Massachusetts Federal Court Holds No Coverage for Mold and Water Damage Claim

By Brian Margolies

In its recent decision in Clarendon National Ins. Co. v. Philadelphia Indemnity Ins. Co., 2019 WL 134614 (D. Mass. Jan. 8, 2019), the United States District Court for the District of Massachusetts had occasion to consider the application of a prior knowledge provision in the context of a claim for mold and water-related bodily injury and property damage.

Philadelphia insured a condominium property management company under a general liability insurance policy for the period September 1, 2007 through September 1, 2008.  In 2009, the insured was sued by a unit owner alleging bodily injury and property damage resulting from toxic mold conditions resulting from leaks that had been identified in her unit as early as 2004.  Notably, the complaint alleged that mold was identified in 2006 and that repair efforts were undertaken, but that these efforts all proved unsuccessful. Plaintiff alleged that she was forced to vacate her apartment in 2008 as a result of the conditions.

Philadelphia denied coverage to its insured for the underlying suit on several grounds, including a mold exclusion in its policy.  An argument was raised, however, as to coverage for property damage resulting solely from water intrusion, which was not subject to the exclusion.  Philadelphia argued that any such water-related damage was precluded from coverage on the basis of a provision in its policy’s insuring agreement stating that no coverage would be available for any property damage known to exist by the insured prior to the policy’s inception date and that “any continuation, change, or resulting of such … ‘property damage’ … will be deemed to have been known to have occurred at the earliest time when an insured … becomes aware” of such occurrence.

Looking to the allegations in the complaint – that water damage had been identified as early as 2004 – the court agreed that the damage was known by the insured prior to the inception of the Philadelphia policy.  In so concluding, the court rejected the counterargument that the complaint suggested the possibility of new property damage during the policy period given that the insured had undertaken repair efforts after the initial damage was originally identified.  As the court explained, “attempts to remediate the damage, even temporarily successful ones, do not transform the later continuation or recurrence of that very damage into new instances of property damage that would potentially be covered.” 

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