An insurer was held liable under the liability section of a construction company’s insurance policy for a claim by 23 Texas government employees who required medical treatment due to exposure to toxic mould resulting from faulty construction of their new office building. It was held that the pollution and health hazard exclusion did not specifically exclude mould-related claims.

A judgment of nearly $38 million against Legion Insurance Company (already in liquidation) resulted because the definition of the health hazards excluded was not “expressed in clear and unambiguous language”.

Whilst a policy does not have to specifically list the terms “mould” or “fungi”, this policy contained extremely broad and generic terms such as “any, alleged, chemical, substance, irritant, liquid, gas or solid”. If these broad and generic terms were applied to anything solid, liquid, gas or substance, anything that could potentially cause injury would be excluded. The cover under the policy would then be illusory.

Because mould claims are rare, not many policies refer specifically to mould. This omission should be considered by insurers who don’t want to pick up unintended claims.

(In re Liquidation of Legion Indemnity Company, case number 02CH06695)