Insurance Coverage Issues

When a single traumatic event (such as an automobile accident or a fire), causes damage, it is easy to determine which of a number of insurance policies is triggered and how that policy applies to the loss.  But when a prolonged exposure to a toxic substance yields disease symptomology, or an environmental condition creates property damage over time, the coverage questions and their answers are more problematic.

Insurance companies have been sued for: (1) bad faith in denying coverage, and; (2) for not protecting their insureds from exposure-related problems.  While lawsuits for personal injury and property damage proceed to resolution, courts have not consistently applied conventional concepts of "occurrence" and "triggering" of coverage to this novel area.  New York follows the "injury-in-fact" rule to determine when coverage is triggered in latent harm scenarios: the event giving rise to coverage is when the injury, sickness, disease or disability actually began, not when it was diagnosed; liability policies are not triggered by the happening of an occurrence, but at the point in time that the occurrence results in bodily injury.  The inquiry is whether "an event of an unfortunate character that takes place without one's foresight or expectation" can support multiple claims; thus, where one proximate, uninterrupted, and continuing cause results in injuries to more than one person, there is a single accident or occurrence within the meaning of the liability insurance policy limiting the insurer's liability to a certain amount for each accident or occurrence.  In mold and lead cases courts have held that a cause of action begins to accrue when the plaintiff begins to experience symptoms, i.e., "when the injury is apparent, not when the specific cause of the injury is identified."  The presence of specific exclusions can vitiate coverage, and it is therefore important to examine each policy in the context of the relevant circumstances.  The "sudden and accidental" exclusion, promulgated in 1973, precludes coverage for bodily injury or property damage caused when a number of pollutants, chemicals, or other substances are discharged or emitted into the atmosphere, into or upon land, or any "water course or body of water"; the exclusion does not apply, however, if the "discharge, dispersal, release or escape is sudden and accidental."  The "absolute pollution" exclusion, which replaced the previous clause in 1986, is much broader, as it does not provide coverage for incidents arising out of the "actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at or away from premises, site or location which is or was at any time owned or occupied by or rented or loaned to, any insured."  Both exclusions define "pollutant" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals or wastes," but nether refers to "ingestion" or inhalation as an exposure pathway.

Most courts have held that pollution exclusions apply to "industrial type" contamination that "adversely affects the out-door environment and that is tied to a release or discharge of such pollution."  New York State's highest court has held a pollution exclusion to apply to a corporate suit for clean-up costs relating to the plaintiff's "intentional, long-term discharge of toxic waste" from its manufacturing plant; as the discharge was not "sudden and accidental," the Court of Appeals held, it fell within the pollution exclusion, and the insurer did not have to provide coverage.

In New York, insurance companies have not been able to apply a general pollution exclusion to such scenarios as lead-paint exposures.  It is unlikely that they will be able to assert either type of pollution exclusion to mold-related claims because: (a) the substance is naturally-occurring, it grows in place, and it is not the type of "pollutant" to which the exclusion is specifically directed; (b) indoor air pollution is not generally regarded as an "environmental dispersal or release," and; (c) injurious exposure occurs through inhalation and ingestion.

Most litigation relating to mold asserts that the insurer's lack of attention to water damage claims resulted in mold growth, which, in turn, caused personal injury and/or property loss.  From an insurer's perspective, it is important to note that the standard CGL policy excludes damage from mold as "normal wear and tear," and contamination should only be insured if it is the result of a "covered peril," such as water damage from a burst pipe or a leak.  The adjuster, therefore, must consider all environmental factors and potential effects of water saturation when performing a mold exposure analysis and in evaluating the potential extent of damages and the costs of repair.  Mold due to excessive humidity, leaks, condensation or flooding may be a maintenance issue for the property owner, but it is generally not and should not be covered by a homeowner's policy.  Many insurance companies are covering mold claims with specific policy language, and are increasing premiums accordingly, while others exclude mold but offer an endorsement that permits the policyholder to elect or opt out of coverage. Some companies may provide a stricter definition of what is and what is not covered while others may prefer to create an absolute exclusion altogether.  In any event, carriers should decide which path is most cost-effective, and should treat every water damage claim as a potential mold issue.