“Let no good deed go unpunished.”  That’s how Busch Properties probably sees the result in the Busch Properties, Inc. v. National Union Fire Ins. Co. decision from the Eighth Circuit Court of Appeals, No. 14-3699 (2/24/2016).  The Court upheld a win in National Union’s favor finding there was no coverage for a mold remediation project that Busch undertook in its condominium resort near Williamsburg, Virginia.

As property manager, Busch had installed vinyl wallpaper in all the units that proved to be a fertile environment for mold.  Acknowledging that it owed an obligation to remediate the mold for all units, Busch asked each owner to sign an express consent to proceed with the mold abatement and property repair.  Busch admitted no liability for the presence of the mold and did not ask for a release of any claims that unit owners may have against Busch.

While the remediation project was underway, Busch notified National Union, its general liability insurer for the 10-year period during which the construction took place and the mold appeared.  Four years later, National Union argued that it did not have evidence that Busch was legally obligated to pay damages or had incurred liability imposed by law.

Busch sued National Union claiming breach of contract and vexatious refusal to pay.  The district court granted summary judgment to National Union, finding that without a “settled claim” or a “settlement or judgment arising from a lawsuit,” Busch was not legally obligated to pay damages by reason of liability imposed by law or under contract.

On appeal, the Court of Appeals held that Busch was, at a minimum, required to present a settlement agreement to trigger coverage.  If Busch acted to satisfy a preexisting contractual duty, then its remediation efforts did not spring from “liability imposed by law” but from a duty it voluntarily assumed.  Busch’s actions were consistent with its understanding that it had a preexisting legal obligation to remove the mold pursuant to its maintenance agreement.

The Court also affirmed the no coverage ruling on the basis of precedent holding that “liability assumed by the Insured under contract” refers to an indemnity agreement between a third party and the insured in which it assumes liability for damages.  In this case, Busch did not agree to assume the liability of another.  (We can’t argue with that conclusion.)

Busch recently filed a Petition for En Banc Rehearing or for Panel Rehearing, arguing that the panel failed to consider Busch’s argument that it was motivated by its tort-based duties to promptly remediate the mold damage.  The panel’s approach, to ignore the tort liability as a basis for coverage, was cited as creating a serious dilemma for policyholders.  “If the insured acts swiftly to ameliorate ongoing harm, without first securing the insurer’s coverage position (which took almost five years in this case), it risks assuming costs that will not be covered.  If it delays action, it risks both compounding the damage and confronting a failure-to-mitigate defense by the insurer.”