$33 Million Mold Judgment Was Primarily A Bad Faith Insurance Claim
April 23, 2003
Summary of Allison v. Fire
Insurance Exchange
To those familiar with the current mold crisis, one of the
key court decisions cited as the catalyst for the explosion of mold litigation
has been the “Ballard” case from Texas (Allison v. Fire Insurance Exchange,
98 S.W. 3d 227 (Tex. App. 2002)). Touted as the $33 million mold case in
headlines and on television, the jury verdict and judgment has caused
consternation in the insurance industry, spawned legislation in various states
and the United States Congress as well as, and launched state departments of
insurance investigations and hearings.1
Naturally, the plaintiff’s bar saw this case as creating gold in mold and
began filing thousands of personal injury lawsuits relating to alleged mold
injury.
The verdict and subsequent $33 million judgment were
appealed to the Texas Court of Appeals and on December 19, 2002, the appellate
court gutted the trial court decision and cast doubt upon the verdict itself.
The appellate court reversed the awards for mental anguish ($5,000,000) and
punitive damages ($12,000,000), and remanded the attorneys fee award
($9,000,000) for redetermination. The appellate court only affirmed the award
for actual damages, ($4,000,000). The court questioned the award for actual
damages, “were we the trier of fact in this case, we may not have been persuaded
that [the insurance company] did not breach its duty of good faith and fair
dealing toward Ballard. That determination, however, is not ours to make.”
In 1990 the Ballards purchased a 7,400 square foot home in
Dripping Springs, Texas. Beginning in 1996 and continuing through 1998, they
suffered a series of plumbing leaks that damaged flooring. Their homeowner’s
insurance paid for some repairs, but the Ballards alleged that the insurance
company did not timely investigate nor adequately respond to the water
problems. This delay caused mold to grow. The Ballards alleged that the delays
and other actions by the insurance company were fraudulent and unconscionable
under Texas law. Due to the failure to remediate the mold, the Ballards’
alleged that they suffered severe health problems they attributed to the mold.
Testing revealed extensive mold contamination in the water-damaged areas. The
Ballards moved out of the house in April 1999 and filed a lawsuit against their
insurance company for actual damages (repair and remediation costs), mental
anguish and health-related damages (Ballard’s husband, Ronald Allison, was
diagnosed with toxic encephalopathy), a claim under the Texas Deceptive Trade
Practices Act, and “bad faith” under the Texas Insurance Code.
At trial, the Ballards’ offered evidence of the link
between mold and their health effects through the testimony of two experts, Dr.
Eckardt Johanning and Wayne Gordon, Ph.D, who testified that exposure to mold
caused Allison’s condition. Under Texas law, the trial court must act as the
gatekeeper to assess the reliability of scientific evidence. The factors the
court must consider are: the extent to which the theory has been or can be
tested; the extent to which the technique relies upon the subjective
interpretation of the expert; whether the theory has been subjected to peer
review or publication; the technique’s potential rate of error; whether the
underlying theory or technique has been generally accepted as valid by the
relevant community; and the non-judicial uses which have been made of the theory
or technique. E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W. 2d 549
(Tex. 1995), (Texas applies a Daubert style analysis for the admission of
scientific evidence, Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579
(1993)).
In Ballard, the evidence supporting the experts’
testimony was a study by both doctors of 20 people who were exposed to mold in a
building. Yet, at his deposition, Dr. Gordon testified that it was premature to
calculate risk factors and he could not testify that the techniques used were
generally accepted in the relevant scientific community. The trial court held,
and the appellate court agreed, that the medical evidence must meet the burden
of proof of both general causation and specific causation. General causation is
a showing that a substance can cause a particular condition in the general
public or by showing that exposure to the substance increases the risk of a
particular injury. Specific causation is whether the substance caused that
particular individual’s injuries. The trial court found and the appellate court
agreed that the testimony was unreliable under the criteria set out in
Robinson and was inadmissible. Allison, 98 S.W. 3d at 227.
The trial proceeded without the direct medical evidence
about Allison’s medical problems, although the trial court did allow admission
of evidence that mycotoxins from mold can cause serious personal injury because
of its relevance to Ballard’s mental anguish claim arising from fear of
potential health concerns for her family. The appellate court affirmed the
admission of mold evidence for that issue.
The jury found that the insurance company breached its duty
of good faith and fair dealing and awarded $4M in actual damages to repair and
remediate the home. The jury also found that the insurance company engaged in
deceptive trade practices, unconscionable and fraudulent conduct in violation
of the DTPA, and determined that the insurance company committed a knowing
violation of the Texas Insurance Code, Section 17.45(9) and awarded $5,000,000
in mental anguish damages and $12,000,000 in punitive damages. The jury also
awarded $9,000,000 in attorney’s fees.
As noted above, on appeal the appellate court disagreed
that the insurance company acted knowingly or violated the DTPA and reversed the
award of mental anguish and punitive damages. The court affirmed only the award
of $4,000,000 in actual damages and remanded for redetermination of attorney’s
fees in light of the reversal of other damages.
The media hype about the Ballard case was always
overstated. The $33 million judgment was not based on a direct link between
mold and claimed health effects, the judgment was primarily a bad-faith claim
that did not withstand appellate scrutiny. The appellate court decision further
weakens Ballard’s value as a mold case by affirming the exclusion of the
mold/health link as insufficiently established in the scientific/medical
community to withstand the causation standard necessary for personal injury due
to mold lawsuits. Interestingly, the appellate court did affirm the admission
of mold/health evidence to support the mental anguish claim even though it
reversed the award for mental anguish damages.
For more information, contact Gregory J. Johansen, toll
free, at 1-888-688-8500.
[1] Melinda Ballard, co-plaintiff with her husband,
Ronald Allison, founded Policyholders of America and testified before Congress
on mold and insurance issues in July 2002.