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STATE FARM LLOYDS v. PAGE, 2010 WL 2331460
Homeowner’s policy; Mold contamination; Bad faith
By Kevin McGillicuddy / J.T. Parker & Associates, L.L.C.

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FACTS – Wanda Page insured her dwelling and its contents through State Farm with a standard HO-B policy. In June of 2001, she discovered mold and water damage to her home and some of her personal property. She reported the damage to State Farm, which hired a plumber to test her plumbing system. The plumber discovered leaks in the home’s sanitary sewer lines. State Farm then hired Industrial Hygiene & Safety Technology, Inc. (“IHST”) to perform an indoor environmental quality assessment. That testing showed a variety of molds growing in the home. IHST recommended that Page remediate the structure and some of its contents. Page sought an estimate for remediation and in January of 2002 State Farm paid Page $12,644 to cover remediation and repair or the structure and $13,631 to cover personal property remediation and three months of living expenses. In May 2002 Page sought additional money to repair damage to her carpet, which State Farm declined to pay. State Farm and Page subsequently had a dispute over the amounts needed to fully remediate and repair the home and contents.

CASE HISTORY – In September of 2004 Page sued State Farm alleging breach of contract, breach of the duty of good faith and fair dealing, fraudulent misrepresentations, and DTPA and Insurance Code violations. She also sued its adjuster Erin Strachan alleging violations of the DTPA and Insurance Code. About a year later Page provided State Farm with an estimate for remediation of her attic, and State Farm paid her $13,042 to cover those costs. State Farm and Strachan (“State Farm”) filed no-evidence and traditional motions for summary judgment. State Farm claimed that it was entitled to judgment as a matter of law on the breach of contract claim on the bases that the HO-B policy excludes coverage for mold damage, there was no evidence that the mold damage resulted from a covered peril, and there was no evidence that Page was owed additional sums. State Farm also asserted that because the breach of contract claim was not viable Page’s extra-contractual claims must also fail. The trial court eventually granted State Farm’s motion but the court of appeals reversed (at 259 S.W.3d 257), holding that the HO-B policy covered mold damage to the dwelling and contents.

HOLDING – State Farm appealed. On June 11, 2010, the Supreme Court issued its decision. In its opinion, it analyzes the HO-B policy and states that in “Section I – Perils Insured Against,” the policy separately provides coverage for the Dwelling (Coverage A) and personal property (Coverage B). Coverage A insures against “all risks of physical loss to the…(Dwelling) unless the loss is excluded in Section I Exclusions.” Mold is clearly excluded in the Section I Exclusions portion of the policy (see Exclusion 1.f.(2). - “We do not cover loss caused by:…(2) rust, rot, mold or other fungi.”). Coverage B, on the other hand, insures against physical loss to personal property only if caused by certain named perils. Covered Peril #9 is “Accidental Discharge, Leakage or Overflow of Water or Steam from within a plumbing, heating or air conditioning system or household system or household appliance.” In addition, however, as to Coverage B, Exclusions 1.a. through 1.h. (contained in the Section I Exclusions portion of the policy) do not apply to this particular covered peril (this is known as the “exclusion repeal provision”). One of these exclusions is 1.f.(2), quoted above. The Court holds that the exclusion as to “rust, rot, mold or other fungi” unambiguously applies to both Coverage A (Dwelling) and Coverage B (Personal Property). However, the “exclusion repeal provision” under Coverage B reinstates coverage for “rust, rot, mold or other fungi” only as to Personal Property. Therefore, the “exclusion repeal provision” does not make the exclusion wholly inoperative. That is, the exclusion still applies to Coverage A (Dwelling). According to the Court, the policy language creates no ambiguity, and therefore the exclusion repeal provision does not reinstate coverage for mold damage to the dwelling under Coverage A, but it does reinstate coverage for mold damage to personal property under Coverage B. As to the extra-contractual claims against State Farm and Strachan, the Court writes that there can be no liability under the Insurance Code if there is no coverage under the policy. However, to the extent that Page’s extra-contractual claims are based on the denial of her claim for mold damage to the contents of her home, those claims are remanded to the trial court for further proceedings.

SIGNIFICANCE – The bottom line in this case is that when a plumbing leak results in mold contamination, the HO-B policy covers mold damage to personal property but not to the dwelling, although the Court’s reasoning is a bit confusing (to this workers’ compensation adjuster). In reaching the conclusion it did, the Court distinguished two cases cited by the parties in support of their respective positions. These cases are Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex.2001) and Balandran v. Safeco Insurance Company, 972 S.W.2d 738 (Tex.1998). To the extent that any party would rely on those two cases, it would be important to re-read them in light of this significant holding by the Court.

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