Vol. 75, No. 3, March
Out of the Dark: The Emergence of Toxic Mold Litigation
Wisconsin law gives little direct guidance to plaintiffs and
defendants on determining whether insurance policy exclusion clauses
will operate to exclude toxic mold claims. With the rise in toxic mold
litigation, perhaps one or more appellate decisions will assist lawyers
in advising their clients on the probability of coverage.
by John Mitby & Kevin Trost
Mold claims arising out of water damage to
property have significantly increased in the last year. A spokesperson
for Farmers Insurance has estimated that mold claims for the year 2001
will be more than five times the number of claims for the year 2000 and
total $85 million.1 Toxic mold has attracted
the attention of the public and media as more individuals have started
complaining that their illnesses and ailments can be traced to their
exposure to certain molds in their homes or workplaces. With these
individuals now seeking legal redress for property damage and for their
ailments, some attorneys consider that the rapid proliferation of mold
lawsuits will soon rival the recent lead paint or asbestos
Injured parties have sought recovery through first-party claims
against their own property and homeowner insurers and have brought bad
faith claims when their insurers have refused to properly address mold
claims. There also have been an increasing number of third-party claims
brought by injured parties and insurers in subrogation actions against
those allegedly responsible for the development of the mold. Among those
named in such complaints are contractors whose shoddy construction
practices have allowed moisture to seep into building interiors,
architects and engineers for substandard building designs, and even
lumber companies and paint manufacturers for not providing products that
resist mold. These defendants subsequently have sought coverage under
their own policies.
Against this backdrop, attorneys for both plaintiffs and defendants
are now confronting a variety of insurance policy exclusion clauses that
were rarely interpreted with mold in mind. This article provides a brief
overview of the toxic mold litigation creeping into the courts and
highlights how Wisconsin courts have interpreted standard insurance
clauses central to analyzing whether insurance coverage is present.
What is Toxic Mold
Mold is all around us - in the air, in the walls, below the flooring,
and above the ceiling tiles. While many varieties of molds are harmless,
a few varieties emit poisonous mycotoxins that can cause a range of
health problems when a person is exposed to them in high concentrations.
So far, the Centers for Disease Control has identified 25 "toxic molds"
out of the 3,000 known molds.3 The most
well-known of the toxic molds is stachybotrys chartarum, which
is a black-colored mold that often is found inside walls. However,
significant research remains to be performed on several molds to
determine their toxicity. Experts now are evaluating the toxicity of
other molds, including cladosporium, commonly found as a form
of mildew on walls, and aspergillus, which can be found on
Toxic mold can become a health risk if it is allowed to grow and
multiply inside an environment containing a source of moisture and food.
The breakneck pace of construction throughout the 1990s allowed many
homes and buildings to be constructed with defects that allow water and
moisture to seep into the interior. Once the toxic mold has migrated
inside otherwise tightly sealed homes and buildings, it encounters a
perfect environment for growth because there are minimal
water-evaporating drafts and abundant sources of food. Molds consume
cellulose, which is present in such common building materials as wood,
paper, ceiling tile, drywall, and cardboard.5
When toxic mold has grown and spread, it releases into the
environment mycotoxins that can affect human health if present in
sufficiently high concentrations. Published studies confirm that
exposure to high concentrations of mycotoxins can produce respiratory
ailments and irritations of the eyes, nose, and throat, and aggravate
asthma.6 Recently, however, individuals also
have alleged that in severe cases toxic mold has caused bleeding lungs,
memory loss, and chronic fatigue syndrome. With few published studies
analyzing the extent of toxic mold's health effects, causation of these
more serious health effects is a hotly contested issue. As Jon Woods, an
associate professor of microbiology at the U.W.-Madison, acknowledged,
"A cause and effect link is difficult to establish ... I'm not saying
it's not true. I'm just saying it hasn't been proven."7
Toxic mold also poses a danger to the property that it grows on and
to property near an infestation. Porous items in the vicinity of the
toxic mold often must be destroyed because they can harbor toxic mold
spores. In extreme cases the toxic mold can become so pervasive
throughout a house or building that remediation is impossible. In that
situation, the house or building often is razed. In the state of Oregon,
a couple whose home was infested with toxic mold allowed a local fire
department to use their home for a test burn training exercise for
Rise in Mold Litigation
To date, the South has been most affected by mold litigation, because
the humid and warm climate is more conducive to mold growth. Not
coincidentally, courts in Southern states also have decided the most
cases and entered the most jury verdicts for plaintiffs. In Florida, a
jury awarded $11.5 million against a builder of a county courthouse
where shoddy construction allowed the introduction of toxic mold that
sickened county employees.9
A Texas case has attracted the most attention to toxic mold. In
Ballard v. Fire Insurance Exchange,10 a couple and their 3-year-old son grew ill after
their insurer mishandled a claim for fixing leaking plumbing. The couple
had asked their insurer to replace a subfloor in their home after
noticing that their floors had buckled from the plumbing leak. A
contractor also recommended replacing the floor because of the danger of
mold contamination. The insurer refused, and the family later grew
terribly ill after mold spread from the subfloor throughout the house.
Ultimately, the house had to be razed, because the mold had become so
pervasive that remediation was infeasible. A Texas jury found that the
insurer had acted fraudulently by not properly handling the leak and
mold problems, and awarded the couple more than $32 million in
compensatory and punitive damages. The insurer is appealing the
Wisconsin courts are beginning to confront a rising number of mold
claims. A Waukesha County family recently alleged that toxic mold
developed from leaky windows in their new home and was the source of
their illnesses, including a serious attack on their son's immune
system.11 The family had to move from the
home and is bringing suit against the persons from whom they purchased
the home.12 A Dane County family sued its
insurance company after the insurer failed to reimburse the family for
all the personal property it disposed of while remediating the family's
mold-infested home.13 Potential claims also
are in sight: A newly constructed Madison school had to be evacuated and
students relocated to other schools for many weeks after mold was
discovered in the building walls.14 See
Mold in Wisconsin Schools.
In the wake of several large jury verdicts, insurers are reexamining
how mold is treated under their policies. A number of insurers are
attempting to more explicitly exclude mold damage from their homeowners'
policies in the most heavily affected states. The remainder of this
article examines the more common insurance clauses applicable to both
first-party and third-party mold claims and how Wisconsin courts have
Mold Exclusion Clause
The Insurance Services Office (ISO) publishes model policies that
form the backbone of the policies offered by individual insurance
companies. The 1991 HO-3, the most common homeowners' policy, contains
the standard policy language at the heart of most homeowners' policies.
Coverage is extended for certain structures if there is "direct physical
loss" to the covered property. While mold is capable of producing such a
direct physical loss, an exclusion clause states: "We do not insure,
however, for loss: ... 2. Caused by: ... (3) Smog, rust or other
corrosion, mold, wet or dry rot." This exclusion clause is referred to
as a "wear and tear" clause, meaning that damage appearing over time and
not as a result of an identifiable covered event does not trigger
coverage under a policy.
While no Wisconsin cases and few cases nationwide discuss this clause
in detail, those jurisdictions that have analyzed it have acknowledged
coverage for mold where the proximate cause for the mold was a covered
peril under the policy.15 In other words,
if a homeowner's mold damage results from a leaky hail-damaged roof that
the insurer paid to replace because hail was a covered peril, the mold
remediation generally is covered because the original source of the mold
was a covered peril. However, when there is no identifiable source for
the mold other than homeowner neglect or inadequate cleaning procedures,
the mold source cannot be traced to a covered peril and coverage is
The ISO revised HO-3 in 2000 to more specifically address mold
damage, and this exclusion clause is likely to appear in newly issued
policies. The 2000 HO-3 exclusion reads:
"2. We do not insure, however, for loss: ... (c) Caused by: ... (5)
Mold, fungus or wet rot. However, we do insure for loss caused by mold,
fungus or wet rot that is hidden within the walls or ceilings or beneath
the floors or above the ceilings of a structure if such loss results
from the accidental discharge or overflow of water or steam from within:
(a) A plumbing, heating, air conditioning or automatic fire protective
sprinkler system, or a household appliance, on the `residence premises;'
or (b) A storm drain, or water, steam or sewer pipes, off the `residence
This clause explicitly acknowledges coverage for mold damage arising
out of certain named perils, such as plumbing leaks, but remains silent
as to other traditionally covered perils such as hailstorms. It can be
argued that by not mentioning coverage for other perils the policy
intends to exclude coverage for mold arising out of those perils not
named. However, it is not certain that this language is sufficiently
clear to achieve that result. Because the clause does not address mold
caused by other covered perils, it can be argued that the clause is
ambiguous and, therefore, should be interpreted in favor of coverage.
Given that published decisions already have interpreted the predecessor
HO-3 clause to allow coverage as long as the mold was caused by a
covered peril, courts could reasonably interpret the present clause in
the same manner, since there is no explicit language that would
interfere with that interpretation.
Pollution Exclusion Clause
An insurance policy that does not include a mold exclusion clause is
likely to contain the more general pollution exclusion clause. Both
standard homeowners' and commercial general liability policies exclude
coverage for damage caused by pollution. The 1991 HO-3 contains the
standard pollution exclusion language, denying coverage for losses:
"2. Caused by: ... (e) any of the following: ... (5) Discharge,
dispersal, seepage, migration, release or escape of pollutants unless
the discharge, dispersal, seepage, migration, release or escape is
itself caused by a Peril Insured Against under Coverage C of this
Determining if toxic mold falls under this exclusion requires an
analysis of whether toxic mold is a "pollutant" and whether there has
been any "discharge, dispersal, seepage, migration, release or escape."
If both conditions are met, then there is coverage if a covered peril
caused the discharge, dispersal, and so on.
The only Wisconsin case to directly address mold in the context of
the pollution exclusion clause is one of very few cases nationwide to
address the issue and stands in the way of enforcing the clause. In
Leverence v. United States Fidelity &
Guaranty,17 several owners of manufactured homes sued
the manufacturer and its insurer alleging that the exterior walls in
their homes retained excessive moisture. The moisture allowed the growth
of mold that posed a risk to health and property value.18 The
Wisconsin Court of Appeals focused on the discharge and dispersal
language in the pollution exclusion, stating that the exclusion did not
bar coverage because the growth of the mold was the result of water
vapor trapped in the walls.19 Accordingly,
the contaminants were not "released" according to the policy "but rather
formed over time as a result of environmental conditions."20 Because the mold did not disperse, discharge,
and so on, according to the terms of the exclusion, the exclusion did
not apply, and the court of appeals did not consider whether mold was a
With an additional decade of research and attention to the
microbiological aspects of mold, one now could more persuasively argue
that toxic mold "releases" or "disperses" into the environment, since it
gives off mycotoxins that cause human illness. It is yet to be seen if
the Wisconsin Supreme Court will adopt this interpretation over the
Leverence interpretation of more than a decade ago. However, a
decade of additional scientific knowledge provides a basis for
rethinking how mold is considered to cause injury under the pollution
If a court goes beyond the Leverence interpretation of the
discharge/dispersal language of the pollution exclusion clause, the
question remains whether mold, and toxic mold in particular, is a
pollutant. Wisconsin law provides no direct guidance for whether any
mold is a pollutant. However, there is the potential for a comparison to
carbon dioxide or lead paint, which were subject to relatively recent
scrutiny by the Wisconsin Supreme Court.
In Donaldson v. Urban Land Interests,21 there was a challenge to whether the
accumulation of carbon dioxide in a particular room in a building
constituted a pollutant for purposes of the pollution exclusion clause.
The court held that the carbon dioxide did not constitute a pollutant,
since it is ever present in the atmosphere and "the respiration process
which produces exhaled carbon dioxide is a necessary and natural part of
life."22 It consequently refused to
consider "carbon dioxide as in the same class as smoke, vapor, soot,
fumes, acids, alkalis, chemicals and waste."23
The Wisconsin Supreme Court distinguished this analysis when it found
lead paint to be a pollutant in Peace v. Northwestern National
Insurance Co.24 In this case, a tenant
sought recovery from the landlord for injuries her son sustained from
ingesting lead paint particles.25 In
declaring lead paint to constitute a pollutant under the pollution
exclusion clause, the court distinguished Donaldson by
explaining that lead paint is not universally present like carbon
dioxide and historically has been considered harmful.26 It also determined that the flaking, chipping,
and deterioration of the lead paint was "discharge, dispersal, release
or escape within the meaning of the terms in the policy."27 Accordingly, the pollution exclusion clause
effectively barred insurance coverage for the claim.
Toxic mold could be likened to lead paint, since its mycotoxins are
harmful to human health and toxic mold is not universally present as is
carbon dioxide. However, the fact that even toxic mold generally is not
harmful to humans except in high concentrations affords an argument to
support opposing viewpoints that would liken toxic mold to carbon
dioxide, a nonpollutant, which also is not dangerous in low
Plaintiffs and defendants currently have little direct guidance under
Wisconsin law for determining whether insurance policy exclusion clauses
will operate to exclude toxic mold claims. Hopefully, the recent influx
of mold litigation will yield one or more appellate decisions on the
coverage issues to assist practitioners in advising their clients on the
probability of there being coverage for damage from toxic mold.
1 Charles S.
LiMandri, Epidemic of Mold Litigation Plagues Insurance
Industry, Ins. Litig. Rep., July 12, 2001, at 262.
2 Toxic Mold:
A Growing Legal Issue, United Press Int'l, Oct. 6, 2000.
3 Thor Kamban
Biberman, Dormitory at San Diego State Closed Over Toxic Mold,
San Diego Daily Transcript, July 2, 2001, page 1B.
4 Melissa A.
Hortman & Mark S. Mason, The Next Wave, For Def., August
2001, at 51.
5 Jennifer L.
Reichert, Homeowners, Insurers Spar Over Spores in Toxic-Mold
Cases, Trial, Sept. 2001, at 14.
Realtors Association, What You Need to Know About Mold, Legal
Update, no. 1.07 at 4; Federal-Provincial Working Group on Mycological
Air Quality in Public Buildings, Fungal Contamination in Public
Buildings: A Guide to Recognition and Management (Ottawa, Ontario,
Canada: Federal-Provincial Committee on Environmental and Occupational
Health, June 1995).
7 Paul Gores,
Families Blame Mold for Making Them Sick, Milwaukee J.-Sent.,
July 8, 2001, at F1; see also U.S. Centers for Disease Control,
Reports of Members of the CDC External Expert Panel on Acute
Idiopathic Pulmonary Hemorrhage in Infants: A Synthesis
(Washington, D.C.: CDC, Dec. 1999) (Centers for Disease Control could
not scientifically confirm allegations that stachybotrys
chartarum was the cause of the pulmonary hemorrhages and deaths of
16 Cleveland, Ohio, infants).
8 O'Hara v.
Lockram, No. 16-00-12848 (Ore. Cir. Ct. Lane County).
Centex-Rooney Constr. Co. v. Martin County, 706 So. 2d 20 (Fla.
App. 4 Dist. 1997).
v. Fire Ins. Exch., No. 99-05252 (Tex. Dist. Ct. Travis County June
supra note 7, at F1.
v. Langdon, No. 01-CV-2803 (Wis. Cir. Ct. Waukesha County Nov. 21,
13 Bodway v.
United Serv. Auto. Ass'n, No. 01-CV-1326 (Wis. Cir. Ct. Dane County
May 17, 2001).
14 Lisa Schuetz,
Parents Push for Answers about Closing of Chavez, Wis. State
J., Dec. 19, 2001, at A1.
Sunbreaker Condominium Ass'n v. Travelers, 79 Wash. App. 368, 901
P.2d 1079 (1995) (mold damage covered if cause was wind-driven rain);
Bowers v. Farmers Ins. Exch., 99 Wash. App. 41, 991 P.2d 734
(2000) (mold damage covered when cause was tenant's vandalism);
Merrimack Mut. Fire Ins. Co. v. McCaffree, 486 S.W.2d 616 (Tex.
Ct. App. 1972) (mold damage not covered when water had leaked over many
years from improperly constructed shower stall).
Realtors Association, supra note 6, at 8.
v. U.S. Fidelity & Guar., 158 Wis. 2d 64, 462 N.W.2d 218 (Ct.
v. Urban Land Interests, 211 Wis. 2d 224, 564 N.W.2d 728
24 Peace v.
Northwestern Nat'l Ins. Co., 228 Wis. 2d 106, 596 N.W.2d 429