Mold: Introduction for Insurance Agents

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The Ballard Case

Now we come to the Big One: The Ballard Case, or Ronald Allison/Fire Insurance Exchange, Appellants v. Fire Insurance Exchange (FIE). This is the Case of Cases when it comes to mold. The verdict was a wake-up call for insurance agencies across the nation. In this case, a large sum was awarded to a family in a highly publicized trial. If you only remember one mold case, remember this one.

In 1990, Mary Melinda Ballard bought a large house in Dripping Springs, Texas, for $275,000 in a foreclosure sale. The main house was approximately 7,400 square feet, with several outbuildings.

The homeowner's coverage in late 1998 was $313,000 for the house and $187,800 for the contents. Ballard had two plumbing related claims between 1996-1997 due to frozen pipes. Farmers paid $60K and$70K.

Ballard did not make another claim until December 1998 but continued to have plumbing leaks. In late 1997, Ballard had a toilet leak repaired in the downstairs half bathroom, which required another repair in January 1998; another leak occurred in June, 1998. The leaks caused damage to the bathroom carpet pad and wood sub-flooring, both of which were replaced in February 1998. Ballard contacted a flooring contractor, Roberts, who took moisture readings of warping flooring and found increased moisture. The wood flooring was replaced both times.

In October 1998, Ballard called Roberts again to report more hardwood floor damage. At that time, Roberts said that the damage was too extensive to do any more spot repairs. He recommended that Ballard file a claim under her homeowner's insurance policy. On December 17, 1998, Ballard filed a claim with FIE for the water damage to the hardwood floor.

An outside adjuster inspected the floor on December 22 and at first opined that the damage was caused by foundation settling, which is not covered under the homeowner's policy. After seeing two areas of water damage, he reconsidered and requested plumbing tests.

The claim was assigned to Theresa McConnell, an adjuster in FIE's Austin foundation claims office, who received the file on December 30, 1998. McConnell's original estimate of the claim was around $100,000.

On the same day, the Gerloff Company, a plumbing contractor, performed tests at FIE's request and found no leaks. McConnell contacted Jeff Jackson, a civil engineer, to determine the amount and cause of damage to the hardwood floor.

In the meantime, Ballard obtained bids to replace the hardwood floor, ranging from approximately $89,000 to $171,000. The $89,000 bid, from Boatright Floors, increased to $127,950 after Ballard requested that the floor be custom made, not manufactured, as was the original floor.

McConnell and Jackson went to the Ballard home on January 7, 1999, so that Jackson could inspect the damage. Jackson found two sources of moisture, one in the half bathroom and one around the refrigerator.

On January 11, McConnell sent a letter to Ballard stating that "complete plumbing tests of your residence were conducted by Gerloff Co., Inc. No leaks were located in the plumbing system of your residence."

On January 12, Jackson requested additional testing of the moisture sources. The additional test showed that the moisture level of the floor was 12%. Ballard sent a letter to McConnell expressing concern that the buckled floors presented a tripping hazard; McConnell suggested temporary repairs while the claim was being investigated, including covering the areas with carpet or replacing the buckled pieces with plywood. Ballard agreed to carpeting the entire floor or replacing the boards in "trouble" areas, but the temporary repairs were never made.

McConnell requested an appraisal of the house by an independent appraiser because she was concerned that the house was underinsured. The appraiser valued the house at approximately $749,000. In early March, FIE increased the coverage to $750,000 for the house and $450,000 for the contents.

In the meantime, on February 8, McConnell sent a letter to Ballard stating that FIE needed a 45-day extension to complete the claim investigation. At approximately this same time, Ballard hired an attorney to represent her.

On February 24, FIE paid Ballard $108,316.50 for accidental water discharge damage to the floor, based on the $127,950 Boatright estimate, less depreciation and the deductible.
The house, recently reappraised, was insured for only $313,000 at the time of the December 1998 claim.

On March 4, McConnell and contractors went to the Ballard home to inspect newly discovered damage, which was assigned a new claim number. Ballard's lawyer was present for this meeting and notified FIE in writing on March 11 that he was representing Ballard and that all contact concerning the claims should be with him instead of Ballard. At Ballard's request, FIE sent a technician to determine if her refrigerator was still leaking; the report showed additional damage behind the refrigerator.

In early April, Ballard met Bill Holder, an indoor air quality consultant, on a plane flight.
Upon hearing about the damage to Ballard's house and physical symptoms that her family was having, Holder suggested that she might have a mold problem. Holder came to the Ballard house on April 5 at Ballard's insistence to take some air samples. The samples contained mold spores, including stachybotrys.

On April 7, Ballard's lawyer sent a letter notifying FIE of the mold findings. Ballard, concerned about possible health effects of the mold, moved with her husband, Ron, and three-year-old son to the nanny's apartment.

FIE's attorney suggested on April 8 that the parties mediate their dispute. Meanwhile, Holder met with Ballard, McConnell, and Steve Shelburne, McConnell's supervisor, on April 13 to discuss the mold findings. Holder explained the possible health effects of mold and that mold grows "exponentially."

FIE sent engineers from Rimkus Consulting to take air samples on April 14. Holder and others returned to the house to conduct tests on April 21. On April 23, Holder told Ballard that, based on the new test results, she and her family immediately needed to move out of the house. They and their nanny moved into the Four Seasons Hotel in Austin, which FIE agreed to pay for until a more permanent location was found. Ballard and her family moved out of the Four Seasons and into a rental home around June 1.

Around June, FIE paid about $8,000 for a shower leak claim in late April, about $25,000 for damage related to an ice-maker leak claim in late April, and about $45,900 for supplemental damage to walls and sheet rock in early May.

On May 5, Ballard filed suit in Travis County against FIE for breach of contract, deceptive trade practices, breach of the duty of good faith and fair dealing in the claims handling process, and negligence.

In preparation for mediation, Rimkus prepared an estimate to remediate and repair the house and the contents, which totaled $382,000. Ballard's expert estimated that remediation would cost approximately $1,015,500. The parties proceeded to mediation for three days in late May, which ended unsuccessfully on May 27.

From May through July 1999, Ballard submitted additional claims for leaks in the roof, two leaks in the water tank room, water damage in the garage and barn, water damage under the kitchen sink, leaks in the nanny's apartment, loose tiles on the porch, and a fountain leak.

On August 30, FIE paid approximately $382,000 for mold remediation and repair of the house and contents. Ballard's attorney returned the checks on the ground that the payments were based on "invalid" bids. In February 2000, FIE again tendered checks for approximately $382,000, which Ballard's attorney deposited into the registry of the court.

The appraisal process continued for several months, then the appraisers met for four days in November 2000 to determine the amount of loss. The appraisal decision, issued on November 16, 2000, awarded $1,287,092.72, deducting amounts that FIE had previously paid, for the house, its contents, and additional living expenses.

Although both appraisers and the umpire signed the decision, only FIE's appraiser and the umpire agreed to the amount of the award. On November 18, FIE sent checks for the amount of the appraisal decision to Ballard's attorney, who again deposited the checks into the registry of the court.

FIE later sought to exclude Ronald Allison's personal injury claims on the ground that the toxic effects of mold were not sufficiently established in the scientific community. Just before trial, the district court excluded Allison's claims on the basis that his expert witnesses did not have reliable epidemiological studies about the health effects of exposure to mold.

The case proceeded to trial on May 7, 2001.The jury began deliberations on May 30, 2001 and returned a verdict in favor of Ballard the next day. The jury awarded $2,547,350 to replace the home; $1,154,175 to remediate the home; $2,000,000 to replace the contents of the home; $350,000 for past and future additional living expenses; $176,000 for Ballard's costs of the appraisal process; $5,000,000 for Ballard's mental anguish; $12,000,000 in punitive damages; and $8,891,000 for attorneys' fees.

The district court rendered a final judgment on October 30, 2001, for over $33 million, reducing actual damages by $2,045,204.28 (the total amount that FIE had already paid to Ballard on her claims) and including prejudgment interest and a statutory penalty under article 21.55 of the insurance code on portions of the award.

This earlier finding was appealed in theTexas Court of Appeals, Third District, Austin on December 19, 2002. Most notably, the mental anguish ($5,000,000) and punitive damages ($12,000,000) awards were overturned. The following is the verdict:

"Because we find no error in the district court's rulings concerning Allison's claims, we affirm the rulings of the district court in granting FIE's motion to exclude his causation experts and FIE's no-evidence motion for partial summary judgment pertaining to Allison's personal injury claims. Accordingly, we affirm the district court's judgment dismissing Allison's personal injury claims.

"We affirm the actual damages award in part, in the amount of $4,006,320.72, in addition to prejudgment and postjudgment interest as stated in the final judgment.
We reverse the award of $176,000 for Ballard's reasonable and necessary costs of the appraisal process.

"Because a finding of a knowing violation is required to uphold punitive and mental anguish damages, we reverse the jury's awards for these damages and render judgment that Ballard take nothing for punitive and mental anguish damages.

"We find sufficient evidence to support the award of attorneys' fees but cannot say that the amount of the award is reasonable, given our significant reduction of the jury's damages awards. Therefore, we remand the issue of attorneys' fees to the district court for further proceedings consistent with this opinion."

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.