Summary
concluding that mold-damage claim was excluded under policy's pollutant exclusion, which included "fungi"
Summary of this case from Pierre v. Potomac Insurance Company of IllinoisOpinion
Civil Action No. 3:99-CV-1623-D
March 5, 2002
MEMORANDUM OPINION AND ORDER
The court must decide whether coverage for mold damage to an apartment complex is excluded by the "Pollution, Contamination Debris Removal Exclusion Endorsement" ("Pollution and Contamination Exclusion") of the insurance policy in question and whether coverage for other damage is excluded by a so-called anti-concurrent cause clause ("Anti-Concurrent Cause Clause"). Concluding that the insurer has established that coverage is excluded, the court grants summary judgment in its favor.
I
The background facts and procedural history of this case are set out in a prior memorandum opinion and order and need not be repeated at length. See Lexington Ins. Co. v. Unity/Waterford-Fair Oaks, Ltd, 2001 WL 694582, at *1 (N.D. Tex. June 14, 2001) (Fitzwater, J.) (" Lexington I"). In sum, plaintiff-counterdefendant Lexington Insurance Company ("Lexington") seeks a declaratory judgment that it is not liable to its insured, defendant-counter-plaintiff U.E. Texas One-Barrington, Ltd. ("Texas One"), for damages that Texas One incurred from mold damage to first and second floor apartment units and other damage to second floor units caused by a severe rainstorm and flooding at the Oak Meadow Apartments ("Oak Meadow"). Texas One counterclaims for over $3 million in damages to the apartments. By agreed order, the parties stipulated that Texas One is not entitled to collect any policy benefits for the cost to repair and/or replace the roofs at Oak Meadow and may not collect any judgment against Lexington for costs associated with reported damage to the roofs. See id. at *1 n. 1 (citing Apr. 7, 2000 Order). In Lexington I the court held that Lexington and Texas One had agreed during mediation to a binding appraisal of, and Lexington's liability for, the actual cash value of the damage to specified first floor units caused by the flooding. Id. at *2-*3. It concluded that the parties had agreed to binding appraisal of — but not to Lexington's liability for — the costs to abate and repair mold damage that had developed in the first floor units (and which costs were not included in the value of the damage to these units), the actual cash value of damage to second floor units caused by roof leaks, and the cost to abate and repair mold damage that had developed in second floor units due to roof leaks. Id.
The dispute now before the court is whether Lexington is liable for mold damage to first and second floor units of Oak Meadow and whether it is liable for damage to the second floor units caused by roof leaks. These questions turn on the interpretation and application of the policy's Pollution and Contamination Exclusion and Anti-Concurrent Cause Clause.
II A
The court turns first to Lexington's motion for summary judgment concerning coverage for the cost to abate and repair mold damage that developed in the first and second floor units. Lexington asserts that Texas One seeks coverage for a loss that falls within the policy's Pollution and Contamination Exclusion, which provides, in relevant part:
Lexington also contends that even if mold damage is not excluded, Texas One is barred from recovering for the loss due to its failure to mitigate damages. The court need not reach this argument.
This policy does not cover loss or damage caused by, resulting from, contributed to or made worse by actual, alleged or threatened release, discharge, escape or dispersal of CONTAMINANTS or POLLUTANTS, all whether direct or indirect, proximate or remote or in whole or in part caused by, contributed to or aggravated by any physical damage insured by this policy.
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CONTAMINANTS or POLLUTANTS means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste, which after its release can cause or threaten damage to human health or human welfare or causes or threatens damage, deterioration, loss of value, marketability or loss of use to property insured hereunder, including, but not limited to, bacteria, fungi, virus, or hazardous substances as listed in the Federal Water, Pollution Control Act, Clean Air Act, Resource Conservation and Recovery Act of 1976, and Toxic Substances Control Act or as designated by the U.S. Environmental Protection Agency. Waste includes materials to be recycled, reconditioned or reclaimed.
P. App. 318. It contends the mold damage that developed in the first and second floor units following the October 1998 rainstorm and flooding falls within this proviso because it specifically excludes "damage caused by, resulting from, contributed to or made worse by the actual, alleged or threatened release, discharge, escape or dispersal of CONTAMINANTS or POLLUTANTS," and "fungi" is specifically included in the list of "CONTAMINANTS or POLLUTANTS." Lexington argues that the mold spores that caused the damage in question are unambiguously included in this definition because they are "fungi" that "can cause or threaten damage to human health[,]" and "cause or threaten damage, deterioration, loss of value, marketability or loss of use to property insured[.]"
B
Under Texas law, the insurer has the burden of proving a claimed exclusion. See Tex. Ins. Code § 21.58(b) (Vernon Pamp. Supp. 2002). In construing exclusionary language, the court must adopt the construction of an exclusionary clause that favors the insured as long as that construction is not unreasonable. See Blaylock v. Am. Guar. Bank Liab. Ins. Co., 632 S.W.2d 719, 721 (Tex. 1982); Glover v. Nat'l Ins. Underwriters, 545 S.W.2d 755, 761 (Tex. 1977). The Texas Supreme Court has held pollution exclusions similar to the one at issue to be clear, unambiguous, and enforceable. See Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 522 (Tex. 1995) ("This pollution exclusion is just what it purports to be — absolute") (quoting Alcolac v. Cal. Union Ins. Co., 716 F. Supp. 1546, 1549 (D. Md. 1989)).
Texas One neither challenges the validity of the Pollution and Contaminant Exclusion nor asserts that it is ambiguous. Rather, it contends the exclusion is inapplicable to the present facts because the mold in the apartments "was not released, discharged or dispersed nor did it escape." D. Br. at 13. As the sole support for this argument, Texas One cites the testimony of Lexington's mold expert that mold and mold spores exist at de minimis levels in all apartment environments. See P. App. 663. On the basis of this testimony, Texas One posits that the mold that caused the extensive damage to the apartments "was simply already present and thrived because of the moisture." D. Br. at 14. This fact, Texas One contends, leads to the legal conclusion that the mold that was the cause of the loss was neither released, discharged, or dispersed, nor did it escape within the meaning of the policy language. The court disagrees.
Texas One does argue that policies are to be strongly construed against the insurer in order to avoid forfeiture, if possible. See D. Br. at 13.
Lexington has adduced evidence regarding the process by which mold proliferates when an unusual amount of water is introduced into an apartment environment. This proof establishes that, under normal conditions, fungal mold spores exist at safe levels on the exterior and the interior of virtually all homes and businesses. See P. App. 613. Only when the living conditions for these mold spores are enhanced, as in an apartment building that has recently experienced a substantial influx of water, do mold spores proliferate to a degree that they can become unhealthy and damage the property. See id. at 682, 628. The process of mold proliferation involves existing mold bodies giving off reproductive spores that are dispersed via the air into the surrounding environment. Lexington's mold expert, Ron Thaman, described as follows the process of mold reproduction by the airborne transmission of spores:
In other words, some of [the spores] are actually shot out of the organism itself, and that's just the way they help [re]produce, and some of them just float away; they're very powdery[.] and they're very buoyant in the air and they float away to an area. And if it's a wet area, they take ground and start growing.
P. App. 672.
Lexington's experts documented transmission of elevated levels of mold spores into the air inside the apartments. See id. 606-07. In addition, several of the mold species identified as being present in the apartments produce, as a byproduct of their growth, a wide variety of volatile chemicals, also known as mycotoxins. See id. 612, 673-74. Lexington adduced expert testimony that indicates that these mycotoxins are dangerous to human health, a fact Texas One has formally admitted. See id. 613, 20, 27. The overall concentration of mold in many of the apartments is well beyond the level that is considered safe. See id. 617, 633, 619-20, 637. Taking into account the uncontroverted physical evidence relating to the nature and scope of the mold contamination, the court concludes that the mold that was the cause of the damage at issue was dispersed within the covered properties and, consequently, that the damage caused thereby falls within the scope of the Pollution and Contamination Exclusion contained in the policy. See West Am. Ins. Co. v. Desenberg, 925 F. Supp. 758, 761 (M.D. Fla. 1996) (holding that dispersal of air-borne "sick-building syndrome" contaminants from attic space of building into indoor air supply was "release" of pollutants within meaning of absolute pollution exclusion), aff'd, 138 F.3d 1428 (11th Cir. 1998).
The court's holding regarding the application of the exclusion at issue comports with prior court applications of pollution exclusions to analogous factual settings. Faced with a set of pollution exclusion clauses that provided no explicit definition of "pollution," the Texas Supreme Court in National Union Fire Insurance adopted a broad reading of the term in refusing to recognize an exception for "accidental" releases. See Nat'l Union Fire Ins., 907 S.W.2d at 519. Texas law is clear, moreover, that "[w]hen terms are defined in an insurance contract, those definitions control." Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex. 1997). Here, the policy expressly includes "fungi" within the list of contaminants or pollutants that trigger application of the exclusion. Cf. Am. States Ins. Co. v. Nethery, 79 F.3d 473, 476 (5th Cir. 1996) (holding that, regardless whether paint fumes would typically fall within definition of "pollutant," inclusion of term "fumes" in pollution exclusion clause mandated exclusion of claim based on inhalation of paint fumes). The Pollution and Contamination Exclusion contains broad language, extending to loss that is not only "caused" but that is "contributed to or made worse by" any of the defined contaminants or pollutants. Cf. Certain Underwriters at Lloyd's London v. C.A. Turner Constr. Co., Inc., 112 F.3d 184, 188 (5th Cir. 1997) (holding pollution exclusion applicable to even comparatively small discharge of pollutant where clause by its terms applied to "pollution and/or contamination whenever occurring.").
III
The court now considers whether Lexington is entitled to summary judgment concerning its liability for the actual cash value of the interior damage to the second floor units caused by roof leaks. Lexington contends the roof leaks were caused in part by inadequate maintenance of the roof and that it is therefore shielded from liability for damages resulting from the roof leaks pursuant to the Anti-Concurrent Cause Clause, which provides, in relevant part:
This Agreement does not insure against loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.
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(D) Faulty, inadequate or defective planning, zoning, development, surveying, siting; design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; materials used in repair, construction, renovation, remodeling or maintenance of part or all of any property on or off the described premises.
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(G) Wear and tear, gradual deterioration, inherent vice, latent defect, moths, vermin or insects.
P. App. 342-43.
As with the Pollution and Contamination Exclusion, Lexington has the burden of proving that the exclusionary language contained in the Anti-Concurrent Cause Clause exempts Lexington from liability for interior damage to the second floor units caused by roof leaks. To do so under section (D) of the Anti-Concurrent Cause Clause, Lexington must establish the absence of a genuine issue of material fact concerning whether inadequate maintenance was a contributing cause to the roof leaks. In other words, Lexington must conclusively establish that inadequate maintenance was a contributing cause. If Lexington succeeds in making this showing, it is exempt from liability for all damages caused directly or indirectly by the excluded cause, i.e., inadequate maintenance, regardless of any other cause or event contributing concurrently or in any sequence to the loss. That this is the legal effect of the adoption of an Anti-Concurrent Cause Clause within a policy is well established in those jurisdictions that have considered the question. See, e.g., State Farm Fire Cas. Co. v. Bongen, 925 P.2d 1042, 1045-46 (Alaska 1996); Pakmark Corp. v. Liberty Mut. Ins. Co., 943 S.W.2d 256, 258-61 (Mo.App. 1997); Kane v. Royal Ins. Co., 768 P.2d 678, 684-85 (Colo. 1989) (en banc). Given the weight of this authority, and the clear import of the clause's language, the court concludes, in applying Texas state law under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), that the Anti-Concurrent Cause Clause at issue would have a similar effect, assuming sufficient facts are present to trigger its applicability. Texas One does not contest this legal conclusion regarding the operation of the Anti-Concurrent Cause Clause.
Texas One retained the services of James T. Slider ("Slider") of Unified Building Sciences and Engineering, Inc. to provide an expert opinion on the cause of the roof leaks. In his report, Slider informed Texas One's counsel that he "did not identify damage to the roofs resulting from the storm event[,]" P. App. 473, and described the damage to the flat roofs at Oak Meadow as follows:
In general, the roofs evidenced a lack of maintenance. There were numerous issues of blisters and ineffective patching of the existing roof membrane. Our representative identified improper repairs, flashing, debris scattered on the roof and ponding in numerous areas.Id. When questioned about whether the inadequate maintenance described in his report contributed to the roof leaks, Slider testified as follows:
Q. Sir, in your opinion did the lack of proper maintenance of the roofs contribute to the roof leaks during the storm of October 1998?
A. Yes.
Id. at 402. Slider's deposition testimony details the specific observations he made in reaching the conclusion that the roofs at Oak Meadow had been inadequately maintained. See id. at 404-05 (describing "rotted wood" and "an old, old leak"); 405-06 (describing depressions in the wood of the roof concluded to have been present for at least five years). Consistent with Slider's opinion, the expert report of Lexington's engineer, Bruce Morris ("Morris"), concludes that one of the causes of the roof leakage was "lack of proper and adequate maintenance of the roof[.]" See id. at 535 Slider's supplemental affidavit also identifies "a maintenance issue[,]" D. App. 28, as a cause of the roof leaks at Oak Meadow.
In its response brief; Texas One moves to strike Morris' testimony on the ground that he is not qualified to opine regarding wear and tear as a contributing cause to the roof leaks. See D. Br. at 16-18. This motion to strike is not specifically directed at Morris' opinions concerning inadequate maintenance as a potential contributing cause of the roof leaks. The basis of the evidentiary objection is Texas One's contention that Morris' "background is in explosives." D. Br. at 16. Because Lexington has cited in its reply brief substantial evidence that Morris possesses a professional background sufficient to render probative opinions regarding the effects of maintenance and wear and tear on the roof damage in question reliable, see P. Rep. Br. at 18-19, the court overrules Texas One's objection to Morris' testimony. Morris' professional qualifications include a civil engineering degree from Rice University, approximately ten years of professional employment analyzing the structural integrity of structures, and more than seven years practice as a consultant analyzing structural damage to various types of residential and commercial buildings, including the analysis of damage to roofs. See P. App. 499-501. Even assuming arguendo that the court should exclude Morris' testimony, all the record evidence — including the testimony of Texas One's expert witness Slider — supports the conclusion that inadequate maintenance was a contributing factor to the roof leaks in question.
Lexington moves to strike Slider's supplemental affidavit on the ground inter alia that his testimony conflicts with Texas One's responses to Lexington's Requests for Admission Nos. 51 and 57. The matter contained in the affidavit that is arguably the subject of this conflict relates to the question whether wear and tear was a contributing factor to the roof leaks, and thus whether the second floor interior damage is excluded under section (G) of the Anti-Concurrent Cause Clause. Because the court grants summary judgment in favor of Lexington as to the second floor interior damage without considering the applicability of section (G), see infra, Lexington's November 1, 2001 motion to strike summary judgment evidence is denied as moot. Moreover, the part of Slider's supplemental affidavit that affirms that maintenance issues contributed to the second floor loss was not subject to any conflict with a prior admission by Texas One.
Given the state of the evidence regarding inadequate maintenance as a contributing cause to the roof leaks that resulted in the interior damage to the second floor units, Texas One relies on a legal argument concerning construction of section (D) of the Anti-Concurrent Cause Clause. Texas One contends this section should not be read to contain an exclusion of loss resulting from the inadequate maintenance of the apartment building itself. It maintains that this reading of section (D) is compelled by the definition contained in Article X, section (B) of the policy. Article X, section (B) states:
(B) The word "premises" or "location" shall mean the building(s) or that portion of the building(s), including the area within five hundred feet (500') thereof; at the location(s) covered which are owned, leased, or rented and occupied by the Insured for the business purpose conducted[.]
P. Br. at 346. In view of this definition of "premises," Texas One contends that because section (D) requires that the maintenance complained of must relate to maintenance of "property on or off the described premises[,]" the section (D) maintenance exclusion on which Lexington relies relates to maintenance of property on or about the buildings, not to the buildings themselves. See D. Br. at 15. The court disagrees.
As an initial matter, the Article X, section (B) definition of "premises" states that the word "premises" "shall mean the building(s)[.]" Even applying the principle that exclusions are to be strictly construed so as to afford coverage and avoid forfeiture, the plain language of the section (D) exclusion and the associated definition of "premises" cannot reasonably be read as not excluding damage caused by inadequate maintenance of the roofs at Oak Meadow. In so construing the provisions, this court is in accord with the holdings of state courts that have considered virtually identical language. See, e.g., Sunshine Motors, Inc. v. N.H. Ins. Co., 530 N.W.2d 120, 121 (Mich.App. 1995) (applying exclusion for faulty or inadequate maintenance of property on or off insured premises to flood damage caused by block drain at insured's building); Suttmann v. Wolverine Mut. Ins. Co., 1999 WL 33326878, at *3 (Mich.App. Dec. 21, 1999) (holding that exclusion for damage caused by faulty, inadequate, or defective design and construction of property on or off premises precluded coverage for damage to roof and structure of home caused by inadequate initial construction), aff'd, 618 N.W.2d 596 (Mich. 2000). Therefore, because the uncontradicted evidence establishes that inadequate maintenance was a cause of the leaks that resulted in the interior damage to the second floor units, the court grants summary judgment in favor of Lexington concerning liability for such damage.
Moreover, even if the section (D) exclusion did not apply to the Oak Meadow apartment buildings, the roofing materials still would fall within the scope of "any property on or of" the "premises", i.e., the buildings themselves.
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Accordingly, the court grants summary judgment in favor of Lexington with respect to all claims asserted in Lexington's third amended complaint and all counterclaims that Texas One asserts against Lexington. A declaratory judgment in favor of Lexington is filed contemporaneously with this memorandum opinion and order.
SO ORDERED.