Baseballer's mold lawsuit is a lesson in insurance burden-shifting
Former MLB pitcher Clay Buchholz's purchase of a rider to cover the all-risk policy's mold exclusion doesn't cover the infestation that destroyed his mansion.
Former Major League Baseball pitcher Clay Buchholz’s purchase of a rider to cover the all-risks policy’s mold exclusion doesn’t cover the infestation that destroyed his mansion.
A federal appeals court opinion found errors with how a federal magistrate reached a conclusion favoring the insurer.
Buchholz, a former all-star who played most of his career with the Boston Red Sox, filed suit in 2020, along with his wife, Lindsay Buchholz, a former “Deal or No Deal” briefcase model.
The Buchholzes purchased $1.6 million in mold damage insurance coverage for their Austin mansion, but within three years had to leave the home because a global mold infestation was causing them and their children serious illness, according to court documents.
Crestbrook Insurance Co., a subsidiary of Nationwide, paid $745,778 to cover five claims related to five rooms in the mansion, but then instructed that a forensic inspection be done before it would consider a sixth claim for “general mold growth” and mold in the HVAC system.
Despite the Buchholzes paying extra to cover a mold exception in their policy, Crestbrook denied the sixth claim, stating the forensics report found the cause of loss was attributed to faulty workmanship and construction—issues that were excluded, court documents show.
During oral argument held Feb. 6, plaintiffs’ counsel Austin Krist of Cleveland Krist said the Buchholzes hired their own forensics expert, and that the two experts’ reports conflicted about cause of loss.
Circuit Judge Edith B. Clement, who wrote the opinion released this week, asked Krist why the insurance company paid any of the claims. Krist said Crestbrook considered the mold in those rooms “localized” damage as a result of leaks.
The Buchholzes argued the magistrate judge improperly required they demonstrate a discrete cause of covered loss within the framework of an all-risks insurance policy.
Crestbrook argued that if the Buchholzes could show the damages fell within the mold coverage’s terms, the insurer would pay.
“This seems logical as far as it goes,” the opinion states. “But Crestbrook glosses over an important step (as does the report and recommendation). If we accept the insurer’s argument that the mold coverage provision is separate from the rest of this all-risks policy, what is a ‘covered cause of loss?’”
It is reasonable for the Buchholzes to suggest that, in the absence of other contractual language, the underlying policy’s coverage should be considered a ‘covered cause of loss’ under the mold coverage, the opinion said.
Crestbrook did not provide a definition. Instead, it argued that even if the magistrate’s report and recommendation skipped some analytical steps, the results are the same.
“We reject Crestbrook’s invitation to follow the report and recommendation’s lead and abridge the framework required by the Supreme Court of Texas. Simply put, the report and recommendation erred in its application of the Texas insurance dispute burden-shifting scheme. The mold coverage provision does not define ‘covered cause of loss,’ rendering the term open to more than one reasonable interpretation.
“It is an ambiguous contractual term,” the opinion concludes.
The Fifth Circuit accepted the Buchholz family’s definition: “We should read ‘covered cause of loss’ to mean ‘any cause of loss resulting in accidental direct physical loss, except such causes as are excluded under the policy.’ we agree with the Buchholzes that the district court made an error by finding mold damage is not a direct physical loss.”
The Fifth Circuit cited two more errors. The recommendation misapplied “covered cause of loss” by concluding the district court should enter summary judgment without first analyzing the exclusions and exceptions to the exclusions found in the policy; and the report and recommendation should have concluded the Buchholzes suffered a direct physical loss covered by the terms of their insurance contract.
The magistrate judge then needed to complete the Texas burden-shifting analysis by engaging with the parties’ arguments regarding exclusions and exceptions to the exclusions, the opinion said.
Despite all the errors in the lower court’s report and recommendation, rather than remand the case—which was a possibility raised during oral argument—the Fifth Circuit agreed with the trial court’s judgment.
Crestbrook contends the mold coverage did not act as an exception to the “biological deterioration and damage” exclusion caused the the faulty design and workmanship that allowed water to build up throughout the structure, thus creating a hospitable environment for fungal growth.
“To classify water intrusion as the covered peril underlying a generalized mold claim, the Buchholzes needed to identify ‘something more substantial than’ excess water within their walls,” the court said. “Ruling to the contrary would cause the mold coverage to completely nullify the mold exclusion, an outcome Texas law instructs us to avoid.”