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Toxic Mould Claim Excluded From Coverage
Published in the July 2010 issue of Litigation Notes - View Article
The Manitoba Court of Appeal finds that policy exclusions apply and no coverage is available for a toxic mould claim.
Minox Equities Limited (“Minox”) is the owner of a housing complex in Winnipeg, Manitoba, built in 1977. Although certified compliant with all relevant by-laws and specifications at the time of construction, there were reports of water leaking into some apartments within 2 years of completion. Between 1979 and 2000, Minox took various measures to remedy a variety of problems arising from water ingress in the buildings. However, in March of 2000 the Residential Tenancies Branch of the Manitoba government received a complaint of a health hazard in one of the units, caused by water leakage, mildew and rot. Minox retained a firm of consulting engineers, who identified a major area of mould growth, some of which was toxigenic. A report prepared for Minox in March of 2000 stated that it was likely that the mould was due to the concentrated failure of the building envelope and that more significant mould growth may be detected inside the walls.
In June of 2001 Minox learned that tenants in another unit had become ill and investigations of that unit identified further toxigenic mould growth. Minox advised its insurer, Sovereign General Insurance Company (“Sovereign”) by way of a call to its insurance broker of a potential claim due to mould damage in July of 2001. On November 13, 2002 Minox submitted a proof of loss to Sovereign in the amount of $8,585.68, relating to remediation efforts in one of the units.
Further investigation revealed that significant mould abatement was required in all of the buildings in the complex and in December of 2002 Minox submitted a second proof of loss with an estimated cost for remediation of $646,000, including tenant relocation and professional and consulting fees.
Sovereign denied coverage with respect to both proofs of loss, and Minox sued. At trial, the trial judge allowed Minox’s claim and awarded damages in the sum of $545,969.88. Sovereign had argued that the build-up of humidity causing the mould growth was not the result of a risk or peril, that exclusions against latent defect or improper design applied and that exclusions against seepage of water or dampness of atmosphere also applied. The trial judge dismissed all of Sovereign’s arguments and Sovereign appealed to the Manitoba Court of Appeal.
On appeal the case turned primarily on the applicability of the seepage exclusion. The trial judge had been of the view that although one of the excluded events allowed the ingress of moisture into the units, he could not find that the occurrence of mould inevitably followed. “In addition to the moisture, spores, a source of food, and the appropriate acidity of the water were factors that needed to be present in the right combination to produce mould. Whether or not the mould would or would not be toxigenic was a further uncertainty. I am unable to conclude that the excessive moisture was either a direct or indirect cause triggering the occurrence of mould”.
The Court of Appeal held that the trial judge committed an error of law in interpreting the exclusion clauses in a way that required that the damage had to have been inevitably caused by seepage, rain or humidity. This interpretation meant that Sovereign must not only prove that the seepage, rain or humidity caused the loss or damage but must also prove that these events would always cause that loss or damage.
The exclusion used the phrase “directly or indirectly” and this phrase “generally connotes that both the direct and consequential losses of an event are captured. Thus, as long as the evidence in the present case indicates that mould was a direct or consequential result of the seepage, rain and humidity, then the exclusion clauses would apply, absent other issues. In this case, the evidence, as so found by the trial judge, is clear that the seepage, rain and humidity present in the complex led to the moisture and humidity conditions which were so conducive to mould growth”.
The appeal was allowed.
Minox Equities Ltd. et al. v. Sovereign General, 2010 MBCA 63 (CanLII)