Rich v. Principal Life Insurance Co., 226 Ill. 2d 371 (2007)
3 Rich v. Principal Life Insurance Co., 226 Ill. 2d 359, 371 (2007)
4 Shelter Mut. Ins. Co. v. Maples, 309 F.3d 1068, 1070-71 (8th Cir. 2002)
5 Bowers v. Farmers Ins. Exch., 99 Wash. App. 41, 46-48, 991 P.2d 734