Opinion
Case No. 2:01-CV-726 TS.
March 4, 2005
ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
This matter is before the court for consideration of Plaintiff's Motion for Partial Summary Judgment and Defendant's Motion for Summary Judgment. Plaintiff Natalie Clausen, the insured brings claims arising from Defendant Fire Insurance Exchange's refusal to pay for mold remediation to her house under her homeowner's insurance policy.
In her Motion for Partial Summary Judgment Plaintiff argues, in chief, that the efficient proximate cause rule provides insurance coverage for Plaintiff because the covered peril of water discharge proximately caused the damage for which recovery is sought.
In its Motion for Summary Judgment Fire Insurance Exchange argues, in chief, that the efficient proximate cause rule does not apply because the policy clearly denies coverage for mold. Defendant argues further that even if the rule could apply in this instance, the cause of the mold is disputed. The parties' arguments are consistent across motions and will be considered here as if embodied in one round of motions. The parties dispute multiple facts and, in the following narrative, all factual inferences are resolved in favor of the Plaintiff.
FACTUAL BACKGROUND
Plaintiff Natalie Clausen is an acupuncturist and herbologist in Salt Lake City, Utah. In 1992, Ms. Clausen purchased a 92-year-old house in the Avenues of Salt Lake City for $95,000, where she lived until April 2001. Beginning in approximately 1997, Ms. Clausen's house was insured under a homeowner's insurance policy with the Defendant Fire Insurance Exchange.
Ms. Clausen's house was without a concrete foundation on the north side, where it instead sat directly on the soil. The house had a basement with a dirt floor, though there was a concrete pad in the basement on which the furnace sat. The house had one bathroom with an old freestanding tub on the floor and a shower curtain suspended from an "O ring," which was suspended from the ceiling. The bathroom had been fully carpeted, but Ms. Clausen had removed part of it. The house was full of plants, to which Ms. Clausen did not apply fungicide.
Between 1996 and 2001, Ms. Clausen attended several seminars regarding mold allergies and the use of "applied kinesiology" in diagnosing mold allergies. In November 2000, Ms. Clausen began experiencing numbness in her hands and feet, and in January or February 2001, Ms. Clausen's chiropractor, Dr. Kory Branham, concluded that her numbness was an allergic reaction to Penicillium mold.
Late in 2000, Ms. Clausen talked to an unlicensed building contractor, Brad Nalder, about remodeling her house, which he began on March 14, 2001. Per Ms. Clausen's instructions, Mr. Nalder started with the bathroom, tearing out the lath and plaster or sheet rock on the walls and removing the framing from two walls. He also removed the lath and plaster ceiling in the bathroom and the adjoining laundry room. He did not remove the walls around the exterior of the bathroom. During his partial demolition of the bathroom, Mr. Nalder saw a leak associated with the shut-off valve from the cold water supply to the tub. Specifically, he saw water running down the pipe and spreading on the floor, though he does not recall the speed or volume of the leak. In response to the leak, Mr. Nalder shut off the water to the tub. Mr. Nalder noticed damage to the bathroom floor but could not determine at what point in the house's history the water spots appeared. After observing the leak, Mr. Nalder went to the basement, where he saw a wet spot in the dirt approximately two feet by two feet.
Mr. Nalder also noticed during his partial demolition of the bathroom what appeared to be black mold on the northeast corner of the bathroom wall, facing the inside of the bathroom. The black substance extended about six to eight inches up from the floor and about eighteen inches to two feet in each direction from the corner of the bathroom. Mr. Nalder does not recall seeing any mold between the studs and wall coverings, nor does he recall seeing any mold inside the lath and plaster or sheet rock during the demolition. At Ms. Clausen's request, Mr. Nalder took samples of the black substance and gave them to Ms. Clausen, who then put the samples into glass jars.
Ms. Clausen took the samples to Dr. Branham for testing, and he concluded through her reaction to the substance in the jars that the sample substance was mold. In March 2001, on the advice of Dr. Branham, she took the samples to Dr. Chris Astill-Smith in New York for more testing and further diagnosis of her potential mold allergy. When she returned home from New York, she went into her bathroom and saw water on the surface of the floor in front and to the right of the vanity, at which point she turned off the water to her house. She called Mr. Nalder the next morning.
Mr. Nalder went to Ms. Clausen's house on March 29, 2001, and found that water had been leaking on the north supply line to the vanity due to corrosion on the outside of the bathroom wall. He estimated that the leak had been present for a few days, though Ms. Clausen believed that it had existed in November 2000. That same day, Mr. Nalder purchased bleach and a sprayer and, with a 50-50 solution of bleach and water, sprayed all of the floors, walls, and exposed wood in the bathroom and under the bathroom floor in the basement.
About the end of March or beginning of April 2001, Ms. Clausen stopped residing in the house. On subsequent visits to the house, she always wore a mask or respirator and wore large protective suits. On April 4, 2001, Ms. Clausen telephoned her insurance agent to report a claim for water damage and mold. On April 5, 2001, Ms. Clausen's claim was assigned to claims representative Stephen Innes, who subsequently assigned her claim temporarily to an independent insurance adjuster with Wardlaw Claims Service, Mr. Jimmy Robinson. Mr. Robinson was to prepare a bid with the intention of estimating and paying for any damages covered under Ms. Clausen's policy, but he did not have authority to make coverage decisions or advise Ms. Clausen as to whether claims would be paid. Just five months prior, in November 2000, Fire Insurance Exchange had found coverage and paid for mold remediation at a different residence but in substantially similar circumstances.
Mr. Robinson met Ms. Clausen at her house on approximately April 7, 2001, and examined the bathroom, after which Mr. Robinson told Ms. Clausen several things, including (1) that the two leaks would be considered one claim; (2) that Fire Insurance Exchange would write a check for whatever estimate Ms. Clausen obtained; and (3) that Fire Insurance Exchange would give her an allowance for food expenses. Mr. Robinson also said, in light of the mold Ms. Clausen said that she found, that testing and mold remediation would be covered under her policy and that she should have estimates performed and sent to Fire Insurance Exchange for payment.
In early April 2001, Ms. Clausen contacted IHI Environmental (IHI)and requested that they perform mold testing in her house. On April 13, 2001, IHI sent Amir Karamati, an industrial hygienist with a Masters Degree in Industrial Hygiene from the University of Utah, who has been employed with IHI for fourteen and a half years, to Ms. Clausen's house to perform the mold tests. When Mr. Karamati arrived, there were no leaking pipes, flooring had been removed, and new sheet rock had been installed in the bathroom. Mr. Karamati did not see any mold and did not detect any moisture on the bathroom floor. Mr. Karamati's bathroom surface sample also came back showing no mold. Ms. Clausen showed her previously collected samples to Mr. Karamati, who took a tape sample from the mold. After this tape sample was taken, Ms. Clausen threw away her previously collected samples.
Mr. Karamati did note that the wood-on-dirt north side of the basement in Ms. Clausen's house was highly conducive to mold growth. His examination of the basement also revealed moisture around the bottom of the furnace, as well as apparently long-term water leakage onto the bathroom floorboards. Mr. Karamati found abnormally high moisture only in the dirt in the basement crawl space. Surface samples for mold both in the bathroom and on the underside of the floor below the bathroom and the surface showed no mold.
Air sampling revealed elevated levels of mold growth inside the house compared to the outside, particularly in the basement. Mr. Karamati found mold in the air on the main floor, including the bathroom, and he acknowledged that mold could have been dispersed into the air when Mr. Nalder sprayed the bathroom with the bleach solution. He is, however, otherwise unaware of any evidence that the mold he found originated in the bathroom or resulted from leaks that may have occurred in the bathroom.
Mr. Karamati prepared a report of his tests on Ms. Clausen's house, which is dated April 26, 2001. After receiving that report, Ms. Clausen obtained an estimate for mold remediation from Utah Disaster Kleenup for $19,761.86. On April 30, 2001, based on Mr. Robinson's repair estimate, Fire Insurance Exchange paid Ms. Clausen $1,358.28 for Ms. Clausen's claim for water damage to her bathroom, less a $500.00 deductible. The amount paid for water damage represented Mr. Robinson's estimate and fell short of the damage as estimated by Mr. Nalder.
After investigating Ms. Clausen's claim and arranging for payment, Mr. Robinson left town and the file was reassigned to Stephen Innes. In the first few days of May 2001, Mr. Innes and three or four other people from Fire Insurance Exchange inspected Ms. Clausen's basement. After Ms. Clausen refused to give a recorded statement, Mr. Innes informed her that it had not yet been decided whether her mold claim would be covered. Mr. Innes' supervisor, Mr. Paul Carroll, also inspected the basement and found it as has been previously described. Mr. Carroll concluded that the leak from the tub in Ms. Clausen's bathroom was not sudden and accidental, but rather a longterm leak.
On May 11, 2001, Fire Insurance Exchange mailed to Ms. Clausen a "Reservation of Rights" letter, stating that Ms. Clausen's claims for mold damage may not be covered under her policy. Mr. Carroll understood there to be no coverage for mold damage under the policy, but he nevertheless sought clarification from Fire Insurance Exchange's "Mold Unit," formed in late 2000, at the company's home office. On approximately June 5, 2001, the property claims manager for Fire Insurance Exchange in Salt Lake City, Brent Tigue, telephoned Jan Frances at the "Mold Unit" and related Ms. Clausen's claim. Ms. Frances told Mr. Tigue that he needed to determine the cause of the mold in Ms. Clausen's house and the source of any continuing mold in order to evaluate the claim.
Fire Insurance Exchange arranged for RR Environmental, Inc. to inspect Ms. Clausen's house and provide opinions as to the cause of the mold. RR submitted two reports, the first dated July 2, 2001, and the second dated "August 32, 2001." Neither of these reports specified a cause for the mold in Ms. Clausen's house. Subsequently, Fire Insurance Exchange arranged for Amir Karamati to return to Ms. Clausen's house on September 20, 2002, to conduct further mold tests.
On September 19, 2001, Ms. Clausen filed suit against Fire Insurance Exchange alleging breach of contract, fraud, and various other causes of action. At the time Ms. Clausen filed suit, Fire Insurance Exchange had not made a final decision whether to pay the amount bid from Utah Disaster Kleenup for mold remediation, believing that a mold cause had not yet been determined that would trigger coverage. In November 2001, Utah Disaster Kleenup performed mold remediation in Ms. Clausen's house at a charge of $19,761.86; Ms. Clausen has paid approximately $14,000 of that amount. In addition to the bill from Utah Disaster Kleenup, Ms. Clausen is making a claim for personal property that she threw away because she felt it was contaminated with mold.
After mold remediation was completed, Ms. Clausen sold her house in the beginning of January 2002 for $165,000. From the time Ms. Clausen moved out of her house in April 2001 until she sold it, Fire Insurance Exchange paid Ms. Clausen's living expenses for living in a hotel, a rental house, and an apartment. Fire Insurance Exchange paid for all mold testing throughout the claim investigation.
DISCUSSION
"Summary judgment is proper if the moving party can demonstrate that there is no genuine issue of material fact and it is entitled to judgment as a matter of law." Burningham v. Utah Power Light Co., 76 F.Supp.2d 1243, 1244 (D. Utah 1999); see also Fed.R.Civ.P. 56(c). A genuine issue of material fact exists where the Court determines that a reasonable jury could return a verdict for the nonmoving party in the face of all the evidence presented. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986); Clifton v. Craig, 924 F.2d 182, 183 (10th Cir. 1991). The Court construes all facts and reasonable inferences in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Wright v. Southwestern Bell Tel. Co., 925 F.2d 1288, 1292 (10th Cir. 1991).
Plaintiff's Motion for Partial Summary Judgment argues for — and Defendant's Motion for Summary judgment argues against — application of the efficient proximate cause rule in this case to provide coverage for Plaintiff's mold remediation even though Plaintiff's insurance policy seemingly denies such coverage. The policy language at issue is the following exclusion of coverage for mold damage where accompanied by a sudden and accidental discharge of water from plumbing:
We insure for accidental direct physical loss to property described in Coverage C, but only if caused by one or more of the following perils:
* * *
13. Sudden and accidental discharge or overflow of water . . . from within a plumbing . . . system . . ., but not for deterioration, rust, mold, wet or dry rot due to the presence of water.
Ex. 34 at pp. 7-8. The Court, then, must examine the insurance policy's language regarding coverage and whether the efficient proximate cause rule may be applied in this case in light of that language.
In this diversity case, the Court applies the laws of the State of Utah. For Utah law on both interpretation of insurance contracts and the application of the efficient proximate cause rule, the Court looks first to Alf v. State Farm Fire Cas. Co., 850 P.2d 1272 (Utah 1993). In Alf, pipes in the insured's home had frozen and burst. The ensuing water leak caused soil erosion, or "earth movement," beneath the insured's tennis court, driveway, and fences. The insurer, State Farm, agreed to replace the burst pipes but refused to cover the "earth movement" damage because the insured's policy excluded coverage for earth movement damage "whether other causes acted concurrently or in any sequence with the [earth movement] to produce the loss." Id. at 1273, 1276.
In arguing for coverage, Alf advocated adopting the efficient proximate cause rule, which had already been adopted in other states. The Alf court, which ultimately adopted the rule, explained it as follows: "[I]f an insured peril is determined to be the efficient proximate cause of the loss, then an insurer may not exclude coverage simply because an intervening uninsured peril was the more immediate cause of the loss." Id. at 1277. Under this rule, Alf argued, the earth movement damage, even if excluded under the policy, should be covered because the "efficient proximate cause" of the earth movement damage was the burst pipe, which was "an insured peril."
The Alf court adopted the efficient proximate cause rule but declared that the rule only applies where "the parties have not chosen freely to contract out of it." Id. The court noted that "[t]he efficient proximate cause rule must yield to the qualifying words agreed to by the parties and included in the Policy." Id. at 1278. In other words, if the policy's language clearly and unambiguously manifests the parties intent for coverage to extend to certain circumstances and not to others, then the parties will be deemed to have contracted out of the efficient proximate cause rule according to the policy's "qualifying words." The court acknowledged that an insurer may use qualifying words to effectively circumvent the rule if it "clearly and unmistakably communicates to the insured the specific circumstances under which the expected coverage will not be provided." Id. at 1275.
The Alf court also acknowledged that an insurance policy is subject to the "same rules applied to ordinary contracts," and "[w]hether ambiguity exists is a question of law." Id. at 1274. Explaining further, the court said: "A contract may be ambiguous because it is unclear or omits terms or, as the Utah Court of Appeals has stated, 'if the terms used to express the intention of the parties may be understood to have two or more plausible meanings.' However, policy terms are not necessarily ambiguous simply because one party seeks to endow them with a different interpretation according to his or her own interests." Id. at 1274-1275.
The Alf court found that the policy before it had qualifying words — "whether other causes acted concurrently or in any sequence with the [earth movement] to produce the loss" — that clearly and unambiguously denied coverage for earth movement damage even where the efficient proximate cause was the insured peril of pipes bursting. Consequently, the court said the efficient proximate cause rule did not apply and that the policy did not require coverage for earth movement damage.
This Court notes that the efficient proximate cause rule only applies where there are at least two competing causes of loss — one insured, one not — in conjunction with some loss. See, e.g., Kelly v. Farmers Insurance Company, Inc., 281 F.Supp.2d 1290, 1297 (W.D. Okla. 2003). It would not apply where an insured peril, acting alone, produced a loss that was uninsured by the policy. Id. at 1297-1298. The issue is relevant in this case because the parties here disagree as to the meaning of the clause "consisting of, or caused directly or indirectly by," Ex. 34 at p. 8, and whether it excludes coverage for mold as both a loss and a cause of loss or just as a cause of loss.
The Defendant indirectly argues that if water discharge, a covered peril, caused mold, it should not be covered because mold, in and of itself, is an excluded loss according to the policy's "consisting of" language, which is the same argument the defendant insurer uses in Kelly. Under Defendant's reading, the efficient proximate cause rule is inapplicable and Plaintiff has no claim for coverage. Plaintiff counters, citing Kelly, that the clause, when read as a whole, identifies mold only as a "peril" (cause) and not as a "loss." Id. The Kelly court, addressing a clause identical to Plaintiff's policy's "consisting of" clause, stated that "[t]he words 'consisting of' appear to imply that mold may constitute a loss in and of itself, but the words 'caused directly or indirectly by' clearly reflect a contractual designation of mold as an independent cause." Id. The court explained further:
The word "loss" is defined as "[t]he amount of financial detriment caused by . . . an insured property's damage, for which the insurer becomes liable." BLACK'S LAW DICTIONARY 956 (7th ed. 1999). Both common sense and the dictionary definition of the word "loss" dictate that there must be some financial detriment in order for a loss to exist. To that extent, then, mold is always a "cause" of a loss, even if the corresponding financial detriment consists solely of mold-related property damage.Id. at 1298 n. 5.
The Kelly court's reasoning applied to the present case persuades that, despite the "consisting of" language, mold cannot be a loss in and of itself, thus making it an excluded peril to which the efficient proximate cause rule may apply. Even if Kelly were not persuasive, the "consisting of" clause is at least ambiguous in that its internal inconsistency renders it susceptible to "two or more plausible meanings." Alf, 850 P.2d at 1274-1275; see also Cyprus Plateau Mining Corp. v. Commonwealth Ins. Co., 972 F.Supp. 1379, 1382 (1997) (case in which an internally inconsistent clause was found ambiguous under Utah law and construed against the insurer). The ambiguity here would be resolved in favor of Plaintiff, thereby preserving, at least to this point in the analysis, her argument for coverage under the efficient proximate cause rule.
In the present case, Plaintiff asserts that both water discharge and mold caused her property damage. Plaintiff's policy provides coverage for damage caused by water discharge but denies coverage for damage caused by mold. Without applying the efficient proximate cause rule, Plaintiff's loss would not be covered because the policy explicitly excludes coverage where mold causes the loss. Applying the efficient proximate cause rule, however, Plaintiff's damage could be covered if (1) the damage was proximately caused by the insured peril of water discharge and if (2) there is no qualifying language in the policy clearly denying coverage for the peril of water discharge where it is accompanied by the peril of mold.
Whether Plaintiff meets the first condition is inapposite to the Court in this case. That is so because, even if met, the Court may still decide the case by concluding as a matter of law that Plaintiff fails the second condition for coverage, namely that there is qualifying language that denies coverage for water discharge damage where an intervening cause of damage is mold. On its face, the policy seems to contain such language:
We insure for accidental direct physical loss to property described in Coverage C, but only if caused by one or more of the following perils:
* * *
13. Sudden and accidental discharge or overflow of water . . . from within a plumbing . . . system . . ., but not for deterioration, rust, mold, wet or dry rot due to the presence of water. Ex. 34 at pp. 7-8 (emphasis added). The words "but not for deterioration, rust, mold, wet or dry rot due to the presence of water" are certainly "qualifying words." The question is whether these qualifying words are so clear and unambiguous that they manifest the parties' intent to contract out of the efficient proximate cause rule in the circumstance where water discharge and mold are concurrent causes of loss.
The court in Cyprus Plateau, supra, stated: "An insurance policy should not be interpreted in an unreasonable or strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion." 972 F.Supp. at 1382 (citing LDS Hosp. v. Capitol Life Ins. Co., 765 P.2d 857, 859 (Utah 1988)) In Cypress Plateau, the court did not think it unreasonable or absurd to find the following policy provision ambiguous: "This Policy does not cover Personal Injury including Bodily Injury to any employee or any Insured under this policy for which the Insured or his indemnitee may be held liable." Id. The court found the provision was ambiguous because it used "both the collective term 'any Insured' and the singular (and restrictive) 'the Insured' along with the singular pronoun 'his,'" making its application to "any Insured" versus a specific insured unclear. Id. at 1385.
The qualifying words at issue in this case do not have the internal inconsistency that rendered the Cypress Plateau provision ambiguous, nor are they as clear as the qualifying words in Alf — "whether other causes acted concurrently or in any sequence with the [earth movement] to produce the loss." Nevertheless, the policy states that the Defendant insures for loss to property "caused by one or more of the following perils," and then proceeds to list perils. Thus, the introductory clause can be applied to the list as follows:
We insure for accidental direct physical loss to property described in Coverage C, but only if caused by one or more of the following perils:
* * *
13. [The peril of] [s]udden and accidental discharge or overflow of water . . . from within a plumbing . . . system . . ., but not for [the peril of] deterioration, [the peril of] rust, [the peril of] mold, [the peril of] wet or dry rot due to the presence of water.
Ex. 34 at pp. 7-8 (emphasis added).
The introductory clause "one or more of the following perils" can readily be understood to designate the qualifying words in subparagraph 13 as perils. Not only that, but to read the qualifying words as an enumerated list of ultimate losses, and not causes of loss, renders them obsolete as intimated by the Kelly court. See generally Kelly, 281 F.Supp.2d at 1297-1298. The Court reads the qualifying words as an enumerated list of perils because to do otherwise would yield an impermissibly absurd conclusion. See Cypress Plateau, 972 F.Supp. at 1382; LDS Hospital, 765 P.2d at 859.
Furthermore, because the perils of deterioration, rust, mold, wet rot, and dry rot are all specifically recognized elsewhere in the policy as independent coverage exclusions, the only reason to include them in subparagraph 13 is to specifically declaim coverage for sudden and accidental discharge of water when found in conjunction with deterioration, rust, mold, wet rot, and dry rot. The policy even adds "due to the presence" of water, indicating further that where these additional perils are brought about by the presence of water, there is no coverage. These qualifying words are not found in any other subparagraphs in that section, suggesting a targeted exception to the general coverage for damage caused by water discharge. The Utah Supreme Court, in S.W. Energy Corp. v. Continental Ins. Co., 974 P. 2d 1239, 1242 (Utah 1999), instructs that courts interpreting insurance policies are to afford policy terms "their usually accepted meanings and [give] effect to and [harmonize] to the extent possible all the provisions." (emphasis added). Harmonizing the provisions in this case means reading subparagraph 13's enumerated list as excluded perils for which there is no coverage when operating together with water discharge.
Admittedly, these qualifying words are not as carefully crafted as were the words in Alf, but, as the above analysis sets forth, they clearly and unambiguously manifest the parties' intent to contract out of the efficient proximate cause rule in cases where water discharge and mold are concurrent causes of loss. Because the parties contracted out of the rule, it is inapplicable in this case and there is no coverage under the policy. Because it finds that the efficient proximate cause rule does not apply in this case to provide Plaintiff coverage, the Court does not address the other issues raised by the parties.
CONCLUSION
Based on the foregoing, it is hereby
ORDERED that Plaintiff's Motion for Partial Summary Judgment is DENIED. It is further
ORDERED that Defendant's Motion for Summary Judgment is GRANTED. It is further
ORDERED that judgment shall enter in favor of Defendant and this case closed.