First Party Property Exclusions & Mold

When a mold claim is presented under a first-party property policy, it is important to consider whether one or more of the exclusions may apply. Below we discuss a number of exclusions common to a first-party property policy which may apply to a claim for property damage from mold. Although many of the cases discussed do not specifically deal with mold damage, they are instructive as to how exclusions in a property policy may or may not apply in the mold context.

"Mold" Exclusion

A property policy may contain an exclusion for "mold" (or "fungi" or both). So far, however, very few courts have been called upon to interpret this exclusion. Two Texas cases are however noteworthy.

In Home Insurance Co. v. McClain, 2000 WL 144115 (Tex. App. 2000), rainwater entered a home through leaks in the roof of a new addition. The water collected behind interior walls, causing damage to walls, and damaged the walls, ceilings, and subfloors. This water provided an environment for mold to grow. The insureds made a claim against Home under a homeowner's policy for the water damage and for the mold and fungus infestation which allegedly rendered the home uninhabitable. The policy in question excluded loss caused by "mold or other fungi." The policy, however, covered "ensuing loss caused by . . . water damage . . . if the loss would otherwise be covered under this policy." Home contended that the mold exclusion applied even if the mold was caused by water damage. The insured maintained that the mold was an ensuing loss from water damage and, therefore, was covered. The court rejected Home's position and held that mold would be an ensuing loss if it was a consequence of the water damage. Here the water damage from the leaking roof caused the mold, so the mold was a consequence of the water leak. Under such facts, a covered ensuing loss was present, and the court did not apply the exclusion for mold and fungi.

In Merrimack Mutual Fire Insurance Co. v. McCaffree, 486 S.W.2d 616 (Tex. App. 1972), a claim was made under a homeowners policy with regard to wood that rotted from fungus growth as a result of water leaking over many years because a shower stall was constructed without a shower pan to catch water under the shower floor. The policy, among other things, did not cover loss caused by " . . . rot, mold or other fungi; . . ." The court held that the claimed loss was excluded because the damage or deterioration was directly caused by fungi. The court then examined whether the loss fit within the exclusion's exception for "ensuing loss caused by . . . water damage." The...