Date: 8 December 2004
5th Circuit Sends Ensuing Loss Mold Question to Texas Supreme Court
 
Related Document: Opinion - MOL-0412-01 (PDF format)
NEW ORLEANS — The Fifth Circuit U.S. Court of Appeals has asked the Texas Supreme Court to decide whether coverage for mold contamination is expressly excluded under the ensuing loss provision of an insured’s homeowners’ policy. Fiess v. State Farm Lloyds, No. 03-20778 (5th Cir.).

In an opinion issued Dec. 7, the federal appeals court stated that because relevant state authorities conflict regarding the application of the ensuing loss provision to the mold exclusion of Texas homeowner’s insurance policies, it would certify the question to that state’s highest court.

'This claim implicates a question of state law important to both Texas homeowners and insurers,' the court said. 'We are persuaded that the question is best answered by the court with jurisdiction to find state law.'

The appellate panel also reversed a finding by the lower court that the plaintiff-homeowners’ claim for coverage failed under the doctrine of concurrent causation. The 5th Circuit said that the insureds presented some evidence that would allow a fact finder to segregate losses potentially covered under the policy from those that may be excluded.

The underlying dispute arose after plaintiffs Richard and Stephanie Fiess sued their homeowners’ insurance carrier, State Farm Lloyds, seeking coverage for losses incurred as a result of mold contamination in their home.

The Fiesses’ home sustained water damage as a result of flooding caused by the effects of Tropical Storm Allison in the summer of 2001. The plaintiffs filed a claim under their flood insurance policy issued by State Farm Fire and Casualty Company and received an initial payment of nearly $50,000, which they applied to remediation of the water damage. During remediation, they discovered that their home was contaminated with mold, which was later confirmed by lab technician Paul Pearce, Ph.D., to be toxic.

Pearce estimated that the percentage of non-Allison related mold in the Fiesses’ home was 70 percent, but that the Allison-related damage was extensive and caused mold to grow on virtually every building surface of the first two to three feet of the interior structure.

The Fiesses then submitted a claim to State Farm Lloyds, their homeowners’ insurance carrier, which paid $34,435 under a reservation of rights for non-covered mold remediation in areas of the flood damaged house where there was evidence of small, pre-flood water leaks.

On the belief that the amount was insufficient to cover the damage cause by the mold contamination, the Fiesses sued State Farm asserting claims for violations of the Texas Deceptive Trade Practices Act, breach of contract, fraud and intentional misrepresentation. Their claim encompassed only the mold caused by the presence of pre-flood water intrusion, as their State Farm homeowners’ policy excluded all damage caused by flooding.

State Farm removed the case to federal court and moved for summary judgment on all claims. The district court granted the motion, citing the mold coverage exclusion, and also determined that mold damage caused by any non-flood related water damage was not covered under the policy’s ensuing loss provision. In addition, the court held that the Fiesses failed to offer competent evidence that would allow a fact finder to segregate potentially covered mold contamination from non-covered mold contamination. The court noted that even if the Fiesses established coverage for some of the mold contamination, the insurer was entitled to summary judgment under the doctrine of concurrent causation.

On appeal, the Fiesses asserted that as a result of an exclusion repeal provision in their homeowners’ policy, the mold exclusion did not apply to damage caused by water leaks from plumbing, HVAC systems or appliances. They further claimed that the district court erred in rejecting Dr. Pearce’s testimony related to the percentage of mold caused by non-flood sources. Finally, the Fiesses contended that the court erred in awarding summary judgment to State Farm because the ensuing loss provision provides coverage for mold contamination caused by otherwise covered water damage.

The Fifth Circuit first determined that it lacked jurisdiction to decide the exclusion repeal issue because the Fiesses failed to appeal the district court’s ruling rejecting their contention.

On the issue of whether the district court erred in holding that the Fiesses offered no evidence that would allow a fact finder to segregate potentially covered losses from non-covered losses, the appeals court held that the Fiesses did fulfill their burden of introducing such evidence with the testimony provided by Dr. Pearce.

According to the court, Dr. Pearce’s report concerning non-Allison related water intrusions provided evidence that the Fiesses’ home experienced water damage prior to the Tropical Storm’s arrival, and that such damage accounted for 70 percent of the mold growth.

Given this testimony, the court said, the Fiesses have successfully raised a genuine issue of material fact as to the amount of mold in their home not attributable to Allison-induced flood waters.

'In reaching this conclusion, we are not unmindful of the requirement that summary judgment evidence rise to a level exceeding mere speculation,' the court added. 'While the Fiesses have not presented overwhelming evidence that would allow a jury to flawlessly segregate covered mold contamination from non-covered mold contamination, the evidence they have presented constitutes a reasonable basis upon which a jury could reasonably allocate damages.'

Turning to the ensuing loss provision, the court said that with all other issues disposed of on appeal, only the question of whether the Fiesses’ non-flood related mold contamination claim is covered under the ensuing loss provision of the homeowners’ policy remains.

With no binding Texas Supreme Court case law addressing the issue and important matters of state law at stake, the 5th Circuit said it would be better to certify the question of whether the ensuing loss provision of Texas homeowners’ insurance policies provides coverage for mold contamination to the Texas Supreme Court.

'The Texas Supreme Court’s decision on this question will therefore determine the outcome of this appeal,' the court concluded.
 
 

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