BAD FAITH INSURANCE CLAIMS IN MOLD LITIGATION

1. BAD FAITH INSURANCE CLAIMS IN MOLD LITIGATION Cynthia J. Stephens Governo Law Firm, LLC February 11, 2003

2. Agenda • Evaluating Coverage • Coverage Exclusions • Denying a Mold Claim • Bad Faith 101 • Reasons for Concern • Defense Strategies

3. Typical Policy Language “We will pay for direct physical loss or damage to Covered Property at the premises described in the Declarations caused by, or resulting from, any Covered Loss.”

4. Tenets of Coverage Analysis • Indemnity is the basis for insurance • Insurer bears the burden of proving no coverage • Ambiguous coverage language is construed against the drafter

5. What is a Covered Loss? All risks coverage • Generally, loss covered unless insured can prove exclusion applies Named peril coverage • Loss must be caused by named peril Fortuitous loss Direct Loss External cause Coverage is policy and fact specific to each claim

6. Are Mold Losses Covered? Homeowner’s or CGL policy? • Homeowner’s claims account for the volume of claims • CGL policies account for significantly larger at issue dollar values Trigger of coverage? • What must take place within the policy’s effective dates for the potential of coverage to be triggered

7. Coverage Exclusions • Wear and tear… • Mildew, rot, mold… • Contamination… • Pollution exclusion • Faulty or defective planning, construction or maintenance Exclusion may not apply when the damage results from a covered loss

8. Denying a Mold Claim • Late notice • Failure to mitigate loss • Failure to cooperate • Failure to provide adequate coverage • Not a “covered” loss • Not “sudden and accidental” • Anti-concurrent cause • Expected and intended • Damage is threatened, not actual

9. Bad Faith Claims 101 Third-party excess verdicts • Insurer caused insured’s liability beyond the coverage of the policy Claims-handling based suits • Improper “handling” of claims

10. Reasons for Concern Ballard v. Farmer’s Insurance Group • $32.2 million • Landmark case - first time jury awarded homeowner damages in mold claim against an insurance company Anderson v. Allstate • $18.9 million • Award to a homeowner against an insurer that declined coverage for mold damage

11. What’s an Insurer to do? Special Unit • Implement aggressive, proactive and consistent claims handling • Document everything • Quick and decisive liability and coverage determination • Contractual rights of the policyholder come first Keep the policyholder informed

12. What’s an Insurer to do? Special Training • Investigation - act promptly • Risk assessment • Remediation - preserve evidence - finish the job Identify and settle legitimate claims early

13. Defense Strategies

14. Assemble your experts • Liability: national counsel, joint defense firms • Medical: industrial hygienist, occupational health physicians • Damages: certifiable remediators Stay informed • Cost-effective technology • Keep abreast of trends in law, medicine and science