Trend or not, mold verdict backs insurer

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November 15, 2002

Trend or not, mold verdict backs insurer

Staff Writer

A local jury's decision to back the insurer in a $25 million insurance

bad-faith lawsuit, brought over a moldy house in River Park, might be a sign

that jurors are demanding more proof when plaintiffs say they've been harmed

by mold.

The Sacramento couple and their insurance company, Safeco Insurance Co. of

America, settled the case Nov. 1, the day after the Sacramento County

Superior Court jury decided the first phase of the lawsuit. The terms and

size of the settlement are confidential.

The defense attorney calls it a big victory. A plaintiffs' attorney said the

local suit will be cited in future disputes, but has unique circumstances

that won't readily apply elsewhere.

In December 2000, and Jelicich sued Safeco and adjuster Chris

Alvarez for alleged breach of insurance contract, bad faith, intentional and

negligent infliction of emotional distress, and negligence. The couple

sought $25 million in damages over how Safeco and Alvarez handled their mold

and water damage claim at their home.

The trial was split into two phases. In the first, the jury had to decide

whether wind-storm damage to the roof caused water to enter the Jelicichs'

patio room and their daughter's bedroom closet. The jury unanimously said

no. The jury also had to decide if the mold found in the patio room and

closet were the cause of mold found elsewhere in the house. The jury said no

again, by 11 to 1 this time.

Had the parties not settled, the second phase would have gone into the

claims handling practices of Safeco and Alvarez. In its trial brief, the

defense said the claims handling in this case was less than ideal, but that

the defendants " acted responsibly and reasonably given the complicated

issues involved. "

Rather than risk jury ire over claims handling - always a sensitive issue

with insurance customers - Safeco settled.

" Anything could have happened in Phase 2, " acknowledged Dan Costa, the

Sacramento lawyer who, along with attorney Sheila Tatayon, represented

Safeco and Alvarez in the case.

Toxic mold continues to be a huge issue for the real estate, construction,

insurance, legal and scientific professions. As science tries to catch up,

building owners and renters remain apprehensive of mold, insurers have

limited their liability, lawyers have seen mold-related inquiries skyrocket,

and legislators search for an answer.

A growing number of insurance bad-faith lawsuits have been filed in Greater

Sacramento in recent years flowing from water damage. Mold is commonly a

component. This case is the latest.

'They're overreaching a bit': The insurance industry will be heartened by

the outcome in this lawsuit, and defense attorneys in future mold-related

lawsuits will surely mention this case when they meet with plaintiffs'

attorneys at settlement conferences, said Sacramento insurance coverage

attorney Blane of Farmer & Alliston. He wasn't involved

with the Safeco case.

That doesn't mean the tide is turning toward the defense in mold-related

lawsuits, he said.

Costa believes insurers won a big victory in Sacramento. The jury considered

the science behind mold, he said, and did not assume that the insurance

company was automatically responsible for removing all mold in the house.

" They're overreaching a bit, " Stan Parrish, a plaintiffs attorney with the

Sacramento law firm of Shepard & Haven. He didn't represent the plaintiffs

in this case, but has handled mold disputes elsewhere.

The Safeco case had unique circumstances, he said. Sure, defense attorneys

in future cases will bring this one up, but the jury's findings would be

relevant only in other cases with damage caused by wind-driven rain. This

case won't affect disputes where, for example, a burst water pipe leads to

water damage and mold growth.

The plaintiffs attorneys lost this case simply because they could not prove

that the mold was caused by wind-driven rain, he said.

and Rocco Paternoster of Charter , a Sacramento

litigation firm that specializes in environmental claims and handles many

mold claims, represented the Jelicichs. and Paternoster did not

return calls.

Sacramento has had a few high-profile mold-related cases go to trial in the

last few years.

An appeals court recently ended three years of maneuvering in the case of

98-year-old Tom of Placerville. Two years ago, a jury decided

deserved $18 million in punitive damages for Allstate Insurance

Co.'s handling of the mold and water-damage claim for his house. The judge

cut the award to $2.5 million. The 9th Circuit U.S. Court of Appeals ruled

in September that Allstate's botched re-sponse didn't justify punitive

damages.

The Mazza family of Sacramento was awarded a $2.7 million jury verdict a

year ago after they had health problems related to mold in their apartment.

The defendant in the case appealed, and a confidential settlement was

reached earlier this year. At the time, of Charter , who

was the plaintiff's attorney, said he believed the verdict was the largest

U.S. personal injury award related to mold.

Challenged for not making repairs: Unique circumstances in the case could

have caused the jury to be less sympathetic to the Jelicichs. The house

already had a mold problem near a leaking waterbed in 1999. The family

didn't find the mold from the January 2000 storm until that March, when they

contacted Safeco.

The insurance company and the Jelicichs disagreed on what was covered, and

repair estimates were often revised. But the Jelicichs didn't get the mold

cleaned up and the repairs made. The defense made a big issue over that.

" During the time that this claim has been pending, the Jelicichs have

performed no repairs to their home, nor have they taken any action to

salvage any of the contents ., " the trial brief says. " Rather, they have

chosen to abandon the home and purchase a new home . "

In court documents, the Jelicichs countered that they moved out after a mold

testing company they had hired found toxic mold throughout the house. The

family chose not to return, the adjuster recalled Jelicich saying,

because toxic mold had killed their pets.

Safeco said it never received a copy of mold test results. Nor was the

insurer, the defense said, provided invoices or receipts for additional

living expenses of the Jelicichs, who moved into a vacant house that

Jelicich owned with siblings.

Safeco claimed it promptly responded and agreed to cover the mold testing,

repair of the water-damaged area, and additional living expenses. The

parties disagreed on whether the insurance policy covered removing mold in

the entire house and cleaning all its contents. Safeco said only the part of

the house that was damaged by the storm was covered. The rest was not

covered because the policy excluded mold that wasn't caused by a covered

peril - in other words, the storm.

The Jelicich said that because the mold present throughout the house was the

identical species of mold found in the craft room, which was damaged in the

wind storm and covered by the policy, it was clear that all the mold stemmed

from that storm. Mold spreads through the air. Safeco's mold exclusion, the

family said, did not apply.

© 2002 American City Business Journals Inc.