Biological Damage Cover Must Overcome Mold Exclusion
In Clay Buchholz; Lindsay Buchholz v. Crestbrook Insurance Company,
doing business as Nationwide Private Client, No. 22-50265, United States
Court of Appeals, Fifth Circuit (April 18, 2023) Clay and Lindsay
Buchholz sued their insurer after recovering $745,778 for damage to
their ten-thousand-square-foot house in Austin, Texas.
The Buchhholz' insured their home with Crestbrook Insurance Company.
Their policy included "Biological Deterioration or Damage Clean Up and
Removal" coverage ("mold coverage"). The Buchholz family discovered a
widespread mold infestation in their home. Although Crestbrook covered
many of their losses, it denied a generalized claim for mold growing in
the Buchholzes' walls and heating, ventilation, and air conditioning
system. A magistrate judge issued a report and recommendation in favor
of Crestbrook, and the district court adopted the magistrate judge's
conclusions.
FACTS
Crestbrook asserted that the sixth claim for general mold growth and
mold in the HVAC system was excluded. The Buchholz family retained MLAW
Forensics, Inc., to investigate the cause of their mold infestation.
Based on MLAW's causation report Crestbrook denied Appellants' mold
claim.
ANALYSIS
Under Texas law, when deciding a dispute regarding insurance coverage,
the court first looks to the language of the policy because it presumes
parties intend what the words of their contract say. The court must give
the policy's words their ordinary and generally accepted meaning unless
the policy shows the words were meant in a technical or different
sense. A disagreement between the parties regarding the meaning of
policy terms or interaction between terms does not create ambiguity.
The Insured's Burden
In a coverage dispute, the insured has the burden first to prove that
their loss falls within the terms of the contract. Once the insured
demonstrates this, the burden shifts to the insurer, who, to avoid
liability, must show that the loss falls into an exclusion to the
policy's coverage.
The Fifth Circuit Conclusion
The Fifth Circuit concluded that the magistrate judge correctly laid out
the Texas insurance dispute burden-shifting framework in her report and
recommendation.
In its motion for summary judgment, Crestbrook argued that mold
infestation is an excluded peril under the policy. Applying the Texas
insurance burden-shifting framework, the Fifth Circuit agreed with
Crestbrook that the mold exclusion bars coverage for the Buchholz
family's claim. Under the Texas insurance dispute framework, the
Buchholzes must first show a direct physical loss as required under
their all-risk policy. Then Crestbrook can identify any exclusions to
coverage of that loss.
The policy excluded coverage for "loss to any property resulting
directly or indirectly from any of the following . . . Biological
Deterioration or Damage, except as provided by [the mold coverage]."
The Buchholzes showed they suffered a mold infestation, nothing more.
Their theory is that water intrusion causes mold. But water intrusion as
such is not a loss covered by the policy when its only manifested harm
to covered property is fungal growth. Consequently, the Buchholzes did
not show that their mold coverage serves as an exception to the mold
exclusion. So, their generalized mold claim is excluded by the terms of
their policy.
ZALMA OPINION
The Fifth Circuit concluded that it was required to interpret the
insurance policy as it was written and that the generalized mold claim
was clearly and unambiguously excluded. Nothing more need be said. The
Buchholzes should not have sued their insurer they should have sued the
contractor, designer or manufacturer of the defective HVAC system. In
fact they should join with their insurer in seeking damages from those
who were responsible for the defects that caused the mold infestation.
(c) 2023 Barry Zalma & ClaimSchool, Inc.