The Church of the Palms discovered extensive mold damage in one of its buildings, which is insured under an all-risk policy with the Cincinnati Insurance Co.

According to the policy, “The Church is covered by an all-risk policy, which excludes losses caused by rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in property that causes itself to damage or destroy itself or for losses resulting from faulty, inadequate or defective design, specifications, workmanship, repair, and construction.”

Purchase Bob Bruss reports online.

After discovering the mold, the church hired an expert who determined the building’s negligent construction and design most likely caused the mold infestation.

The insurance company denied the church’s mold damage claim, pointing to the policy exclusion for fungus damage. But the church’s attorney argued the policy does not specifically exclude coverage for damage caused by mold.

However, the insurer replied that mold is a form a fungus, an excluded coverage under the policy.

If you were the judge, would you require the insurance company to pay the church for the damage due to mold?

The judge said no!

Both parties to this lawsuit have accepted the expert’s findings that the likely reasons for the extensive mold damage are roof deficiencies, improper installation of flashing, mold contamination in the walls between the drywall and the insulation, mold/microbial contamination in the mechanical rooms, and within the air-conditioning duct work, the judge explained.

However, after the insured proves a loss to its property while the insurance policy is in force, the burden shifts to the insurer to prove the loss arose from an excluded risk, he continued.

Although the insurance policy omits the word “mold” in its exclusions, the insurer argues mold is a fungus, which is excluded from coverage, the judge emphasized. The church does not dispute that mold is a fungus, he noted.

Because mold is a fungus, and the church’s mold problems developed gradually and were not associated with a single insured fortuitous event, such as a rainstorm, the insurance policy fungus exclusion prevents coverage for the mold damage, the judge ruled.

Based on the U.S. District Court decision in Church of the Palms Presbyterian v. Cincinnati Insurance Co., 404 Fed.Supp.2d 1339.

(For more information on Bob Bruss publications, visit his
Real Estate Center

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