CHAPTER 15 MOLD AND FUNGI

• Jurisdiction: United States

A. The Texas Case

The fear of mold claims was provoked in the insurance industry by Ballard v. Fire Ins. Exchange, 2001 WL 883550, No. 9905232 (Texas Dist. Ct. June 1, 2001), cited in headlines like "Jury Awards $32 Million to Texas Homeowner in Mold Coverage Action."¹ Although it was a Texas decision, the jury award to Ballard created a tsunami of lawsuits against insurers in California citing damages resulting from mold.

The fear was mostly misplaced. The excessive verdict was the result of poor claims handling, not mold. Almost the entire $32 million verdict was punitive damages that did not withstand appellate review. The Texas Court of Appeals reversed much of the trial court's opinion in Allison v. Fire Ins. Exchange, 98 S.W.3d 227 (Tex. App. 2002), and explained the factual background that resulted in an improper and excessive judgment against the Fire Insurance Exchange (FIE). The decision, although important, became moot because the case was settled before the Texas Supreme Court had the opportunity to decide the plaintiffs' appeal.

In June 2001, a Travis County jury awarded a verdict for over thirty-two million dollars against Fire Insurance Exchange (FIE), a member of the Farmers Insurance Group, for its handling of Mary Melinda Ballard's homeowner's insurance claims, which began as a single claim for water damage to a hardwood floor and evolved to include mold contamination of the entire house and outbuildings.

In 1990, Ballard bought a large house in Dripping Springs, Texas, for $275,000 in a foreclosure sale. The main house was approximately 7,400 square feet, with several outbuildings, including a nanny's apartment (also referred to as the groundskeeper's house), a garage, and a barn. In late 1992, Ballard began insuring the house with FIE.

Although the trial was long and the arguments complex, each of Ballard's causes of action revolved around the following core of complained of acts:

• As part of FIE's insurance code violation, Ballard complained that Theresa McConnell misrepresented to her that "complete" plumbing tests had been performed on the house, even though McConnell "secretly" thought that there might be other leaks.

• In December 1998, Ballard reported a claim that her hardwood floor was water-damaged. FIE retained the Gerloff Company, a plumbing contractor, to determine whether there was an ongoing leak causing the floor to remain wet.

• On January 11, 1999, McConnell forwarded a copy of the Gerloff report

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