Court says mold wasn't covered

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Sept. 1, 2006, 12:34AM

Court says mold wasn't covered

Policy ruling is win for State Farm

Houston Chronicle

By JANET ELLIOTT

Copyright 2006 Houston Chronicle Austin Bureau

http://www.chron.com/disp/story.mpl/front/4156079.html

AUSTIN — Standard insurance policies used by homeowners to recover

billions of dollars in mold losses actually didn't cover mold, the

Texas Supreme Court ruled Thursday.

The court, in a 7-2 decision, sided with State Farm, which argued

that its policy excluded mold coverage.

The ruling came in a case involving a Deer Park family who

discovered mold after their home was damaged in 2001 by Tropical

Storm .

It likely will affect more than 250 similar cases pending against

State Farm and hundreds more involving other insurers.

The cases involve claims filed in the early part of the decade.

At the time, companies were forced to use a standard policy drafted

by the Texas Department of Insurance, which had issued several

orders and bulletins explaining that the HO-B policies generally

covered mold as the result of a covered water damage such as a

broken pipe.

In July 2002, then-Insurance Commissioner José Montemayor allowed

companies to use their own policies, which often offered mold

coverage for an additional cost.

Sophie Harbert, a spokeswoman for State Farm, said the company did

pay some mold claims under the earlier policy even though it thought

they weren't covered.

" Although we didn't believe mold was a covered loss, there was no

definitive legal opinion, " she said.

" We handled the claims under a reservation of right, which means

policyholders were informed that it was questionable whether the

policy provided coverage for mold. Our investigation and handling of

the claims was not intended to convey coverage. "

Jay , an attorney for the insurance industry, said the

slowness of the commissioner to approve new policies that clearly

excluded mold losses contributed to the deluge of mold claims that

led to huge increases in homeowners' insurance premiums.

" I think the mold crisis could have been averted had companies been

more aggressive in asserting to the regulator the need to get these

new forms approved, " said.

The Insurance Department, which filed a brief siding with the

homeowners, declined comment on the high court ruling.

, an attorney for and Fiess, said the

court's ruling " changes decades of law. "

He said he is discussing with the couple whether to seek a rehearing.

He said it is puzzling that State Farm and other companies paid out

so much in mold claims when it believed such damages weren't covered.

Post-flood discovery

The Fiesses discovered black mold growing throughout their house

after they began removing drywall damaged by the flood.

They contended that a significant percentage of the mold had been

caused before the flood by leaks in the roof, plumbing, ducts, doors

and windows.

State Farm paid the couple $34,425 for mold remediation, but the

couple sued in state court, contending the payment was inadequate,

according to the Supreme Court opinion.

State Farm moved the case to federal court, which concluded that the

policy excluded mold damage.

The Fiesses appealed, and the U.S. 5th Circuit Court of Appeals

posed a " certified question " to the Texas Supreme Court.

Deciphering language

The Supreme Court was asked to determine whether specific language

in the policy excluding mold contamination should be disregarded

because the policy also states, " We do cover ensuing loss caused by

water damage. "

Justice Brister said in the majority ruling that the policy

means what it says.

" The policy here provides that it does not cover 'loss caused by

mold.' While other parts of the policy sometimes make it difficult

to decipher, we cannot hold that mold damage is covered when the

policy expressly says it is not, " Brister said.

Justice Medina said in a dissenting opinion, joined by Justice

Harriet O'Neill, that the policy " is susceptible to more than one

reasonable interpretation and is therefore ambiguous. " He said such

ambiguities " must be construed in favor of the insured. "

Winslow, executive director of the consumer group Texas Watch,

said " clearly the court is going out of its way to protect insurance

companies at the expense of homeowners and consumers.

" If mold coverage was never really included in our policies, the

industry owes us a huge check on all those overcharges we paid to

cover ourselves from mold, " he said.

Winslow said that as a result of the mold crisis, homeowners are

paying more for insurance and getting less coverage.

He said policies should be written in language that allows consumers

to clearly understand what is covered and what is not.

janet.elliott@...