CHAPTER 15 MOLD AND FUNGI

• Jurisdiction: United States

A. The Texas Case

The fear of mold claims was provoked in the insurance industry by the trial court decision in Ballard v. Fire Ins. Exchange, 2001 WL 883550, No. 99-05232 (Texas District Court, Travis County, June 1, 2001), cited in headlines like "Jury Awards $32 Million to Texas Homeowner in Mold Coverage Action."¹ 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. Ct. 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, a member of the Farmers Insurance Group ("FIE"), 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 revolve around the following core of complained-of acts:

• As part of FIE's insurance code violation, Ballard complains 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 to Ballard. The report described the procedures employed and time taken to test the building drain piping, domestic water piping, and air conditioning condensate lines, and further stated that no shower pan test was conducted.

• McConnell wrote a letter to Ballard on February 8 saying that FIE required a forty-five-day extension because of "[t]he additional time is needed to complete our claim investigation."

• McConnell admitted at trial that FIE had all of the information that it needed to evaluate the claim but that she needed the additional time to obtain the authority from supervisors to pay the claim because she did not have that level of authority.

The issue of the breach of the duty of good faith and fair dealing "focuses not on whether the claim was valid but on the reasonableness of the insurer's conduct" in handling the claim. Lyons v. Millers Cas. Ins. Co., 866 S.W.2d 597, 601 (Tex. 1993).

Viewing the evidence in the light most favorable to Ballard, we hold that there is some evidence to support the jury's finding that FIE failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of Ballard's claims after its liability had become reasonably clear, and that this failure caused damages to Ballard.

The jury further found that FIE committed fraud against Ballard. Having found sufficient evidence to support the jury's finding of a statutory violation, but no

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