TDI and POA file briefs in support of Homeowner

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Date: 12 December 2003

Texas Dept. of Insurance Files Brief in Support of Homeowners In Mold Coverage Dispute Appeal

NEW ORLEANS — According to an Amicus Curiae brief filed recently by the Texas Department of Insurance (TDI) on behalf of homeowners engaged in a mold coverage dispute with their insurance provider, the plain language of the Texas HO-B homeowners policy provides coverage for mold as an ensuing loss of a covered water loss. and Fiess v. State Farm Lloyds, No. 03-20778 (5th Cir.).In its Nov. 12, 2003, brief filed in the U.S. Court of Appeals for the Fifth Circuit, TDI also states that it has several enforcement actions pending due to insurers who are seeking to deny valid mold claims in light of a U.S. District Court’s earlier ruling in this case that mold damage is excluded under the ensuing loss provision of the HO-B policy.BackgroundAccording to court documents, the Texas home of plaintiffs-appellants and Fiess was covered by a homeowners insurance policy issued by State Farm Lloyd’s. The home flooded in the summer of 2001 during Tropical Storm , and State Farm paid a claim filed by the Fiesses under their flood insurance policy.However, a week after the flood, when the Fiesses began repairing the flood damage, they discovered mold that they alleged was the result of leaks pre-dating the flood. The Fiesses filed an additional claim with State Farm for mold contamination, but the insurer paid only part of that claim. In April 2002, the Fiesses sought payment of the rest of the claim by filing suit against State Farm in the 127th Judicial District Court of County, Texas. The insurer removed the case to the U.S. District Court for the Southern District of Texas, Houston Division (No. H-02-CV-1912), and filed a motion for summary judgment. The District Court agreed with State Farm that the Fiesses’ policy excluded from coverage any loss resulting from mold, and also found that the mold damage was excluded under the ensuing loss provision of the policy. On June 4, 2003, the District Court granted State Farm’s motion for summary judgment. For more information on that ruling, see “U.S. Dist. Court Rules Mold Not Ensuing Loss; Grants Summary Judgment in Favor of Insurer” in the August 2003 issue of COLUMNS-Mold.On Oct. 31, 2003, the Fiesses filed an Appellants’ Brief arguing that the District Court erred in its ruling. Policyholders of America (POA), an insurance industry watchdog organization, filed a Nov. 3, 2003, Amicus Curiae Brief in support of reversing the District Court’s ruling. For more on the Appellants’ Brief and POA’s Amicus Curiae Brief, see “Homeowners Appeal U.S. District Court’s Ruling that Mold Is Not Covered as an Ensuing Loss” in the December 2003 issue of COLUMNS-Mold.TDI Amicus Curiae BriefIn TDI’s Amicus Curiae Brief, the agency contends that the District Court’s “erroneous construction of HO-B coverage terms will have serious negative implications on homeowners coverage throughout Texas.” Basic coverage for “reasonable and necessary repair or replacement of property due to mold as an ensuing loss of a covered water loss” remains in the HO-B policy, TDI asserts.“Furthermore, several enforcement actions are pending at TDI due to insurers who are seizing a new opportunity to deny valid claims in light of the district court’s decision [in Fiess],” the agency states.In support of reversing the trial court’s decision, TDI first asserts that the plain language of the HO-B policy provides coverage for mold as an ensuing loss of a covered water loss. TDI quotes from exclusion 1.f. of the HO-B policy:“We do not cover loss caused by: (1) wear and tear, deterioration or any quality in property that causes it to damage or destroy itself. (2) rust, rot, mold, or other fungi. We do cover ensuing loss caused by collapse of building or any part of the building, water damage or breakage of glass which is part of the building if the loss would otherwise be covered under this policy. (Emphasis added).”TDI then reviews the history of mold coverage and claim history in Texas, arguing that understanding the HO-B policy in context makes the issue of mold coverage more clear and that, in recent years, the agency has reviewed mold coverage and claims under HO-B policies.According to the brief, an order issued by the Texas Insurance Commissioner on Nov. 28, 2001, modifying coverage for mold losses (Order 01-1105) correctly explains mold coverage under Texas law.“… HO-B policies such as the one purchased by the Fiesses have always covered situations where mold is the result of a covered water loss,” TDI asserts. “Although the language in the HO-B policies was not changed prior to the issuance of the Order, and insurers have paid millions of dollars in mold claims, these companies are now beginning to deny coverage for mold claims resulting from covered water losses,” TDI continues.TDI then contends that Texas insurers are aware of, and have planned for, mold coverage as the result of a covered water loss. State Farm admits that mold is covered as an ensuing loss of a covered water loss, TDI asserts. And State Farm’s agreements in seeking and attaining approval for the HO-W policy in which mold coverage is extended “in the same manner as provided in the HO-B that is specified in Commissioner’s Order No. 01-1105” shows that the insurer knows that mold is covered as an ensuing loss, the agency contends.TDI also accuses Texas insurers of trying to avoid paying valid mold-related claims.“After paying millions of dollars in claims, insurers such as State Farm and Allstate are now arguing the original HO-B policy never covered the claims,” TDI states.Finally, TDI argues that other courts confronting the same issue have concluded that the HO-B policy covers mold as an ensuing loss. Specifically, TDI references Salinas v. Allstate Texas Lloyds Company, 278 F.Supp.2d 820 (S.D. Tex. 2003) and v. Allstate Texas Lloyd’s Company, 278 F.Supp.2d 810 (S.D. Tex. 2003). For more information on Salinas and , respectively, see “Court Rules WallChek Testimony Inadmissible; Finds Nonrepair of Mold Damage May Be Reasonable” and “Texas Judge Refuses to Follow Mold ‘Ensuing Loss’ Decision,” both in the September 2003 issue of COLUMNS-Mold. and Fiess, plaintiffs-appellants, are represented by G. and M. Medley of O’Donnell, Ferebee & McGonigal, P.C., in Houston.State Farm Lloyds, defendant-appellee, is represented by W. and J. Diamond of , Disiere, Jefferson & Wisdom, L.L.P., in Houston. Counsel on appeal is Boyce of Fulbright & Jaworski in Houston.Policyholders of America’s Amicus Curiae Brief in Support of Reversal was filed by n K. McBride and M. Young of Prichard Hawkins & Young, L.L.P., in San .The Texas Department of Insurance Amicus Curiae Brief in Support of Appellants was filed by Greg Abbott, Attorney General of Texas; Barry R. McBee, First Assistant Attorney General; D. Burbach, Deputy Attorney General for Litigation; Mattax, Division Chief, Financial Litigation Division; and C. Wells, Assistant Attorney General, Financial Litigation Division.