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And In this Corner–Mold

May 15, 2002

February 2002 Interface • 13
Mold is an unusual problem because it can occur under so
many different circumstances. A small amount of mold can
result in extensive property damage, extra expense, and possibly
bodily injury. The effects of mold look and sound like a malingerer’s
complaint, but science has not precluded the possibility
that serious health problems can arise from exposure to concentrated
levels of certain types of mold. The issue is being
smeared over every media outlet, from the most respected to
the most dishonored.
First, there is some type of water intrusion, whether it be by
plumbing leaks, a construction defect, or the extinguishing of
fire. Next, there is some type of adjustment when a company
prepares an estimate for the loss. The building owner wants what
appears to be a great deal more money than necessary, and the
adjusting company and the building owner finally negotiate a
compromise that is mutually unappealing to each party. Then,
because all of the water damage is not found or addressed, mold
begins to grow in the area that is not addressed. Additionally
mold can then spread throughout a building as it “blooms” and
settles in moist areas not related to the original incident.
The alleged mold loss process begins with the building
owner finding blue/green, green/black, or black mold in the walls
or in sub-flooring. The building owner then logs onto the
Internet, punches in the word “mold,” and reads horror stories of
the effects of mold in buildings and the millions of dollars that
have been awarded by jurors when insurance companies have
not adequately responded to mold problems.
The result: mold litigation.
There are two types of relevant losses. The first is a
simple water damage loss. The second is a loss where mold is
already present.
A. Water Intrusion Losses
There are infinite causes of water intrusion. Some of the
more common are: 1) leaking roof; 2) sewer backup; 3) shower
pan leakage; 4) plumbing leaks; 5) extinguishing of a fire; 6)
weather; 7) defective construction; and 8) poor maintenance.
The initial steps in addressing water intrusion losses are:
1. Terminating the source of the moisture.
2. Immediate and thorough investigation by a
competent contractor
3. Thorough cleaning and/or drying of the affected area.
Contractors should be careful to investigate all areas that
could have been affected by the water event. This may include
water that has moved underneath walls, soaked into wall studs,
flooring, floor joists, pooled under the house, or saturated wallboard
and insulation. Saving small amounts of time and/or
money on the initial investigation may cause great pain and
expense in the future.
During water intrusion evaluations, one should be energetic
in taking notes and photographing the affected and unaffected
By Brad E. Brewer
areas. Document all the areas investigated, showing that the
investigation went well beyond what could be seen. It also
makes sense to have very thorough notes on which areas need to
be addressed or investigated further.
B. Mold Losses
The second type of loss is where mold already exists. Finding
the existence and extent of the water intrusion that precipitated
the mold growth is probably the most important function of the
initial investigation. If it appears mold is present, call a testing
contractor who can: 1) confirm whether abnormal levels of mold
are present; and (2) prepare a remediation plan if necessary.
If a biological expert and report are necessary, the report
must document the concentration, the type, and the current
stage of the mold. These experts customarily are also responsible
for the preparation of a mold remediation plan. Such experts
(CIH or microbiologists) may also be valuable for opinions on
the possible causes of the moisture prompting the mold. The
size of the loss may warrant inspections by construction and/or
HVAC experts to verify the causes of the moisture necessary for
mold growth. Consider testing cloth furniture and clothing
It is important to find mold experts who have some sense of
reason when it comes to mold remediation. This type of reasoning
is most valuable in the initial testing/remedial planning expert
since he or she controls the overall response. An expert who is
overly interested in an inexpensive fix may be more expensive
than someone who will panic and tear the building down.
Depending on recognized names in the steam cleaning business
probably is not a good plan. The best way to qualify mold
remediation contractors is to seek help from mold investigation
experts. Here are some guidelines for someone hiring remediation
1. Obtain a statement of qualifications.
2. Obtain a list of previous projects and the
corresponding clients.
3. Request a certificate of insurance.
4. Inquire as to certification of workers and the company.
There are numerous organizations in the industry that
certify professionals, such as The Institute of Inspection,
Cleaning, and Restoration Certification (
Research the certification and the certifying body.
5. Inquire which other companies the contractor is working
for and obtain contacts at those companies.
6. Inquire about the company’s approach to inspection of
water losses and mold contamination claims in order
to confirm the viability of the biological expert’s
remedial plan.
7. Ask about the types of containment procedures/guidelines
that are in place.
8. Inquire about the company’s philosophy and approach to
source control.
9. Inquire how the company will assure there will not be a
reoccurrence of mold.
10. Determine which instruments are used to evaluate or
monitor water damage.
11. Ask the company to describe the performance capabili –
ties of the equipment being recommended.
12. Discuss how the restoration program incorporates
available resources, such as existing HVAC systems.
13. Obtain lists of which chemicals will be used on the project.
14. Obtain MSDS material safety
data sheets for all chemicals to
be used on the project.
15. Ask how progress of the contractor’s
work will be communicated
to the building owner and the
16. Inquire which documentation is
routinely maintained and provided
to property owners and insurance
It seems that every contractor who
owns a van and a carpet cleaner thinks he
is a mold remediation expert. It is imperative
that his credentials, experience, and
knowledge be questioned before he can
be relied upon.
Mold has taken over the ceiling and walls of this room; someone will be blamed.
14 • Interface February 2002
February 2002 Interface • 15
Communication among the expert, the contractor, and the
building owner is key to managing a serious mold investigation.
Communication to the building owner as to what is found, the
seriousness of the type of mold found, and which remediation
steps will be taken is imperative. Contractors, as always, should
be honest with their building owners. Mold can be very scary for
building owners and for good reason. Ongoing, well written and
informative reports to the building owner that are created with
the help of the expert will go a long way toward maintaining
control in these cases.
While this writer is most familiar with
Texas, laws and cases in one state are often
used as precedents or cited in other states.
There is very little case law in Texas on
insurance coverage for mold claims outside
of the homeowner’s context. Whether mold
is covered under a Texas homeowner’s policy
(Form B) became a little more interesting
after the Dallas Court of Appeals issued
Home Insurance Co. v. McClain, 2000
WL144115 (Tex. App – Dallas 2000) and
the Austin Court of Appeals issued Harrison
v. USAA Ins. Co., 2001 WL 391539 (Tex.
App – Austin 2001). As these two cases
point out, the most fertile area for controversy
is the ensuing loss provision found in
most “mold exclusions” contained in property
or first party policies. A quick look at the
terms of a standard Texas homeowner’s policy
is necessary for the discussion.
A. Granting Language
HOB Form B insures “against all risks of physical loss to the
property” that are not excluded.
B. The Exclusion
The relevant exclusion found in the Exclusions section of the
policy is section (f), which states that:
(f) We do not cover loss caused by:
1. Wear and tear, deterioration, or loss caused by any
quality in property that causes it to damage or
destroy itself.
2. Rust, rot, mold, or other fungi.
3. Dampness of atmosphere, extremes of temperature.
4. Contamination.
5. Rats, mice, termites, moths, or other insects.
We do cover ensuing loss caused by collapse of the building
or any part of the building, water damage, or breakage of
glass which is part of the building if the loss would otherwise
be covered under this policy.
C. The Ensuing Loss Provision
The paragraph shown above (that immediately follows the
enumerated list of causes of loss not covered in that section) is the
“ensuing loss provision,” and is the subject of great disagreement.
Texas case law has defined “ensuing loss” to mean a “loss
which follows as a consequence of some preceding event or circumstance.”
McKool v. Reliance Ins. Co. 386 S.W.2d 344, 345 (Tex.
App – Dallas, 1965, writ dismissed). The issues relating to this
provision will be explored below.
1. The majority view in Texas on the application of the ensuing
loss provision.
Texas Courts have held that for the ensuing loss provision
to provide coverage, the insured’s loss must be the result
of water damage caused by the uncovered losses enumerated
in subsection (f).
It appears that the first time this issue was ruled upon in a
mold setting was in Aetna Casualty Insurety Co. v. Yates, 344 F.2d
939 (5th Cir. [Tex] 1965). Yates is consistent with the idea that
the ensuing loss must be caused by water damage. The analysis
seems to track the majority analysis, despite a few sentences in
the opinion that make the court’s logic questionable. The facts in
Yates were that the insured’s flooring rotted because the air
trapped in the crawl space under the flooring was constantly
cooled by their air conditioning system, which caused condensate
to form on the floor materials.
The plaintiffs argued that the damage was really water damage,
and not “rot.” The court stated that “[w]e do not think that
a single phenomenon that is clearly an excluded risk under the
policy [rot] was meant to become comprehensible because in a
philosophical sense it can also be classified as water damage.”
Mold permeates the ceiling, walls, and floor of this room. Can it be cleaned, and who is going to pay?
February 2002 Interface • 17
This answered the question of whether “rot” (and presumably
mold) was to be considered water damage. But it did not address
the fact that the water damage needed to follow or ensue from
one of the excluded causes of loss enumerated in the exclusion.
The court in Daniell vs. Fire Ins. Exchange, 1995 WL 612405
(Tex. App. – San Antonio 1995) puts a fine point on the issue. In
the Daniel case, water found its way between aluminum siding
and wood siding, eventually causing the wood siding to rot. The
court held that since the Plaintiffs pleaded that the rot was caused
by water damage, and not that the loss was water damage caused
by (and thereby after) rot, there was no coverage. Id. at *2.
The same reading of the ensuing loss provision was last
announced in Harrison v. USAA Ins. Co., 2001 WL 391539 (Tex.
App. – Austin 2001) The loss in that case was that the wood
around the insured’s bathtub was rotted. The court pointed out
that the rot followed the water damage, which is the reverse of
the causation required by the ensuing loss provision. Id. at *2. “In
other words, the ensuing loss provision covers water damage that
results from, rather than causes, rotting.” Id. citing Lambros v.
Standard Fire Ins. Co., 530 S.W.2d 138, 139 (Tex. Civ. App. – San
Antonio 1975, writ ref’d.).
2. The minority view in Texas on the ensuing loss provision.
The Dallas Court of Appeals had issued earlier rulings in
McKool and Merrimack Mutual Fire Ins. Co. v. McCaffree, 486
S.W.2d 616 (Tex. Civ. App. – Dallas 1972) consistent
with the majority position just discussed. The court
appears to have abandoned consistency in Home Insurance
Co. v. McClain, 2000 WL144115 (Tex. App – Dallas 2000).
In McClain, the insured’s roof leaked, causing framing members
to become wet and the pooling of water in the crawl space
under the house. The mold exclusion and the ensuing loss provision
were the policy terms at issue.
The carrier argued what seemed to be the holdings in McKool
and McCaffree . . . i.e., “the ensuing loss exception covers only
water damage which (sic) follows or results from mold or fungus
damage.” McClain, 2000 WL 144115 at 1. The seemingly incongruent
result of the McClain case is foreshadowed by the second
paragraph of the opinion where the court states:
“Home ignores that the ensuing loss provision is not limited
by the mold and fungi exclusion and, although the
water damage was not the result of the mold and fungi,
it was the result of the defective and deteriorated roof.
Thus, the application of the mold and fungi exclusion
is dependent on the application of the ensuing
loss provision.”
In other words, the court seems to be saying that the ensuing
loss provision is not giving back coverage taken away by the
mold exclusion, but is actually an oddly placed granting provision
for coverage for water damage. The court ignores the physical
placement of the ensuing loss provision.
For the first time in Texas, the McClain court determines that
mold and fungi are the ensuing loss caused by water damage.
This can be seen in the court’s description that to “be an ensuing
loss caused by water damage, the mold and fungi would necessarily
have to follow or come afterward as a consequence of the
water damage.” Id. at 3. The McClain Court held that “the water
from the leaking roof pooling in the crawl spaces caused the
mold and fungi.” McClain, 2000 WL 144115 at 1.
So was the water damage from the pooling of water? Is the
moist environment (air or framing members) what caused the
mold? All mold requires a moist environment. Therefore, it
seems the McClain court has interpreted the ensuing loss provision
to swallow the mold exclusion completely.
The McClain Court acknowledges McCaffree and McKool, while
ignoring the holdings. It is not possible to distinguish the
McClain case from the McCaffree case, an earlier opinion from this
same court holding that a claim arising from wood rot around a
shower pan was caused by fungi and not water damage and,
therefore, not covered. McCaffree, 486 S.W.2d at 619. The Court
tries to explain the lack of conflict in the holdings by stating
that the facts in McCaffree did not support the conclusion that the
fungi were caused by water damage. That is a hard argument or
justification to believe.
I agree with the McClain court that there could be a set of
facts in which mold-damaged property was covered, but the
facts in McClain do not support that, in my opinion.
There are several unanswered issues. First, is mold “water
damage”? It is not clear whether the McClain court believes it is.
The Fifth Circuit in Yates says it is not. If it is, the mold exclusion
becomes even more confusing.
Second, is the mere existence of mold “physical loss or damage”?
The mold exclusion in the HOB defines mold or fungus as
an excluded cause of loss, a destructive force like rot and rust,
and does not exclude mold as a damage in itself. Surely nobody
believes that the existence of a small amount of rust on a pipe is
a loss covered under a property policy. Why should the existence
of mold be covered?
Third, does “ensuing loss” mean the water damage and all
damage that is in the unbroken chain of causation from the
water damage, including mold? The McClain Court seems to
make this conclusion.
Fourth, is the ensuing loss provision an exception to the
exclusion, or is it new granting language unlimited by the enumerated
excluded causes of loss directly above it? Why would
the underwriters place the same provision in more than one
exclusion if it is not directly related only to the subject matter of
the exclusion?
Fifth, if covered water damage is followed by mold, is the
mold covered? This seems to be the position of the Texas
Department of Insurance as stated in the recently filed Petition
for Adoption of Amendatory Mandatory Endorsements,
Mandatory Offer Endorsements, and Amendments to the Texas
Personal Lines Manual Rules to Modify Coverage for Mold and
other Fungi; and Amendments to the Texas Statistical Plan for
Residential Risks.
Mold is just one more reason to make sure property investigations
are very thorough and well documented. Holding oneself
as a mold expert if he or she is not is foolish. In a report to
the owner, accurately: 1) state a lack of expertise concerning
mold; 2) note that mold could be present at the site; and 3) if
18 • Interface February 2002
mold is present in the building, advise the owner to seek the services
of a qualified mold expert.
Mold losses are very common and will continue to be a problem.
Unlike asbestos, the world will not run out of buildings that
contain mold. The insurance industry and the courts are currently
struggling with issues concerning insurance coverage, so there
will be a great deal of litigation involving insurance coverage
for mold. ■
1 There are opinions out there that once furniture is contaminated,
it is not possible to restore it. I doubt this is true.
2 Three non-mold cases are also instructive on the proper
application of the same ensuing loss provision found in other
exclusions in the policy.
1. McKool v. Reliance Ins. Co., 386 S.W.2d 344 (Tex.Civ. App.
1965) Damage to pool caused by excluded condition of
“extremes of temperature.” If water had entered the
cracks caused by extreme temperature and caused damage,
it would be covered.
2. Lambros v. Standard Fire Ins. Co., 530 S.W.2d 138 (Tex.
App. – San Antonio, 1975, writ granted, order set aside,
April 21, 1976, writ ref’d, April 21, 1976 on other
issues). Ensuing loss provision did not provide coverage
because the structural damage (excluded and enumerated
event) was caused by the water damage, not the opposite.
3. Jiminez v. State Farm Lloyds, 968 F. Supp. 330 (W.D. Tex.
1997) Similar to Lambros.
Brad E. Brewer is a partner with
the Law firm of Zelle, Hofmann,
Voelbel, Mason & Gette, LLP,
Dallas, TX. He completed his undergraduate
work at Texas Christian
University and received a law degree
from Southern Methodist University.
Before attending law school, Brad
was a home builder in the
Dallas/Forth Worth area, acting as a
general contractor for more than
400 homes. Brad’s practice is centered
around general civil litigation. Many of his efforts concern
insurance. He has also acted as lead prosecuting counsel
in numerous national class actions and litigates property subrogation
matters. Brewer became interested in sick building
syndrome in 1998 and has followed the progression into the
current mold hysteria. In 2001, he wrote the Mold Manual
(from which this is excerpted). Since then his firm has been
inundated with mold-related work. The views expressed in
this article are those of Mr. Brewer and are not necessarily
shared by Zelle, Hofmann, Voelbel, Mason & Gette, L.L.P.
Mr. Brewer may be reached at 214-742-3000.
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