Publications

(Article from Insurance Law Alert, March 2016)

For more information, please visit the Insurance Law Alert Resource Center.

The Eighth Circuit ruled that a property manager was not legally obligated to remediate mold damage and was therefore not entitled to coverage under general liability policies.  Busch Props., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2016 WL 722950 (8^th Cir. Feb. 24, 2016).   

Busch Properties, Inc., a property manager and rental agent, discovered mold trapped in condominium walls, which arose from the use of vinyl wallpaper.  Busch notified unit owners of its intention to remediate.  Busch issued a consent form to each unit owner indicating that Busch would fund the mold abatement and repair, but was not admitting liability.  The consent form did not purport to release any claims that unit owners might have had against Busch.  Although no lawsuits were filed against Busch, Busch sought coverage for the remediation expenses from National Union, its liability insurer.  National Union denied coverage on the basis that Busch was not “legally obligated to pay by reason of liability imposed by law.”  A Missouri federal district court agreed and granted National Union’s summary judgment motion.  The Eighth Circuit affirmed.

The Eighth Circuit ruled that the policy phrase “legally obligated to pay by reason of liability imposed by law” (and the corresponding phrase “legally obligated to pay as damages for liability imposed upon the Insured by law,” as contained in another applicable policy) may be satisfied by either a court judgment, or alternatively, a claim and settlement agreement.  Because neither existed here, the court concluded that the policies did not provide coverage.  Busch had argued that notwithstanding the absence of a judgement or settlement, it “faced liability to unit owners and the associations for the damage it caused.”  Rejecting this argument, the court explained that even if Busch acted to satisfy a preexisting contractual duty, its remediation expenses “did not truly spring from ‘liability imposed by law’ but rather from a duty it voluntarily assumed.”  In addition, the court rejected Busch’s attempt to secure coverage under a policy provision for “damages for . . . liability assumed by the Insured under contract.”  The court concluded that this clause provides coverage for indemnity or hold harmless contracts, and not the consent or maintenance agreements at issue here.