BatesCarey's Adam Fleischer, John Husmann and Joanna Swartout recently obtained summary judgment for Rockhill Insurance Company in the District Court of Nevada where another insurer had sued Rockhill for not appropriately settling a mold remediation claim, and sought over $3 million in bad faith damages.   The court found that: 1) the mold exclusion in the general liability coverage applied to the claim; 2) therefore, the $1m of general liability coverage never applied (and only the eroding pollution limit applied), and CSAA’s demand to settle for $999,999 was not a demand that was within the applicable remaining limits at the time it was made; 3) because there was never a demand within the limits, there can be no bad faith under Nevada law, and 4) because Rockhill’s settlement offers followed the advice of their defense counsel, Rockhill was not in bad faith under Nevada law.   

After a burst pipe at a residence, the homeowners looked to their insurer, CSAA Insurance Exchange to fix the damage and prevent mold growth.  Rockhill’s Insured, Premier Restoration, was one of CSAA’s preferred vendors, and completed the work. Premier allegedly over sprayed mold killer in the home, causing a bad odor, which CSAA claimed required it to demolish and re-build the entire home.  CSAA expended over $2M on the rebuild, along with another $1M in interest and attorney fees that CSAA then sued Premier to collect. 

Rockhill defended Premier under a pollution coverage form with a $1M eroding limit.  Rockhill also issued Premier a different coverage part, CGL coverage, which Rockhill believed did not apply because it contained a mold exclusion.  

Early in the subrogation action CSAA made a settlement demand of $999,999, against Premier, which Rockhill rejected on behalf of Premier.  This rejection was in keeping with defense counsel’s analysis, and the demand was more than the remaining pollution limits at the time.   As the underlying case went to trial, Rockhill offered its remaining limits of approximately $700,000, which CSAA rejected.   After the underlying trial resulted in a multi-million dollar award against Premier, Rockhill then paid CSAA the remaining limits of approximately $550,000.  CSAA accepted the remaining limits, but continued to litigate to collect an additional $2.5 million from Rockhill based upon Rockhill’s alleged bad faith claim handling. 

In the recent opinion, the court agreed with Rockhill on the application of Nevada law instead of California law, on the applicability of the mold exclusion in the CGL coverage part, and that Rockhill did not act in bad faith because there was never a settlement demand within limits and because Rockhill reasonably relied on the advice of defense counsel.