Deconstructing the All-Risk Policy: The Mold Exclusion, Part 2

Last week’s post introduced the mold exclusion commonly found in many all-risk policies. While last weeks post focused on a situation where mold damage was excluded, this week I am writing about a case where mold damage was covered, even though the policy at issue had a mold exclusion.

In Bowers v. Farmers Insurance Exchange, 991 P. 2d 734 (Wash. Ct. App. 2000), Ms. Bowers rented her property to new tenants. Prior to the new tenants, the house was well-maintained and in good shape. A few months into the lease, the Ms. Bowers became suspicious of the activities taking place in her rental home and called the police. A marijuana grow operation had been set up in the basement. The extreme heat in the basement allowed for the rapid growth of mold throughout the house. Ms. Bowers filed a claim with her insurer. The insurance company denied the claim, reling on policy language which stated,

We do not cover direct or indirect loss from…wear and tear, marring, deterioration, inherent vice, latent defect, mechanical breakdown, rust, mold, wet or dry rot…

The policy did, however, provide coverage for vandalism, which was not defined. Using a definition from Webster’s Dictionary, the court ruled that the marijuana grow operation was vandalism to the house which caused the mold damage.  The court held:

When the insured can identify an insured peril as the proximate cause, there is coverage even if subsequent events in the causal chain are specifically excluded from coverage….Here, there can be no reasonable difference of opinion regarding the cause of Ms. Bowers’ loss. It was the tenants’ acts, which in an unbroken sequence produced the result for which recovery is sought. We conclude that the tenants’ acts are the efficient proximate cause of the owner’s loss.

This case highlights the importance of determining the proximate cause of mold damage to determine whether or not you have a valid claim. If a covered peril causes the mold to grow, you may be able to collect payments to repair the mold damage.

Keep in mind that the above case used Washington law, and laws vary in different states. Be sure to check in next week for another look at the all-risk policy.