Case Briefs

Notably, the pollution insurer had relied on Flomerfelt v. Cardiello, 202 N.J. 432 (2010), for the proposition that “only damages caused directly by the designated instrumentality in the exclusion (in this case mold, in that case controlled substances) are excluded.” 2011 N.J. Super. LEXIS 2587 at *9. The Appellate Division, however, distinguished Flomerfelt based on both the policy language and the differing facts of that case. In Flomerfelt, the policy excluded claims “arising out of” the use, transfer, or possession of controlled substances. Id. In contrast, the policy here excluded claims that would not have occurred “but for” the existence of mold. Id. at *10. Further, in Flomerfelt the cause of loss was a disputed issue of fact. Id. at *10. Unlike Flomerfelt, the court determined that the cause of the damage was not in dispute ' “losses were a result of mold contamination leading directly to further damaging remedial measures.” Id. at *12. The court, therefore, held in these circumstances that “[t]he 'causal link' and a 'substantial nexus' between the mold and the damages were clear and undisputed.” Id. at *11-12 (citing Flomerfelt, 202 N.J. at 442, 454-55).

This case illustrates the importance of a policyholder's careful consideration of the scope of its insurance. The court basically found that this mold remediation company's CGL policy did not cover property damages allegedly resulting from its services. The company, nonetheless, had secured Pollution Liability insurance, which did respond to such losses.

Sherilyn Pastor, Practice Group Leader of McCarter & English, LLP's Insurance Coverage Group and a member of this newsletter's Board of Editors, contributed this month's case brief. This publication is not intended to provide legal advice. Issues relating to insurance coverage and litigation are fact specific, and their resolution will depend on the facts involved and the law governing the disputes, which varies from state to state. The views expressed in this publication are not necessarily those of McCarter & English or its clients.

CGL Insurer Has No Duty to Cover Mold Remediation Losses Excluded By Fungi and Bacteria Exclusion

In Restoration Risk Retention Group v. Selective Way Insurance Co., the New Jersey Appellate Division held that a commercial general liability (“CGL”) insurer owed no coverage for property damage caused by the policyholder's mold remediation work because its policy contained a Fungi and Bacteria exclusion. A-1975-10T1, 2011 N.J. Super. LEXIS 2587 (App. Div. Oct. 12, 2011). The policyholder, a mold remediation specialist, faced potential liability for allegedly deviating from a customer's remediation plan by using Sporicidin. Id. at *4. The policyholder's pollution liability insurer acknowledged its coverage obligations, and sued the policyholder's CGL carrier to compel coverage. Id. at *5. The CGL insurer denied coverage on the basis of its policies' Fungi and Bacteria exclusion, which provides that its insurance does not apply to: (a) “'property damage' which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, or presence of any 'fungi' or bacteria on or within a building or structure” (regardless of whether any other cause “contributed concurrently or in any sequence” to such damage); and (b) loss “arising out of ' abating, cleaning up, removing, containing, treating, detoxifying, neutralizing, remediating, or disposing of ' 'fungi' or bacteria, by any insured.” Id. at *6-7.

The Appellate Division upheld summary judgment for the CGL insurer. Id. at *12-13. The court determined that the Fungi and Bacteria exclusion's “but for” language (in subpart (a)) precluded coverage because the Sporicidin's application was an event that “originated in, grew out of, and had a substantial nexus to the mold.” Id. at *5-6. The court found a “causal link” and “substantial nexus” between the mold, the remediation efforts, and the customer's damages. The court also concluded that the remediation efforts fell within subpart (b) of the exclusion, relating to abating, removing and remediating mold. Having found that both subparts of the Fungi and Bacteria exclusion applied, the court declined to consider whether the CGL insurer properly denied coverage on the basis of its policy's “business risks” exclusion. Id. at *12-13.

Notably, the pollution insurer had relied on Flomerfelt v. Cardiello , 202 N.J. 432 (2010), for the proposition that “only damages caused directly by the designated instrumentality in the exclusion (in this case mold, in that case controlled substances) are excluded.” 2011 N.J. Super. LEXIS 2587 at *9. The Appellate Division, however, distinguished Flomerfelt based on both the policy language and the differing facts of that case. In Flomerfelt, the policy excluded claims “arising out of” the use, transfer, or possession of controlled substances. Id. In contrast, the policy here excluded claims that would not have occurred “but for” the existence of mold. Id. at *10. Further, in Flomerfelt the cause of loss was a disputed issue of fact. Id. at *10. Unlike Flomerfelt, the court determined that the cause of the damage was not in dispute ' “losses were a result of mold contamination leading directly to further damaging remedial measures.” Id. at *12. The court, therefore, held in these circumstances that “[t]he 'causal link' and a 'substantial nexus' between the mold and the damages were clear and undisputed.” Id. at *11-12 (citing Flomerfelt, 202 N.J. at 442, 454-55).

This case illustrates the importance of a policyholder's careful consideration of the scope of its insurance. The court basically found that this mold remediation company's CGL policy did not cover property damages allegedly resulting from its services. The company, nonetheless, had secured Pollution Liability insurance, which did respond to such losses.

Sherilyn Pastor, Practice Group Leader of McCarter & English, LLP's Insurance Coverage Group and a member of this newsletter's Board of Editors, contributed this month's case brief. This publication is not intended to provide legal advice. Issues relating to insurance coverage and litigation are fact specific, and their resolution will depend on the facts involved and the law governing the disputes, which varies from state to state. The views expressed in this publication are not necessarily those of McCarter & English or its clients.