Many policies exclude coverage for property damage or bodily injury caused by mold. For example, the Insurance Services Office, Inc. (ISO) Homeowners form HO 00 03 includes the following wording about mold:

2. We do not insure, however, for loss:

c. Caused by:

(5) Mold, fungus or wet rot. However, we do insure for loss caused by mold, fungus or wet rot that is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure if such loss results from the accidental discharge or overflow of water or steam from within: A plumbing, heating, air conditioning or automatic fire protective sprinkler system, or a household appliance, on the 'residence premises'; or A storm drain, or water, steam or sewer pipes, off the 'residence premises'.

The Homeowners policy wording, therefore, does not cover loss from mold in and of itself; only from mold resulting from water damage or some circumstance out of the owner's control. The ISO Commercial Property form, form CP 10 30, 'Causes of Loss — Special Form' for commercial property, provides:

2. We will not pay for loss or damage caused by or resulting from any of the following:

d. (2) Rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself.

Mold might still be covered if it is not the direct result of any of the items above. For example, if mold occurs as a result of a broken water pipe and subsequent water damage, which might be a covered cause of loss, then the mold damage might be coveredThe ISO CGL coverage issues may limit coverage through some of the issues raised in the CGL/Excess Liability policies: Trigger of coverage; Exclusions; Standard Pollution Exclusion; Total Pollution Exclusion; and Specific Mold Exclusion. For example, The ISO CGL policy form CG 00 01 covers pollution but does not define mold as a 'pollutant.' The wording provides:

15. 'Pollutants' mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

f. Pollution

(1) 'Bodily injury' or 'property damage' arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants':

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured.

The language is broad and recent decisions of various courts seem to indicate that neither mold, fungi, nor bacteria (as living things) fit within the definition and require, at the very least, that the insurer provide a defense to the insured.

To determine if coverage applies under a CGL policy it is necessary to determine, first, if there is “property damage” or “bodily injury” as those terms are defined in the policy. In mold-related claims, the pleadings and/or discovery will clearly indicate whether there is property damage within the meaning of a CGL policy. Mold that has physically damaged or destroyed tangible property fits within the definition. Mold infestations that are established to be “toxic” and render a building unusable seem to also fit the definition. As a general proposition, Coverage A of a CGL policy insuring against liability for property damage (as defined above) does not cover liability for purely intangible property losses, such as economic losses, prejudice to economic interests or property rights, or diminished value.

The following is an example of a non-ISO exclusion:

B. This exclusion does not apply if the 'bodily injury' or 'property damage' consists of, is caused by, or arises out of any of the following:

The 'collapse' of any building or structure.
Water escaping from within leaking or bursting pipes, plumbing fixtures, appliances, or equipment located within a building or structure.
The presence or entry of liquid or frozen water into the occupied spaces of a building.

'Moisture related deterioration' means:

Mold, mildew, fungi, or their spores, scent or byproducts.
Rot, decay, corrosion, or other gradual deterioration, delamination, adhesive or cohesive failure, weakening, or deformation of wood products or other material caused by continuous and/or prolonged and/or repeated contact with water or moisture. This definition applies even if the water and/or moisture also contain chemical elements other than water.

'Collapse' means the abrupt falling-in, abrupt loss of shape, or abrupt flattening into a mass of rubble of a building or structure.

When considering the question of whether a policy should be compelled to provide coverage for a mold or fungal infestation, analysis of the policy wording should include obtaining answers to the following questions:

Property Coverages

Does the mold exclusion contain 'ensuing loss' language?
Have any special endorsements been added to the policy?
Does the policy require a report of all losses, all covered losses or all claims?
Does the policy contain a specific 'mold' or 'fungi' exclusion?
Have you determined the actual cause of the loss?

Personal Liability and Commercial General Liability policies:

Has the insurer changed the ISO pollution definition?
Does the policy contain any specific mold exclusions?
Does the mold exclusion apply to the facts of the loss?

Contractor's policy:

Does the policy contain a specific mold exclusion?
Does the policy change a pollution definition to include mold or fungi?
Is there an EFIS (artificial stucco) exclusion?
Have you determined from the insured if he, she, or they have received any information from their trade association about potential litigation?
Is there any 'hold harmless' language recommended by their association or attorney?
Does the contract language effect insurance coverage?
Does the policy authorize the insured to enter into hold harmless agreements?
Do the facts of the loss apply to the policy wording?

Claims:

When faced with a loss involving mold or fungal infestation, insureds and their representatives must report all water damage related claims regardless of size involving or including:

roof damage;
rain through openings;
water pipe breakage;
snow pack melting into and through roof;
air conditioning or other ventilation breakdown; and
fire of any size (water used to stop the fire).
advise, in the first report of water damage:
whether a water remediation specialist with mold training has been contacted; and
what steps are being taken by the contractor to prevent mold growth as a result of the water damage.
report what documentation is being performed for a permanent record.

The above article was drawn from Mold Claims Coverage Guide, and originally published by The National Underwriter Company, a Summit Professional Networks business as well as a sister division of PropertyCasualty360.

As a professional courtesy to PropertyCasualty360 readers, National Underwriter is offering this resource at a 10% discount (automatically applied at checkout).

Go there now.

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

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