Claim excluded by Virus and Bacteria and Pollution Exclusions.

The Wisconsin Court of Appeals, Fourth District, affirmed a trial court finding that the plaintiff-policyholders’ claims were barred based on mold (Virus and Bacteria) and pollution exclusions in the insurers’ policies.  Michael and Rhonda Sue Foley hired Harry Simons, Jr. to remodel their house.  The Foleys sued Simons alleging that Simons’ negligent remodeling resulted in the growth of black mold which released the chemical trichothecene and rendered their entire home uninhabitable.  They also sued their own insurer, Wisconsin Mutual Insurance Company (“Wisconsin Mutual”), and Simons’ insurer, Hastings Mutual Insurance Company (“Hastings Mutual”), alleging claims of breach of contract, statutory interest for delay, bad faith, and negligence.  Wisconsin Mutual, which had provided the Foleys with a farmowners’ insurance policy denied the claim based on exclusions in its policy.  Wisconsin Mutual sought summary judgment, arguing that the “Pollution” exclusion and the “Virus or Bacteria Exclusion” in its policy precluded coverage.  Hastings Mutual, which insured Simons against damage claims arising out of negligent acts and omissions from his performance as a contractor, sought declaratory relief that it had no duty to defend or indemnify Simons based on the “Fungi or Bacteria Exclusion” and the “Total Pollution Exclusion” in its policy.  The circuit court granted Hasting Mutual’s request for declaratory relief and Wisconsin Mutual’s motion for summary judgment.

Hastings Mutual’s exclusion defined “fungi” as “any type or form of fungus” including “mold” and any “byproducts produced or released by fungi.”  The appellate court found that the mold found in the Foley home and the trichothecene released by that mold fell within that definition of “fungi.”  The fact that the mold released trichothecene into the residence was explicitly excluded by the policy which contained an exclusion for bodily injury or property damage “which would not have occurred, in whole or in part, but for” the mold and the byproduct “released by” the mold, here, the trichothecene.  As such, the appellate court agreed that Hastings had no duty to defend the Foleys.

The appellate court also affirmed the trial court’s finding that the pollution exclusion applied to preclude coverage under the Foleys’ homeowners’ policy with Wisconsin Mutual, which insured the Foleys’ home and its contents.  The court rejected the Foleys’ claim that the pollution exclusion had been “superseded” by the policy’s Virus or Bacteria Exclusion, which did not exclude coverage for the alleged loss.  Paragraph 2 of the Virus or Bacteria Exclusion reads in relevant part:

“The Virus or Bacteria exclusion set forth by this endorsement supersedes the ‘terms’ of any other exclusions referring to ‘pollutants’ or to contamination with respect to any loss, cost, or expense caused by, resulting from, or relating to any virus, bacterium, or other microorganism that causes disease, illness, or physical distress or that is capable of causing disease, illness, or physical distress.”

The Foleys argued that in cases involving virus or bacteria, the exclusion superseded the policy’s pollution exclusion.  The appellate court found that paragraph 4 of the exclusion defeated this argument, by providing as follows:  “The ‘terms’ of this endorsement, whether or not applicable to any loss, cost, or expense, cannot be construed to provide coverage for a loss, cost, or expense that would otherwise be excluded under the policy to which this endorsement is attached.”  The appellate court reasoned that “(The) Foleys correctly state that the Virus or Bacteria Exclusion substantially narrows the definition of excluded losses as compared to the Pollution exclusion.  But, paragraph 4 of the Virus or Bacteria Exclusion clearly states that the Virus or Bacteria Exclusion cannot displace an exclusion already in the policy that would exclude claims not covered by the Virus or Bacteria Exclusion.  As a result, we conclude that Foleys’ reading of the Virus or Bacteria Exclusion, and its effect on the Pollution exclusion, fails because it is contrary to the unambiguous terms of the Wisconsin Mutual policy.”  Foley v. Wisconsin Mutual Ins. Co., et al., No. 2017AP545, (Wis. Ct. App. Mar. 1, 2018).