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Cooper v. Am. Family Mut. Ins. Co.: Homeowner Denied Recovery from Insurance Company for Mold Damage

An Arizona federal court has considered whether an insurance company in that state can exclude mold from coverage when the mold is caused by an event covered under the policy.

Shirley Cooper ("Owner") was a homeowner who purchased a homeowner's policy issued by American Family Mutual Insurance Company ("Insurance Company"). In February 2001, the Owner's house had a plumbing leak which caused water damage to the dry wall and flooring in the master bedroom and hall closet. The Insurance Company paid for the damage caused to the flooring and hall closet, but refused to pay for any damage caused by mold because the Owner's policy specifically excluded mold damage. The Owner filed a lawsuit against the Insurance Company, alleging that the water damage caused the mold and the Insurance Company should also pay the costs for mold remediation. Both parties filed motions seeking judgment in their favor.

The United States District Court, District of Arizona, ruled in favor of the Insurance Company. The Owner first argued that because the water damage was a covered loss, under the "efficient proximate cause" doctrine, the policy coverage should include the resulting mold damage. The "efficient proximate cause" doctrine, which has been adopted in some states but not Arizona, provides that coverage exists when an insured suffers a loss from an event which was "proximately" caused by a covered event, even if the loss would otherwise be excluded from policy coverage. Relying on this doctrine, the Owner argued that the Insurance Company was liable for the costs of mold remediation as well as the damage to personal property from the mold. The Insurance Company had denied these claims because the policy specifically excluded coverage for mold, regardless of the cause. The court ruled in favor of the Insurance Company, ruling that the "efficient proximate cause doctrine" was not the law in Arizona and an insurer was entitled to exclude mold from its coverage. The court further stated that Arizona law allowed the Insurance Company to exclude an event which was the result of a covered event and so the policy should be enforced as written, with the mold exclusion.

Next, the Owner argued that the policy's "resulting loss" clause, which provides coverage for additional losses arising from an occurrence, contradicted the mold exclusion. The court disagreed with the Owner's analysis, pointing to language in the resulting loss clause which stated that the coverage only existed for a resulting loss "...not excluded or excepted in the policy." Thus, the court rejected the Owner's argument that the resulting loss clause provided coverage for the mold damage, since mold was excluded elsewhere in the policy. The court also rejected the Owner's argument that because mold releases mycotoxins, the mycotoxins are a separate event from the mold itself and so the cleanup of the mycotoxins should receive coverage under the resulting loss clause. The court ruled that the mycotoxins were not a separate event from the mold, and therefore the court ruled that the resulting loss clause did not provide coverage for the cleanup of mycotoxins.

The Owner also argued that the mold damage was entitled to coverage under the policy's "supplementary coverage" clause. This clause provided coverage for, among other things, the extractions of pollutants. The Owner argued that mold qualified as a pollutant, and so the supplementary coverage provision entitled them to coverage. The court rejected this argument, finding it wasn't clear that mold qualified as a pollutant and, more importantly, the supplementary coverage provision did not alter the specific mold exclusion contained in the policy.

Finally, the court considered the Owner's argument that her "reasonable expectations" were that the policy covered mold that arose from water damage. The "reasonable expectations" doctrine applies when a consumer is given an expectation by an agent of the insurance company that coverage would be provided under certain circumstances. Since no one from the Insurance Company had given the Owner such an expectation of coverage, the court rejected this argument. Thus, the court ruled that the mold exclusion denied the Owner coverage for the mold incursion, and the court entered judgment in favor of the Insurance Company.

Cooper v. Am. Family Mut. Ins. Co., 184 F. Supp. 2d 960 (D. Ariz. 2002).