The Eighth Circuit Court of Appeals handed down a case earlier this year that has got to leave some people wondering if it pays to do the right thing. In Busch Properties, Inc. v. Nat’l Union Fire Insurance Co., Busch Properties, 815 F.3d 1123 (8th Cir. 2016), Busch was the property manager for a condominium association in Virginia. Busch was responsible for the upkeep of the complex. During a renovation project, Busch noticed that the type of wallpaper chosen in the units had allowed black mold to develop behind it. As Busch was performing other renovations, it seemed logical to address that problem at the same time. Busch contacted the owners to get consent to allow Busch to make remediation. The owners signed a consent form, not a release; and Busch admitted no liability.
Busch contacted its insurer, National Union, for reimbursement of the cost of the abatement. Coverage was denied as language in the insurance policy had limited coverage to amounts Busch was “legally-required” to pay. Agreeing with National Union, the District Court observed that to find coverage, Busch would have had to produce a settlement agreement or court judgment requiring the expenditure. Id. at 1126. Busch appealed, contending that the policy did not require either as a predicate to coverage. Id.
Without citing a specific provision of the agreement, the Eighth Circuit held that Busch’s obligation to remove the mold arose from its management contract and not a separate legal obligation, such as a damage award in a tort action. Id. at 1128. The court further noted that work was done pursuant to a consent form, not a release or a compromise agreement. Therefore, the insurer correctly denied coverage.
Certainly insurance policies do not exist to cover everyday contract obligations. But, if the management agreement did not specifically hold Busch liable for mold, the opinion leaves one wondering whether Busch would have been better off ignoring the problem and waiting for owners to threaten legal action.
Knowing what it does now, when renegotiating its management contract, Busch will likely eliminate several types of property damage from its “covered services” list. Then, next time an expensive repair presents itself, they can wait for litigation to be threatened before making repairs.