Mould damage may be covered by an all-risk policy

Application by the insured for coverage under an all-risks policy allowed. Mould was found to be a risk covered under the policy and was not excluded from coverage by any of the provisions. The evidence supported the inference that the loss occurred during the policy period and not prior, as argued by the insurer.

Minox Equities Ltd. v. Sovereign General Insurance Co., [2009] M.J. No. 280, July 21, 2009, Manitoba Court of Queen’s Bench, D.P. Bryk J.

In 1977 the Plaintiff, Minox, constructed a complex of condominiums which were rented out to tenants. Within two years of completing construction, the building experienced humidity problems and mould began to occur in some of the units. In 2001 it was determined that some of the mould was toxigenic.

In 1993 Sovereign General Insurance Company issued a policy of insurance which was maintained by Minox up to and including 2003. In 2002 Minox filed two proofs of loss relating to damage caused by toxigenic and other mould in the complex. Sovereign denied the policy on the basis that mould was not a risk covered by the policy, as it was not fortuitous. It also claimed that the loss was excluded under the policy and that the loss did not occur during the policy period.

The court found that the damage caused by mould is a risk covered under the policy. It rejected Sovereign’s argument that mould is a condition resulting from the normal use and occupation of the property, and therefore not a risk or peril. It found that although it is highly likely that mould will develop due to moisture problems, it is not certain or inevitable. The court pointed to the fact that less than half of the units in the complex had occurrences of mould. Therefore, it found that the growth of mould, either toxigenic or non-toxigenic, was a fortuitous event and therefore a risk covered under the policy.

The court then went on to consider whether mould was excluded under the policy. It found that the exclusions relating to “seepage, leaking or influx of water etc.”, “entrance of rain, sleet snow through windows, skylights or other similar wall or roof openings etc.”, “dampness, dryness or atmosphere, changes of temperature etc.” and “wear and tear, gradual deterioration, latent defect, inherent vice, faulty or improper workmanship etc.” all did not apply to exclude coverage. It pointed out that the policy contained no exclusion specifically relating to loss or damage caused directly or indirectly by mould and that such exclusion clauses are not uncommon in the industry. Therefore, coverage for mould damage was found not to be excluded under the policy.

The court also looked at whether the loss or damage occurred within the policy period. Sovereign argued that the date of occurrence of the alleged loss was the date on which moisture first resulted in mould. Therefore, damage was present long before Sovereign became the insurer on risk. Minox argued that damage arose with the discovery and identification of the toxigenic mould which, they state, was in 2001. The court agreed that there was no evidence of serious health complaints relating to mould prior to 2001. Therefore, a reasonable inference to be drawn was that, absent any serious health complaints which are generally associated with the presence of toxigenic mould, mould did not exist prior to 2001. The court therefore found that the damage occurred during the policy period.

The court also dealt with the issue of whether Sovereign had waived its right to rely on the exclusions by its failure to make inquiries as to the condition of the building. It stated that the principle enunciated in Canadian Indemnity Co. v. Johns-Manville Co., [1990] 2 S.C.R. 549, does not go so far as to create a duty on the insurer to require an application or to conduct an inspection. Therefore, the most that could be said is that Sovereign deprived itself of the opportunity to deny coverage initially or to include a mould exclusion by its failure to conduct a visual inspection either prior to extending insurance to Minox or during any of the renewal years.

The court therefore held that the damages suffered by Minox were recoverable under the policy.

This case was originally summarized by Natasha D. Morley and edited by David W. Pilley.

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