The U.S. District Court for the Northern District of Illinois has ruled in favor of a BatesCarey LLP client in a coverage dispute, holding that a mold exclusion in a general liability coverage part of a package policy unambiguously excluded coverage for bodily injuries allegedly sustained by tenants who leased an apartment from the insured.

The coverage action arose from a dispute between tenants and their apartment building’s management company.  After the tenants placed the management company on notice of bodily injuries allegedly caused by mold in the tenants’ apartment, the management company sent notice to its insurer.  The insurer’s TPA responded to the insured that the mold exclusion excluded coverage for the claim.  After the tenants sued the insured in Illinois state court, the insured tendered its defense to the insurer. 

The insured subsequently filed a declaratory judgment action against its insurer in Illinois state court.  Although the insured named the tenants in the state court action in an attempt to defeat diversity jurisdiction, the federal district court agreed with the insurer’s argument that the tenants were fraudulently joined and should be ignored for diversity purposes, and allowed removal to federal court.

The insured argued to the district court that its insurer should be estopped from asserting the mold exclusion as a coverage defense since it did not respond to the insured’s tender before the filing of the coverage action, and that a virus exclusion in the property section of the policy superseded the mold exclusion in the liability section of the policy and/or rendered the policy ambiguous.  The district court rejected the insured’s arguments, and granted summary judgment in favor of the insurer, finding that the policy’s mold exclusion was clear and unambiguous and excluded coverage for the claim, which in turn precluded any duty to defend the insured.

Robert J. Bates, Jr. and Stanley V. Figura defended the insurer.