Texas Suit to Decide Insurance Limits of Before 2002

Many who have experienced mold in their homes and suffered the illnesses, loss of their home, denial of insurance coverage, and ultimately the high costs and humiliation of litigation can empathize with those who must suffer similar woes. This week may set a precedence for homeowners in Texas who have been affected by this tragedy.

The Texas Supreme Court heard arguments Wednesday in a case that could determine the outcome of hundreds of mold cases pending throughout the state due to an unresolved issue. Whether State Farm must cover mold losses under a version of its homeowners policy the company used before 2002.

At the time, companies were used a standard homeowner’s policy created by the Texas Department of Insurance, which insurance companies claim excludes mold coverage. But in 2002, regulators allowed companies to use their own policies, which often offered usually a minimal amount of mold coverage for an additional cost.

A few companies still used the department-created policies since they do not want to be liable for the health hazards of mold. Insurance companies throughout Texas are monitoring the case closely to determine if they will have to pay millions of dollars in similar claims. State Farm has more than 250 similar cases pending, an attorney for the company told the court in Houston.

The state Supreme Court occasionally meets outside Austin and held court at the University of Houston Law Center on Wednesday.  The case, Fiess v. State Farm, stems from a claim filed after Tropical Storm Allison caused floods across the Houston area in the summer of 2001.  Richard and Stephanie Fiess, of Deer Park, received almost $49,000 from State Farm for home repairs and property damage after the flood, according to a company’s brief. While making repairs, they discovered mold growing under damaged Sheetrock.

State Farm paid about $34,000 more on the claim but maintained the coverage was really excluded from the policy. The Fiesses then sued, claiming State Farm failed to compensate them for all the damage caused by mold that was caused by leaks that occurred before the flood.

Robert G. Miller, an attorney representing the Fiesses, argued that because water leaks caused the mold, and water damage is covered, the mold exclusion should not apply.  Sara Wells, an assistant state attorney general who argued on behalf of the Texas Department of Insurance, said State Farm’s position is inconsistent with the company’s past testimony before state insurance regulators.

The company has also charged additional premiums to policyholders to cover such claims.  “They’re saying that back in the day those claims were never covered,” she said. “That’s inconsistent with what the company argued for when raising rates and asking for permission to file new policy forms”, she added.

The insurance department has also issued several notices and orders stating mold was a covered loss under the policy when it’s caused by a covered water loss, according to a brief filed on behalf of the department.

Chris Martin, an attorney for State Farm, claims that the company made a business decision to pay past mold claims to head off potential bad faith lawsuits.  The company has always sent policyholders a reservation of rights to let them know the losses from mold may not be covered and has raised the issue in various cases.

“State Farm has always taken the position that there remains an unresolved legal issue,” Martin said.  This vague statement is common among the insurance industry, which leaves several wondering; if mold is supposedly not a “genuine health threat,” as their funded studies and experts have claimed, why is the insurance industry so worried about mold?

Sadly, the Supreme Court will most likely rule against this case, much to the benefit of the insurance industry.