When An Exception To The 'Mold Exclusion' Exposes Carriers To More Than Just Fungi Or Bacteria

The recent New York City outbreak of Legionnaires' disease (named for a 1976 outbreak of a type of pneumonia at an American Legion convention) has raised awareness of the illness. It has also renewed the courts' interest in interpreting the Mold Exclusion. In the recent decision Acuity v. Reed & Associates, No. 15-2149 (W.D. Tenn. August 19, 2015), the court held the exception to the exclusion, i.e., fungi or bacteria contained in a good or product intended for bodily consumption, applied to provide coverage.

The Reed action arises out of a personal injury matter where the tenant filed suit against the insured Reed & Associates seeking damages for injuries allegedly sustained due to mold infestation of a house rented from Reed. Reed tendered its defense to Acuity, its insurer. Acuity agreed to defend under a reservation of rights and filed an action seeking a declaratory judgment that its policy did not provide coverage.

At issue was whether the policy's "Fungi or Bacteria Exclusion" applied to exclude coverage.

The exclusion is as follows:

"Bodily injury or property which would not have occurred, in whole or in part, but for the actual alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of any fungi or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage."

This exclusion does not apply to any fungi or bacteria that are, are on, or are contained in, a good or product intended for bodily consumption."

The Reed court initially noted that the exclusion is applicable as the claim of bodily injury clearly stems from mold exposure. In holding that coverage is afforded, however, the court pointed out that the underlying complaint alleged bodily injury as a result of a mold infestation affecting the water in the home and stated: "Other federal courts have construed the same language - 'fungi or bacteria that are, are on, or are contained in a good or product intended for bodily consumption' - and held that water constitutes a 'good' or 'product.'"

In reaching that conclusion, the Reed court cited to Westport Ins. Corp. v. VN Hotel Group, LLC, 761 F. Supp. 2d 1337 (M.D. Fla. 2010), which in turn cited to Nationwide Mutual Fire Insurance Co. v. Dillard House, Inc., 651 F. Supp. 2d 1367 (N.D. Ga. 2009); both decisions dealt with coverage for...