Texas Court Lowers Record Mold Award

The reason for this reduced award, according to the ruling, is that the appellate court couldn't find sufficient evidence to agree with last year's jury that Fire Insurance Exchange, a subsidiary of Farmers Insurance, had "knowingly" breached its duty of good faith and fair dealing toward Ms. Ballard.

In light of this decision, the appellate court also ordered that nearly $9 million in attorneys' fees be recalculated and likely reduced.

The verdict came as a surprise to Ms. Ballard, who had sued Farmers Insurance over water and mold damage in her 22-room home on 72 acres outside of Austin. She said she was "shocked" and that her attorneys would appeal the ruling.

"It is my position, and the trial court clearly agreed with me last year, that Farmers acted in bad faith," Ms. Ballard told National Underwriter. Earlier this year, Ms. Ballard launched a non-profit, Austin-based group called "Policyholders of America" to help her cause of educating other Texas homeowners on their rights in insurance policies.

Ms. Ballard's appeal will now be considered by the Texas Supreme Court. The state's highest court could either refuse to examine it any further, or agree to hear the whole case or a limited part of it.

Farmers Insurance, on the other hand, welcomed the latest court ruling. "We are very pleased and heartened with the reduced award and that the court found we did not act fraudulently," said Mary Flynn, a company representative.

"While the Ballard case is more about bad faith than mold, the original inflated award has been the trigger for the mold hysteria that has swept Texas and the nation," said Joe Woods, assistant vice president of the Alliance of American Insurers' Southwest Region, based in Austin.

Indeed, the number of mold-related complaints tallied by the Texas Insurance Department received so far this year has surpassed last year's total figure by more than 70 percent.

Furthermore, Farmers Insurance–whose share of the Texas homeowners insurance market is estimated at about 19 percent–accounted for, at 38.6 percent, more mold-related claims this year than any other insurer in the state. In 1999, the company had a total of 12 mold claims in Texas, but the number skyrocketed to more than 12,000 during the first nine months this year.

The exploding number of mold claims has prompted many insurance companies operating in the state to turn away from the homeowners policies traditionally sold in Texas, which offer broad coverage for water and mold damage, in favor of policies that exclude coverage for mold.

"Following the Ballard case, the Texas homeowners insurance market spiraled out of control," Donald Hanson, Southwest regional manager for the National Association of Independent Insurers in Des Plaines, Ill., told National Underwriter. "The number of mold claims jumped over 500 percent and mold-related losses and expenses increased more than eight-fold," he added.

"Farmers, State Farm and Allstate–those three companies write more than 60 percent of homeowners insurance in Texas, and they were the ones that had large numbers of mold claims. But that's not to say smaller insurers weren't hit as well," said Mr. Hanson.

The appellate court's ruling will inject a note of reality into the debate over mold-related claims, according to Kirk Hansen, director of claims at the Alliance of American Insurers in Downers Grove, Ill. "The award came out about a year-and-a-half ago, and it stimulated a massive amount of litigation in Texas and the rest of the country concerning mold. The court of appeals' decision is significant because it will put a bash to the dash for the cash for the plaintiffs' attorneys," Mr. Hansen said.

It was alleged that Farmers Insurance had breached its duty of good faith toward the plaintiff, he said. The initial award was based on the allegation that the company knowingly took actions that violated its duty of fair dealing toward Ms. Ballard and had consciously engaged in deceptive acts in handling of her claim, he noted.

"Ms. Ballard claimed that Farmers initially tried to deny coverage. She said that the insurance company intentionally tried to pay her inadequate sums based on fraudulent bids it received from contractors it hired," he said.

But with the elimination of the punitive and mental anguish damages in the case, he argued, enterprising attorneys will now discover that mold isn't as golden as they once thought. "The cost of insurance has been pushed upward due to the cost of mold claims, so this is good for consumers everywhere throughout the country," he said.