Farmers Insurance must cough up $32 million in Texas toxic mold verdict

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Farmers Insurance must cough up $32 million in Texas toxic mold verdict

By Vicki Lankarge

insure.com

A jury has awarded an Austin, Texas, family $32 million, concluding that a

Farmers Insurance Group subsidiary committed fraud by delaying and denying

the family's home insurance claim for mold damage.

To learn more about stachybotrys, see What every homeowner should know about

mold and insurance.

http://www.insure.com/home/mold.html

A County District Court jury agreed with Melinda Ballard and her

husband, Ron , that Fire Insurance Exchange, a Farmers subsidiary,

failed to promptly cover the necessary repairs for a water leak, thus

allowing a toxic mold called " stachybotrys " to invade the couple's 22-room

mansion. The insidious black mold forced them and their young son to

abandoned the home in 1999. On the advice of Dr. Straus, a leading

mold expert, they left quickly with just the clothes on their backs.

Stachybotrys, a toxic mold that has been found in all 50 states, has been

named as the culprit in several high-profile cases of " sick building

syndrome. " In the mid-90s, the mold was blamed for the deaths 16 infants who

suffered pulmonary hemorrhages in Cleveland.

The Texas case is a legal landmark because it is the first time that a jury

has awarded a homeowner damages in a mold case against an insurance company,

rather than against a builder or building owners. The jury's 11-1 decision

of $32 million is based on:

$6.2 million in actual damages. The house will have to be decontaminated,

leveled, and rebuilt.

$12 million in punitive damages. This amount is a warning to other insurers

as well as a punishment for Farmers.

$5 million for mental anguish.

$8.9 million in lawyers' fees.

Farmers is waiting to see if Judge Dietz reduces the jury's award when

he officially enters the judgment on June 25, 2001. " We heard the jury's

verdict, " says Flynn, a Farmers spokesperson. " It is now up to the

court to enter a judgment in this case. Once that is done, we will review

that judgment and if an appeal is necessary, we are confident we will

prevail. "

Homeowners and insurers eye case closely

Both homeowners and insurers are watching this case carefully. Texas

insurance law has a liberal stance toward coverage of mold damage that is

the direct result of a " covered peril, " such as a burst water pipe. This is

not true of most other states. A standard home insurance policy typically

does not cover losses caused by rust, rot, mold or other fungi, even as a

result of a covered peril. Most insurers consider mold a " home maintenance "

issue.

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Farmers gets more than two-thirds of its mold claims from Texas.

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But now Farmers wants out of having to cover mold, too. The Texas Department

of Insurance has scheduled a public hearing on June 26, 2001, to gather

testimony from consumers, bankers, and insurers on whether it should

ultimately grant Farmers - and by extension, all insurers licensed to do

business in Texas - the right to exclude mold damage from coverage.

According to Farmers spokesperson Bill , Farmers gets more than

two-thirds of its mold claims from Texas and is projecting nearly a

five-fold increase in its residential claims for mold damage this year,

costing the company about $85 million.

Texas homeowners with mold problems are alarmed. Even if the mold in their

homes doesn't cause any medical problems, such as asthma problems, it can

lead to " dry rot " and eventually cause severe structural damage to their

homes.

Picking the wrong person

The mold trial has garnered extensive publicity because of the high media

profile kept by Ballard, a former New York City public relations executive.

According to her lawyer, Houston attorney Fred Hagans, when Farmers began

its campaign to delay and deny Ballard's mold claims, they picked the wrong

person. " Melinda wasn't going to take it lying down, or get frustrated, give

up, and go away, " says Hagans.

Indeed, Ballard took to network television news programs, local, and

national radio stations, and the Internet to tell her family's story. That

story includes a son, who at age 4 began coughing up blood, and a husband

Ballard says had to quit his job as an investment banker because he, too,

began coughing up blood and eventually suffered respiratory damage and

memory loss.

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" This case wasn't about sympathy. It wasn't about 'Poor brain-damaged

Ronny.' "

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Hagans says he could not introduce medical testimony on the health effects

of mold at the trial because a Texas Supreme Court decision mandates a level

of scientific proof that has not yet been reached in respect to the medical

problems associated with stachybotrys. However, even without medical

testimony, the jury sided with Ballard and .

" This case wasn't about sympathy, " says Hagans. " It wasn't about 'Poor

brain-damaged Ronny.' It was about an insurer that failed to keep its

promises and the jury could very well imagine what happened to that family

could happen to them. "

Last updated June 7, 2001