Until a jury returned a $32 million verdict against the Fire Insurance Exchange in Ballard v. Fire Insurance Exchange, No.
99-05232 (Texas District Court, Travis
County, June 1, 2001) mold claims were
simply denied based upon the exclusion
in the basic Homeowners policy and the
denials were accepted by the insureds.
The verdict in the Ballard case caused a
severe and pervasive fear of mold claims
in the insurance industry. The fear resulted in various changes to policies with either thorough and detailed exclusions for
mold or an agreement to coverage with a
very small limit of liability.
The fear was mostly misplaced. The
Ballard verdict was not the result of damage caused by mold, but the result of poor
claims handling where the claims representative testified at trial that she had
lied to the insured about an important
part of the investigation and adjustment
of a complex claim. Almost the entire $32
million verdict was standard tort damages
and punitive damages that did not withstand appellate review. Eventually, while
the appeals were pending, Ms. Ballard and
Fire Insurance Exchange settled their case
and no final decision was rendered.
The Texas Court of Appeals, Third
District, at Austin, reversed much of the
trial court’s opinion in Ronald Allison/
Fire Insurance Exchange v. Fire Insur-
ance Exchange, A Member of the Farmers
Insurance Group/Mary Melinda Ballard
and Ronald Allison, et. al, 98 S.W.3d 227
(2002), and explained the factual back-
ground that resulted in an improper
and excessive judgment against the Fire
Insurance Exchange (FIE). The Court
of Appeals described the evidence pre-
sented at trial in detail necessary to the
understanding of the decision. [Court of
Appeal in Ronald Allison/Fire Insurance
Exchange v. Fire Insurance Exchange, A
Member of the Farmers Insurance Group/
Mary Melinda Ballard and Ronald Alli-
son, et. al., No. 03-01-00717-CV.]
Although the Ballard Allison trial ver-
dict was touted as a “mold” case, it was,
in fact, a claims-handling case. The jury
was offended by the admission that the
adjuster, McConnell, lied to the insured
and decided to punish them with exces-
sive punitive damages.
In order to avoid an insurance claim as
complex as this one, the FIE should have
followed proper claims-handling protocol.
The lawsuit, and the results of the lawsuit,
could have been, and should have been,
avoided by professional claims handling.
If the Ballard claim was presented after
the decision in Fiess v. State Farm Lloyds
202 S.W.3d 744, 746 (Tex.2006), there
would have been no coverage for any
of her claims except the direct damage
caused by water and had the claim been
investigated properly, no basis for the allegations of bad faith.
Of course, one must wonder about the
multiple mold claims paid in Texas that
would have been avoided had the Supreme
Court of Texas been allowed to resolve the
issues in Allison v. Farmers where Ms. Bal-lard-Allison received a $32 million mold
judgment that was, in reality, a bad faith
award that was settled while the appeal was
pending after the Court of Appeal reduced
the award to approximately $4 million.
In the Ballard Allison case, Ballard submitted 14 water damage claims between
December 1998 and September 2000.
Although Fire Insurance Exchange (FIE)
had paid Ballard over $186,000, she was
unsatisfied. FIE requested an appraisal of
Ballard’s claims. In November 2000, the
appraisers determined that over $1.9 million was necessary to remediate and rebuild the house and clean and/or replace
the contents and to provide alternative
living arrangements while the work was
performed. Although the appraisal award
exceeded the policy limits, FIE paid it, in
payments that totaled over $2 million.
Investigating the mold claim
Mold claims, like every first party property claim, require a thorough investigation. It requires, however, the assistance
of professionals before a mold investigation can be completed. The claims person
investigating a mold claim must understand that the levels of fungal organisms
in a structure or outdoors vary by several
orders of magnitude during the course of
a day, due to activity levels in the area and
other factors like fluctuations in temperature or humidity that can cause the release of spores. The spores may no longer
be viable and — though allergenic — they
will not grow on any media.