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Why it is important to properly investigate mold claims

The verdict in Fire Insurance Exchange in Ballard v. Fire Insurance Exchange caused a pervasive fear of mold claims in the insurance industry. (Photo: iStock)
The verdict in Fire Insurance Exchange in Ballard v. Fire Insurance Exchange caused a pervasive fear of mold claims in the insurance industry. (Photo: iStock)

Until a jury returned a $32 million verdict against the Fire Insurance Exchange in Ballard v. Fire Insurance Exchange, No. 99-05232 (Texas District Court, Travis County, June 1, 2001) mold claims were simply denied based upon the exclusion in the basic Homeowners' policy and the denials were accepted by the insureds.

The verdict in the Ballard case caused a severe and pervasive fear of mold claims in the insurance industry. The fear resulted in various changes to policies with either thorough and detailed exclusions for mold or an agreement to coverage with a very small limit of liability.

The fear was mostly misplaced.

The Ballard verdict was not the result of damage caused by mold, but the result of poor claims handling where the claims representative testified at trial that she had lied to the insured about an important part of the investigation and adjustment of a complex claim. Almost the entire $32 million verdict was standard tort damages and punitive damages that did not withstand appellate review. Eventually, while the appeals were pending, Melinda Ballard and Fire Insurance Exchange settled their case and no final decision was rendered.

The Texas Court of Appeals, Third District, at Austin, reversed much of the trial court's opinion in Ronald Allison/Fire Insurance Exchange v. Fire Insurance Exchange, A Member of the Farmers Insurance Group/Mary Melinda Ballard and Ronald Allison, et. al, 98 S.W.3d 227 (2002), and explained the factual background that resulted in an improper and excessive judgment against the Fire Insurance Exchange. The Court of Appeals described the evidence presented at trial in detail necessary to the understanding of the decision. [Court of Appeal in Ronald Allison/Fire Insurance Exchange v. Fire Insurance Exchange, A Member of the Farmers Insurance Group/Mary Melinda Ballard and Ronald Allison, et. al., No. 03-01-00717-CV.]

Although the Ballard Allison trial verdict was touted as a “mold” case, it was, in fact, a claims-handling case. The jury was offended by the admission that the adjuster, Theresa McConnell, lied to the insured and decided to punish them with excessive punitive damages.

Related: Mold isn't gold

In order to avoid an insurance claim as complex as this one, the Fire Insurance Exchange should have followed proper claims-handling protocol. The lawsuit, and the results of the lawsuit, could have been, and should have been, avoided by professional claims handling.

If the Ballard claim was presented after the decision in Fiess v. State Farm Lloyds 202 S.W.3d 744, 746 (Tex.2006), there would have been no coverage for any of her claims except the direct damage caused by water and had the claim been investigated properly, no basis for the allegations of bad faith.

Of course, one must wonder about the multiple mold claims paid in Texas that would have been avoided had the Supreme Court of Texas been allowed to resolve the issues in Allison v. Farmers where Melinda Ballard received a $32 million mold judgment that was, in reality, a bad faith award that was settled while the appeal was pending after the Court of Appeal reduced the award to approximately $4 million.

In the Ballard Allison case, Ballard submitted 14 water damage claims between December 1998 and September 2000. Although Fire Insurance Exchange had paid Ballard over $186,000, she was unsatisfied. Fire Insurance Exchange requested an appraisal of Ballard's claims. In November 2000, the appraisers determined that over $1.9 million was necessary to remediate and rebuild the house and clean and/or replace the contents and to provide alternative living arrangements while the work was performed. Although the appraisal award exceeded the policy limits, Fire Insurance Exchange paid it, in payments that totaled over $2 million.

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Mold damage

The first step in any mold investigation is to inspect for evidence of water damage and visible mold growth. (Photo: iStock)

Investigating the mold claim

Mold claims, like every first-party property claim, require a thorough investigation.

It requires, however, the assistance of professionals before a mold investigation can be completed. The claims person investigating a mold claim must understand that the levels of fungal organisms in a structure or outdoors vary by several orders of magnitude during the course of a day, due to activity levels in the area and other factors such as  fluctuations in temperature or humidity that can cause the release of spores. The spores may no longer be viable and — though allergenic — they will not grow on any media.

The first step in any mold investigation is to inspect for any evidence of water damage and visible mold growth. In many cases, it is not economically practical or useful to test for mold growth on surfaces or for airborne spores in the building.

Testing may be useful if:

  • People in the building are at particular health risk such as the elderly, infants, immune-compromised individuals, those suffering from asthma or a history of respiratory illness, or people with other medical complaints which might be caused by or aggravated by mold, allergens or other bioaerosols.

  • People in the building are sick and there is reason to suspect that the building is causing or contributing to health, air quality or similar concerns.

  • The building has or is suspected of having had a history of significant leak events or even a single event which flooded some areas: plumbing leaks, roof leaks, ice dam leaks, basement water entry, sewer backup, ventilation problems, air conditioning system problems, and forced-air central heating/cooling concerns.

  • Large areas of water damage or mold contamination have been seen and an estimate of the extent of demolition and mold remediation will be needed to make a proper cleanup and repair.

Consultation with an industrial hygienist or other environmental health or safety professional with experience in microbial investigations should be performed before a decision is made that sampling for mold is necessary or useful, and to identify individuals who can conduct any necessary sampling.

Related: What every adjuster should know about fungi/bacteria exclusions

If a consultant is required, the adjuster should use the following guidelines in selecting a consultant:

  • Establish that the consultant has years of experience in biocontamination investigations.

  • Obtain a list of recent clients for whom the consultant has performed biocontamination investigations.

  • Determine if the consultant is associated with the manufacture or sale of a product that could create a conflict of interest in his or her activities as a consultant.

  • Determine all special conferences, seminars, symposia, or short courses the consultant has attended to stay up to date with current developments in biocontamination investigations.

  • Determine the professional associations to which the consultant belongs.

  • Determine if the consultant is certified or registered by any professional organizations.

  • Determine and identify the laboratories the consultant uses for the analysis of his or her exposure measurement samples, and that they are accredited.

  • Establish that the laboratories participate in the National Institute for Occupational Safety and Health Proficiency Analytical Testing Program or a similar program.

  • Determine the extent of the insurance and bonding maintained by the consultant.

  • Obtain an example of reports prepared by the consultant.

  • Ddetermine the size and qualifications of the consultant's staff.

  • Define the work the consultant will do in writing.

Once the consultant is hired, his or her investigation will result in a report detailing whether there is a mold infestation, the source of the mold issue, and recommendations for remediation.

The completed investigation will then provide the claims person with sufficient facts so that he or she can compare the findings from the thorough investigation to the wording of the policy to determine if the damages caused by the mold, if any, are covered by the policy so the loss can be adjusted quickly and efficiently.

If covered, the claim will be paid promptly. If not, the claims person should consult with competent coverage counsel and seek assistance in communicating with the insured about the results of the investigation and advising the insured why the claim has been denied with citations to the policy wording and applicable law. The insured should also be provided with a copy of the expert's report in order to protect the property from further loss. The file should be thoroughly documented in case the insured decides to emulate Melinda Ballard and sue.

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years and now serves as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Books in the Zalma Insurance Claims Library, can be found at www.nationalunderwriter.com/ZalmaLibrary. Visit his video library with information on more than 600 claims-related topics.  

Related: Types of insurance policies and mold: An analysis of policy exclusions

NAPSLO 2016

 

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