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[Note: The Texas Appeals
Court in December, 2002, reduced the Ballard family
jury award to approximately 4 million
dollars.]
Jury
Sends Message to Insurance
Industry in Toxic Mold Case
By
Stephanie K. Jones, Insurance
Journal
A
recent jury decision should put up red flags for insurers: Take care of
toxic mold claims adequately and promptly, or risk being assessed millions
of dollars.
That warning came in the form of a $32-million award to a Dripping Spring,
Texas, family after the jury concluded that a subsidiary of Farmers
Insurance Group mishandled the family’s claim. The Austin
American-Statesman noted that the June 1 award is one of the first in
the nation to order an insurance company to pay damages to the homeowner
in a toxic mold case.
In
their lawsuit against Farmers’ subsidiary, Fire Insurance Exchange
(FIE), homeowners Melinda Ballard and Ron Allison alleged the company
mishandled their claim. They requested $100 million in restitution.
According
to Ballard and Allison, Farmers delayed in covering repairs for a water
leak in the couple’s 22-room mansion and ignored contractors’ warnings
that dangerous molds could grow under the house’s sub-flooring if the
sub-flooring were not pulled up. The couple said Farmers’ failure to
properly handle the claim allowed the toxic mold Stachybotrys atra
to take over their house, which damaged the family’s health.
Judge
John Dietz previously ruled that medical testimony on health effects of
mold could not be introduced because the level of scientific proof
required by a Texas Supreme Court mandate does not yet exist; however, the
jury found that the house was damaged beyond repair and that it will have
to be demolished and rebuilt. The Statesman reported that the
family was awarded $6.2 million in actual damages, $12 million in punitive
damages, $5 million for mental anguish and $8.9 million for lawyer’s
fees.
According
to court documents in Ballard v. Fire Insurance Exchange (Travis
Co. Cause No. 99-05252), Ballard experienced a plumbing leak in a bathroom
in 1998, had it repaired, and that several months later the house’s
hardwood floors started buckling. Ballard filed a claim with Farmers,
which had insured her home since 1992. The suit alleges that in December
1998, a flooring contractor cautioned Farmers about the potential for
dangerous mold growth but Farmers ignored the contractor’s warning.
Instead,
the company reportedly followed the advice of a Farmers adjuster who
indicated that the problem was related to the settling of the slab and was
not covered by Ballard’s policy. In addition, Farmers was alleged to
have conducted a plumbing check but reported that it had found no leaks.
In
early 1999, the family—Ballard, Allison and their three-year-old son,
Reese—experienced the first of a number of unexplained illnesses,
including coughing up blood. The condition of the floors got worse, and
walls, windows and doors were damaged as a result of the subfloor being
waterlogged. Farmers tried to settle the claim at that time, but offered
an amount that the homeowners considered insufficient to cover the damages
to the home.
According
to the complaint, a Houston microbiologist retained by Farmers, Dan Bridge
of Rimkus Engineering, found that the space contained airborne Stachbotrys
spores. However, neither Farmers nor Bridge informed the family about the
discovery until after the illnesses occurred. Ballard and Allison hired
scientists from Texas Tech University to test the home, and after the
presence of toxic mold spores was confirmed, the family moved out.
Commenting
on the case, Austin attorney Sean Michael Quinn, who specializes in
insurance matters, said it is unlikely that the $32-million assessment
will stand after the case moves through the appellate courts, as it is
expected to do. However, the impact of the jury’s award in an “ably
tried case on both sides” will reverberate through the insurance
industry, Quinn said. He noted that in fact, the case has already
influenced the way that insurance companies handle mold claims, even
before the jury award, causing them to be more careful in the handling of
those claims.
Quinn
speculated that one result of the jury award will be to make insurance
companies stand up and take notice that “maybe ‘bad faith’ is not
dead,” at least not in Texas. He said the award sends a message that
“here’s what a jury will do” in a case like this and that insurance
companies are likely to gear up with a faster, more adequate response.
Another
result of the award could be that surplus lines carriers, which are not
required to have state approval of their forms, will begin to issue
specific exclusions for mold, Quinn said.
Appeal
is likely
Chris Martin, an
attorney with Martin, Disiere & Jefferson, a Houston-based firm that
specializes in insurance law, agreed that Farmers will probably appeal the
verdict. He said that the trial will not conclude until Judge Dietz hands
down his judgment on the verdict, noting that attorneys on both sides are
preparing motions for such a judgment.
Farmers’
motions will likely request, among other things, a reduction in the
damages and, perhaps more importantly, that the judge find the
plaintiffs’ claims for damages were not covered under the homeowners
policy. Martin said that the coverage question is a huge one for the
industry and added that even if the judge reduces the damages, Farmers is
sure to appeal.
The
mold/illness relationship
As noted by the trial
judge, the relationship between airborne toxic mold spores and adverse
health effects is so far unclear and unproven. While it has been reported
that Stachybotrys atra and certain other toxic molds produce
micotoxins can cause unique or rare health conditions, such as pulmonary
hemorrhage or memory loss, the Centers for Disease Control and Prevention
(CDC) report that there is a lack of significant data that scientifically
links toxic mold to these conditions.
According
to the CDC, common health concerns from molds include hayfever-like
allergy symptoms. And certain individuals with chronic respiratory disease
(chronic obstructive pulmonary disorder, asthma) may experience difficulty
breathing in the presence of molds. CDC information suggests that molds
are very common in buildings and homes and will grow anywhere indoors
where there is moisture. The most common indoor molds are Cladosporium,
Penicillium, Aspergillus, and Alternaria. Accurate information
about how often Stachybotrys chartarum (or Stachybotrys atra)
is found in buildings and homes is not available. According to the CDC,
although Stachybotrys atra is less common than other mold species,
it is not rare.
Attorney
Beth Bradley, who has represented insurance companies in a number of mold
cases and has followed the developments in the Ballard case closely,
agreed that there is “not a lot of hard evidence connecting mold” to
illnesses. She said that media coverage of the Ballard case is likely to
feed the hysteria surrounding mold issues, but added, “we are just now
starting to see the other side of the story” in these cases.
Bradley
said that concerns about unscrupulous remediation contractors have begun
to surface, adding that inflated repairs are likely to drive insurance
costs up. In addition, false positives for Stachybotrys caused by improper
testing are common and are also a cause for concern, Bradley said.
Hysteria
or reality?
The Ballard case has
received intense media scrutiny, and while significant, it is not the only
mold-related case moving through the court system in the U.S.
In
May, the Delaware Supreme Court upheld a $1-million verdict in a mold
exposure case and found that a landlord can be held liable for injuries
suffered by its tenants because of mycotoxins, bacteria and fungi within
an apartment. The plaintiffs in that case claimed that exposure to toxic
mold spores while living in an apartment complex prevented them from
performing their regular duties, and caused economic losses and illnesses,
such as asthma, permanent cognitive defects, osteopenia and an increased
risk of tuberculosis that will require future medical care.
Mold
issues are a hot topic in the insurance world right now, “and the media
are contributing to the hysteria,” according to attorney Martin. He said
that the majority of claims that companies are seeing are not ones where
the claimants actually see mold. Often, they begin to experience allergy
symptoms and ask the insurance companies to investigate.
A
large number of claims are generated by lawyers, neighbors or friends who
may suggest that a claimant may have mold problems, Martin said. Finally,
a smaller number of the claims are “legitimate water damage claims where
mold and fungus grow due to water damage,” he said.
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