TEXAS SUPREME COURT:
NO MOLD COVERAGE UNDER HO-B
"ENSUING LOSS" CLAUSE
Fiess v. State Farm Lloyds, ___ S.W.3d ___, 2006 WL2505995 (Tex.2006).
In this long-awaited coverage opinion, the Texas Supreme Court answered a question certified to it by the United States Fifth Circuit Court of Appeals: whether the "ensuing loss" provision contained in exclusion 1(f) of the former version of the Homeowner’s Form B insurance policy, when read in conjunction with the remainder of the policy, provides coverage for mold contamination caused by water damage that is otherwise covered by the policy. The Court, in a 7-2 opinion authored by Justice Brister, answered the question "no."
The majority opinion pointed out that the question "is not whether insurers should provide mold coverage in Texas, a public policy question beyond our jurisdiction as a court" – and of course insurers now routinely provide mold coverage, but as part of a separate endorsement that is priced accordingly. Rather, the Court viewed its job in this case as one of policy construction according to rules which, as Justice Brister wrote, "have been around for a long time, long before this dispute arose." Fiess, at *1. The pertinent provision, as set forth in the exclusions to coverage, is as follows: "We do not cover loss caused by: ... (2) rust, rot, mold, or other fungi ... We do cover ensuing loss caused by... water damage... if the loss would otherwise be covered under this policy."
The result necessarily flows from the majority’s rejection of the argument that the provision is ambiguous:
In this case, it is hard to find any ambiguity in the ordinary meaning of "we do not cover loss caused by mold"... Evidence of prior policies is extrinsic evidence, and thus inadmissible unless this policy is ambiguous. Ambiguity must be evident from the policy itself; it cannot be created by introducing parol evidence of intent. And while we have looked at a prior policy in deciding between reasonable constructions of a current one, we have never done so in lieu of construing the current one at all...
Id., at *2. The term "water damage," as used in the ensuing loss clause, cannot operate to restore the mold coverage expressly excluded in the immediately preceding clause: "Mold does not grow without water; if every leak and drip is "water damage," then it is hard to imagine any mold, rust, or rot excluded by this policy, and the mold exclusion would be practically meaningless." Id., at *4.
The dissenting opinion, authored by Justice Medina and joined by Justice O’Neill, suggested that the provision at issue "is susceptible to more than one reasonable interpretation and is therefore ambiguous," and that under familiar rules of construction such ambiguity must be construed in favor of the insured. Id., at *6 (Medina, J., dissenting). The dissent relied in part on the Texas Department of Insurance, which filed an amicus brief in the case in which it argued that, even though mold itself is initially listed as an exclusion, it is nevertheless brought back into coverage by the ensuing loss language of paragraph 1(f), "which provides an exception to the exclusion for mold or other fungi if the mold loss ensues from a covered peril." Id., at *9. Justice Medina wrote that "[a]lthough I do not view this language to be as clear and unambiguous as the agency responsible for its inclusion in the policy, I do accept the Department’s interpretation as an alternative reasonable construction." Id.
Both the majority and dissenting opinions observed in footnotes that the Court had before it for consideration only the ensuing loss clause of paragraph 1(f); the once equally controversial "accidental discharge" clause found in a separate section of the policy dealing with personal property – which provides in part that exclusions 1(a) through 1(h) "do not apply to loss caused by this peril" (i.e., accidental discharge, leakage, or overflow of water or steam from within a plumbing, heating or air conditioning system or household appliance) – was not under review because the Fiesses had failed to preserve error before the Fifth Circuit on this issue. Id., at *11, fn. 3. The accidental discharge clause was last construed by the Texas Supreme Court in the case of Balandran v. Safeco Insurance Company of America, 972 S.W.2d 738 (Tex.1998), cited by both the majority and the dissent. In that case the Court concluded that exclusion 1(h), which excludes coverage for damage caused by foundation movement, does not apply either to dwelling or to personal property coverage when the foundation movement is itself caused by the referenced "accidental discharge, leakage or overflow of water or steam..."
&