I have had policyholders complain to me about the fact that an insurance company did not advise them about the scope of damage from a particular loss. Until recently, no Connecticut court had decided whether an insurance company has a duty to inform its policyholder of the presence of mold in covered property that is outside the scope of coverage under a homeowner policy.  In Calhoun v. Providence Mutual Fire Insurance Company, 2016 WL 4599893 (D. Conn. Sept. 2, 2016), the United States District Court for the District Connecticut predicted that the Connecticut Supreme Court would not recognize such a duty and held that an insurance company does not owe a duty to inform its policyholder about the presence of mold at insured premises when the mold damage is not covered by the insurance policy.  You may access the decision here.

The insureds In Calhoun submitted a claim under their homeowner policy for water damage in their partially-finished basement arising from a boiler.  Upon receipt of the claim, the insurance company sent an independent insurance adjuster to investigate the claim.  In his report to the insurance carrier, the adjuster informed Providence Mutual that there was water intrusion into the partially-finished basement and that there was visible mold on some of the walls.  Providence Mutual apparently paid for the water damage, but did not pay for the mold damage.  The insureds submitted a subsequent claim for mold damage seven months later when they allegedly discovered the presence of the mold.  After the insurance company denied the mold claim because it was not covered under the policy, the insureds filed a lawsuit against Providence Mutual alleging breach of contract, bad faith and negligence.

The court rejected the breach of contract and bad faith claims and entered summary judgment for the insurance company Mutual after finding that the insurance policy did not provide coverage for the mold damage. The court ruled that mold damage was covered under the policy only if the cause of the damage and resulting damage were unknown to the insured and the moisture damage was hidden within the walls or ceilings or beneath the floors or above the ceilings of the insured premises.  Because the mold discovered by the adjuster was visible on the basement walls, the court concluded that the damage was not hidden and therefore it was not covered under the policy.  The court also determined that the insurance company properly investigated and disputed the insurance claim and did not act in bad faith.

The policyholders also claimed that the insurance company was negligent in failing to inform them of the presence of mold in the basement and that such negligence caused them to be exposed to mold and suffer potentially permanent respiratory illness and pain. The court, however, ruled that the insurance company was under no legal obligation to inform the policyholder about the presence of mold when the mold damage was outside the scope of coverage under the policy.  The insurer therefore could not be held liable for the insured’s alleged health problems.  The court concluded that the insurance company did not have a duty to inform the insureds because it was not clear that the policyholders’ alleged injuries were foreseeable, despite the fact that the court acknowledged that physical harm can result from extended exposure to toxic mold.  According to the court, it was not clear that an independent adjuster should foresee the specific health issues from which the insureds suffered when the mold was clearly visible on the basement walls.  The court also determined that public policy considerations did not support imposing a duty to warn on the insurance company.  The court concluded that the normal expectation of the parties to the insurance contract was that the insurance company was responsible for investigating and determining applicable insurance coverage in connection with the submitted claim, not for assessing health risks to the insured from exposure to mold.  While the court acknowledged the serious safety concerns arising from extended exposure to toxic mold, it determined that imposing a legal duty to warn on the insurance company would increase potential liability for insurers and would undermine the public policy goals of avoiding increased litigation.  In reaching its decision, the court relied upon decisions from other jurisdictions which that held an insurer does not owe a duty to inform policyholders of the known presence of mold in insured premises.  The court also relied upon decisions in the life insurance coverage arena that have held life insurers do not owe a duty to warn policyholders of life-threatening health conditions discovered in connection with insurance-related investigations.  The court also recognized court decisions that have refused to impose a duty to warn on service providers beyond the scope of the agreed-upon-service.

The lesson for policyholders from the Calhoun decision is that a court likely will not stretch to impose a duty on an insurance company beyond that which exists under the insurance contract with the policyholder.  If there is no duty to pay benefits under the insurance policy, it is unlikely that the court will impose a duty to pay outside the terms of the policy.  If the mold damage was covered under the policy in Calhoun, such fact may have resulted in a different outcome with respect to the insurer’s duty to warn its policyholders of the presence of the mold.