The Minnesota Court of Appeals affirmed the trial court's decision finding no coverage due to exclusions from the all-risk policy for losses related to mold, rot and condensation. Koskovich v. Am Family Mut. Ins. Co., 2012 Minn. App. Unpub. LEXIS 581 (Minn. Ct. App. June 25, 2012).
In 1978, the insureds purchased a home that was built in 1904. From 1991 to 1995, they remodeled, which included rotating the house 45 degress, removing a wing and adding a new section. Polypropylene vapor barriers were installed, with pinholes for ventilation.
In 2008, water was observed on an interior floor. An investigation revealed that the sheathing under the siding and the house's framing were wet and rottten, requiring removal and replacement of the siding and studs. Repairs were made and a claim was submitted to American Family Mutual Insurance Company.
American's structural engineer inspected and determined that moisture was likely caused by condensation of water vapor where the vapor barrier was held tight to the sheathing and by inward water migration from wet siding during rainy periods through the vapor-barrier perforations. The structural engineer opined that, although the home's framing was deteriorated and structurally compromised, it did not appear as though the home was in imminent danger of collapse.
American denied coverage. The insureds sued. The trial court found in favor of American based upon exclusions for damage caused directly or indirectly by condensation, mold, wet or dry rot. The damage which was excluded under the policy was not separate from damage resulting from moisture. Accordingly, the ensuing loss provision did not provide coverage.
On appeal, the insureds argued that because their water-related damage did not result from one of the exclusions relied upon by American, but rather from the installation of the vapor barriers. Because damages flowed from a covered event, there was coverage.
The Court of Appeals first determined that the policy excluded losses resulting from the named exclusions, regardless of whether other causes contributed concurrently to those losses. Therefore, damage from mold, rot, insects, and deterioration was excluded, even if water damage caused or contributed to those damages.
The Court then turned to the ensuing loss provision, which stated, "we do cover any resulitng loss to property . . . not excluded or excepted in this policy." The insureds argued that the water damage was distinct from the excluded mold-and-rot related loss, and was therefore covered under the ensuing loss provision. The Court, however, disagreed. The water damage and resulting mold, rot, and deterioration did not operate as separable and distinct losses within the ensuing loss clause.
Finally, the policy covered threats of imminent collapse. American's engineering expert found that the home was not in danger of collapse, however, when the damage was discovered. Even the insureds' expert agreed that when a collapse might occur was "speculative."
