SAN FRANCISCO – A trial date has been set for the end of January in an insurance coverage case to determine who is responsible for water and mold damage sustained in a condominium.

Saarman Construction Ltd. was hired by a homeowners association to complete repairs on the exterior of a condominium complex that has sustained water damage not long after the structure had been built.

Approximately four years later, a tenant who discovered mold in her unit sued the homeowners association and the unit’s owners, seeking damages for water intrusion, plumbing leaks and mold. 

The owners of the unit filed a cross-complaint against Saarman, alleging that the company was negligent in repairing the building and that its actions resulted in the water damage to the unit that led to the growth of mold. The homeowners association filed a similar claim against Saarman, which it settled both claims for $65,000.

Saarman’s commercial general liability insurer, Ironshore Specialty Insurance Co., refused to defend or indemnify Saarman in the litigation. Ironshore relied on the insurance policy’s mold and continuous damage exclusions.

A federal court in California ruled that the commercial general liability insurer breached its obligation to defend Saarman in the suit. The court ruled that the insurer could not utilize the insurance policy’s continuous damage or mold exclusion, because the water damage claim was potentially covered and would have existed without any allegations of mold.

The court also declared that while Saarman finished the repair work before the policy’s start date, evidence brought to light indicated that some of the water damage first occurred during Ironshore's policy's active period.

Attorney Samuel Fayette Barnum represents Saarman and said there will be a pretrial conference in early January as the case moves forward in U.S. District Court for the Northern District of California.

“There were dispositive cross-motions for summary judgment and summary judication, which the judge issued rulings on, and the judge ruled that the insurer did have a duty to defend Saarman, which is one of the major issues of the case,” Barnum told the Northern California Record.

Other issues remain to be determined at trial, Barnum said.

“The damages we are seeking to recover are the attorneys' fees and litigation costs incurred by Saarman in defending itself and we also seek to recover the amount of Saarman’s settlement contribution to settle the unit owner’s cross-complaint,” Barnum said.

Barnum said Saarman is seeking additional attorneys' fees on the grounds that Ironshore acted in bad faith when it refused to defend the company.

“We are also seeking attorneys' fees incurred by Saarman in the lawsuit against Ironshore to obtain the benefits of the policy,” he said. 

The mold exclusion allegedly barred coverage for any lawsuit or claim for bodily injury or property damage stemming from any existence of mold. However, the court ruled that the extent to which Ironshore relied on the mold exclusion to avoid defending the plaintiff actually contradicted state law and therefore was unenforceable. 

Ironshore claimed that the continuous damage exclusion barred coverage because Saarman completed the repair work before the policy’s inception date, but the court said that exclusion also was unenforceable because it was “ambiguous” as to what triggered coverage for the continuous damage that stemmed from Saarman’s repair work. 

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