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Allison v. Fire Ins. Exch.: Multi-Million Dollar Texas Mold Verdict Reduced

A Texas appellate has considered an insurance company's challenge to a jury verdict for over $32 million in favor of an insured homeowner that revolved around mold contamination in her home.

In 1996 and 1997, a 7,400 square feet home owned by Mary Melinda Ballard ("Owner") had various plumbing problems. The Owner's insurance company, Fire Insurance Exchange ("Insurer"), paid two claims during this period related to the plumbing problems. Although her home continued to have plumbing problems, the Owner did not file another claim until December 1998. In 1998, some of the downstairs hardwood floor boards kept buckling and needed replacing three different times during the course of the year. At the time of each repair, the repairman noted that the moisture level around the boards was between fifteen and twenty percent, which was high (usual measurement is around 12%). Upon making the final repair, the repairman told the Owner that it wasn't worth it for him to keep making spot repairs and that she should make a claim under her homeowner's policy.

In December 1998, the Owner filed a claim with the Insurer for water damage to the hardwood floor. The Insurer began investigating the Owner's claims, concluding that her claims were plumbing related. Numerous tests were conducted by the Insurer, and the damage was eventually discovered to be more extensive than originally presumed by the Owner. The Insurer's claims analyst found that the Owner's home was underinsured, causing the Insurer to impose underinsurance penalties upon the Owner for the 1998 damaged floor claims.

In April 1999, the Owner conducted air quality tests in the home which discovered the presence of a mold type called stachybotrys. At the recommendation of the air quality consultant retained by her, the Owner moved her family out of the home at that time, due to the potential health risks. At this point, the Insurer suggested that the parties submit their dispute to mediation. Following an unsuccessful attempt to mediate the dispute, the Insurer invoked an appraisal clause in the policy, which allowed each party to hire an appraiser to evaluate the claims and the two parties would agree on the appointment of an umpire.

In May 1999, the Owner filed a lawsuit against the Insurer alleging breach of contract, deceptive trade practices, breach of the duty of good faith and fair dealing in its handling of the claims process, and negligence. Meanwhile, during the investigation by the Insurer into the Owner's claims, the Owner was continually submitting water damage claims as they were discovered, all of which the Insurer eventually attempted to pay (some payments were rejected by the Owner as being inadequate). In November 2000, the appraisal decision was issued, putting the amount of the loss at $1,287,092.72, deducting amounts that the Insurer had already paid to the Owner. The Insurer forwarded to the Owner's attorney a check for the amount of the appraisal decision, which the attorney deposited into the registry of the court. In May 2001, a jury reached a verdict in favor of the Owner and the trial court entered judgment for approximately $33 million, an amount which included not only awards for the home and its contents but also awards for almost $9 million in attorney's fees as well as $12 million in punitive damages. The Insurer appealed.

The Texas Court of Appeals, Third District, affirmed the trial court's award of approximately $4 million in actual damages plus interest but reversed the remaining amount awarded to the Owner because the evidence did not support those additional awards. The court first considered whether the trial court had properly excluded evidence connecting the medical problems suffered by the Owner's husband with his exposure to stachybotrys mold in the Owner's home. The trial court had ruled the studies relied upon by the Owner's expert were not sufficiently reliable to demonstrate scientifically that the husband's exposure to stachybotrys mold was the cause of the husband's illnesses. The court agreed with the trial court's ruling, affirming the trial court's exclusion of this evidence.

Thereafter, the court considered the numerous challenges made by the Insurer to the jury verdict. The main thrust of the Insurer's challenge to the jury verdict was that the evidence before the trial court failed to support the award to the Owner. In order to overturn a jury verdict, an appellate court must find that there was virtually no evidence to support the award made by the jury. The Owner had attacked the behavior of the Insurer in a variety of ways, including: an adjuster had forwarded a letter to the Owner in January 1999 stating that its plumbing tests were complete and that no leaks were found on the property, which was later proved false; the Insurer's delay in paying claims; Insurer attempting to resolve claims with payments that were based on inadequate bids for the work that needed to be performed; Insurer's invocation of the appraisal provision, which the Owner claimed was used as a delay tactic by the Insurer; and the underinsurance penalties assessed by the Insurer.

Looking at the evidence before the jury, the court found that there was some evidence to support the conclusion that the Insurer breached its fiduciary duty of good faith and fair dealing to the Owner. Some of the evidence supported the conclusion that the Insurer had failed to promptly settle the full amount of the Owner's claims, and thus the court affirmed the jury verdict for the amount of actual damages (for the Owner's home and its contents), which totaled $4,006,320.72 plus prejudgment and postjudgment interest. The court also found that there was evidence that the Texas consumer fraud statute was violated by the Insurer when it forwarded the letter in 1999 which inaccurately stated that the plumbing tests were complete, and so the court found that the jury's award of actual damages could be affirmed on those grounds as well.

The court reversed the jury's finding of fraud by the Insurer and also the finding that the Insurer had knowingly engaged in deceptive acts. The court found that the evidence did not support either of those conclusions, and reversed the awards based on those determinations, which were for punitive damages and mental anguish. Thus, the jury verdict was reduced to the actual damages suffered by the Owner plus interest. The court also found that while the Owner was entitled to recover attorney's fees, she was not entitled to the almost $9 million awarded by the trial court. The court sent the case back to the trial court for a reconsideration on the amount of attorney's fees to be awarded to the Owner.

Allison v. Fire Ins. Exch., 98 S.W.3d 227 (Tex. App. 2002).