The California Court of Appeal has held that even though “sudden and accidental” water damage—a covered peril—was the predominant cause of mold, a policy’s “absolute” mold exclusion was enforceable because the exclusion clearly communicated that mold “however caused” was never covered. ( De Bruyn v. Superior Court (2008) 158 Cal.App.4th 1213)
Facts
Rudolf De Bruyn purchased a homeowner’s insurance policy from Farmers Insurance Exchange. The policy was written on an “all-risk” basis for the dwelling and on a “specified-peril” basis for personal property. Among other things, the policy covered losses to the dwelling and personal property caused by a “sudden and accidental discharge” of water from a plumbing system or household appliance.
The policy also included a so-called “absolute” exclusion for mold. The exclusion provided that the policy did not “under any circumstances” cover mold, even if resulting from a covered cause of loss (such as the “sudden and accidental” discharge of water from a plumbing system). Other language in the policy provided that “[w]henever … mold … occurs, the … mold … and any resulting loss is always excluded under this policy, however caused.”
De Bruyn and his family returned from a six-day vacation to find that a toilet had overflowed and damaged their home. A few days later, De Bruyn discovered that the dishwasher also had leaked. Both water leaks caused mold. De Bruyn made claims to Farmers, and Farmers paid De Bruyn for the water damage but denied payment for damage related to mold.
De Bruyn sued Farmers based upon Farmers’ denial of coverage for mold-related damage resulting from the toilet overflow and dishwasher leak. Among other things, De Bruyn alleged the “absolute” mold exclusion was invalid pursuant to California’s predominant cause doctrine.
Farmers demurred to portions of De Bruyn’s complaint, asserting that the “absolute” mold exclusion was valid and eliminated any obligation to pay for mold damage, even when mold was caused by a covered peril. The trial court sustained Farmers’ demurrer, and De Bruyn sought relief in the Court of Appeal.
Holding
The Court of Appeal affirmed, holding that the “absolute” mold exclusion was valid. The Court acknowledged that the loss involved two distinct perils—sudden discharge of water and mold—because each can occur without the other. However, the Court reiterated that the purpose of predominant cause doctrine is to bring about “a fair result within the reasonable expectations of both the insured and the insurer,” as set forth by the California Supreme Court in Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395.
The Court also reiterated that an insurer may limit coverage to some, but not all, manifestations of a given peril, as long as “[a] reasonable insured would readily understand from the policy language which perils are covered and which are not.” ( Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747.) According to the Court of Appeal, the primary issue is whether the policy “plainly and precisely communicate[s] an excluded risk” to a reasonable insured—and Farmers’ policy satisfied that requirement.
Comment
The predominant cause doctrine continues to be one of the most complicated areas of first-party property insurance law. Because of the very broad implications of this case, it is quite possible the plaintiffs will seek review by the California Supreme Court. In the meantime, it is important to note that even the Court of Appeal noted that unduly broad language might render illusory policy provisions that purport to cover other perils. Thus, the Court carefully limited its holding to the particular facts of De Bruyn’s claim as applied to the particular language of Farmers’ policy.