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Farmers Insurance must cough up $32 million in Texas toxic mold verdict

A jury has awarded an Austin, Texas, family $32 million, concluding that a Farmers Insurance Group subsidiary committed fraud by delaying and denying the family's home insurance claim for mold damage.

To learn more about stachybotrys, see Killer mold is nothing to sneeze at .

A Travis County District Court jury agreed with Melinda Ballard and her husband, Ron Allison, that Fire Insurance Exchange, a Farmers subsidiary, failed to promptly cover the necessary repairs for a water leak, thus allowing a toxic mold called "stachybotrys" to invade the couple's 22-room mansion. The insidious black mold forced them and their young son to abandoned the home in 1999. On the advice of Dr. David Straus, a leading mold expert, they left quickly with just the clothes on their backs.

Stachybotrys, a toxic mold that has been found in all 50 states, has been named as the culprit in several high-profile cases of "sick building syndrome." In the mid-90s, the mold was blamed for the deaths 16 infants who suffered pulmonary hemorrhages in Cleveland.

The Texas case is a legal landmark because it is the first time that a jury has awarded a homeowner damages in a mold case against an insurance company, rather than against a builder or building owners. The jury's 11-1 decision of $32 million is based on:

  • $6.2 million in actual damages. The house will have to be decontaminated, leveled, and rebuilt.
  • $12 million in punitive damages. This amount is a warning to other insurers as well as a punishment for Farmers.
  • $5 million for mental anguish.
  • $8.9 million in lawyers' fees.

Farmers is waiting to see if Judge John Dietz reduces the jury's award when he officially enters the judgment on June 25, 2001. "We heard the jury's verdict," says Mary Flynn, a Farmers spokesperson. "It is now up to the court to enter a judgment in this case. Once that is done, we will review that judgment and if an appeal is necessary, we are confident we will prevail."

Homeowners and insurers eye case closely

Both homeowners and insurers are watching this case carefully. Texas insurance law has a liberal stance toward coverage of mold damage that is the direct result of a "covered peril," such as a burst water pipe. This is not true of most other states. A standard home insurance policy typically does not cover losses caused by rust, rot, mold or other fungi, even as a result of a covered peril. Most insurers consider mold a "home maintenance" issue.

Farmers gets more than two-thirds of its mold claims from Texas.

But now Farmers wants out of having to cover mold, too. The Texas Department of Insurance has scheduled a public hearing on June 26, 2001, to gather testimony from consumers, bankers, and insurers on whether it should ultimately grant Farmers — and by extension, all insurers licensed to do business in Texas — the right to exclude mold damage from coverage. According to Farmers spokesperson Bill Miller, Farmers gets more than two-thirds of its mold claims from Texas and is projecting nearly a five-fold increase in its residential claims for mold damage this year, costing the company about $85 million.

Texas homeowners with mold problems are alarmed. Even if the mold in their homes doesn't cause any medical problems, such as asthma problems, it can lead to "dry rot" and eventually cause severe structural damage to their homes.

Picking the wrong person

The mold trial has garnered extensive publicity because of the high media profile kept by Ballard, a former New York City public relations executive. According to her lawyer, Houston attorney Fred Hagans, when Farmers began its campaign to delay and deny Ballard's mold claims, they picked the wrong person. "Melinda wasn't going to take it lying down, or get frustrated, give up, and go away," says Hagans.

Indeed, Ballard took to network television news programs, local, and national radio stations, and the Internet to tell her family's story. That story includes a son, who at age 4 began coughing up blood, and a husband Ballard says had to quit his job as an investment banker because he, too, began coughing up blood and eventually suffered respiratory damage and memory loss.

"This case wasn't about sympathy. It wasn't about 'Poor brain-damaged Ronny.'"

Hagans says he could not introduce medical testimony on the health effects of mold at the trial because a Texas Supreme Court decision mandates a level of scientific proof that has not yet been reached in respect to the medical problems associated with stachybotrys. However, even without medical testimony, the jury sided with Ballard and Allison.

"This case wasn't about sympathy," says Hagans. "It wasn't about 'Poor brain-damaged Ronny.' It was about an insurer that failed to keep its promises and the jury could very well imagine what happened to that family could happen to them."

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