Insurance Law

The Goofiest Coverage Case I Have Ever Seen

Some coverage decisions, addressing certain issues, never cease to amaze me. In fact, the more I see them the more my amazement grows. Acuity v. Reed & Associates, No. 15-2149, 2015 U.S. Dist. LEXIS 109412 (W.D. Tenn. Aug. 19, 2015), [subscribers can access an enhanced version of this opinion: | Lexis Advance], is such a case. Get ready to be amazed.

Reed & Associates involves coverage under the following circumstances. The McKees filed suit against Reed & Associates seeking damages for injuries allegedly sustained on account of mold infestation of a house rented from Reed. The McKees asserted claims for certain statutory violations. Reed tendered its defense to Acuity, its insurer. Acuity agreed to defend under a reservation of rights and filed an action seeking a declaratory judgment that its policy did not provide coverage.

At the outset the court observed that the McKees alleged “bodily injury” as a result of the mold infestation. At issue was whether the policy’s “Fungi or Bacteria Exclusion” applied to exclude coverage

The exclusion is as follows:

“Bodily injury or property which would not have occurred, in whole or in part, but for the actual alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any fungi or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage.


This exclusion does not apply to any fungi or bacteria that are, are on, or are contained in, a good or product intended for bodily consumption.”

The court noted, and rightly so, that “[a]t first glance, the mold exclusion appears to do away with coverage for claims of bodily injury stemming from mold exposure.” Nonetheless, the court could not ignore “the ‘exception’ to the mold exclusion, which provides that the exclusion does not apply to preclude coverage for bodily injury suffered as a result of ‘any fungi or bacteria that are, are on, or are contained in, a good or product intended for bodily consumption.’”

The court pointed out that the underlying complaint alleged bodily injury as a result of a mold infestation affecting the water in the home and stated: “Other federal courts have construed the same language—‘fungi or bacteria that are, are on, or are contained in, a good or product intended for bodily consumption’—and held that water constitutes a ‘good’ or ‘product.’”

In particular, the Reed court cited to a decision holding that “water in a hotel hot tub from which a bather allegedly contracted Legionnaires’ disease was found to be ‘a good or product intended for bodily consumption’ under the same Consumption Exception at issue here. (citation omitted). . . . [B]athing water in a hotel hot tub is a good[.] The term ‘good’ plainly means ‘something that has economic utility or satisfies an economic want.’” Further “‘consumption’ is ‘the utilization of economic goods in the satisfaction of wants,’ and the claimant hotel guests consumed the good—water—when using the spa tub and shower. If water in a spa tub and a shower is considered a good intended for consumption, it follows that water in a rented house, some of which will be ingested by drinking and bathing, is intended for consumption.”

[Incidentally, the Legionnaire’s bacteria was first isolated in 1976 at the Bellevue-Stratford Hotel in Philadelphia. It’s an incredible and tragic story that’s worth reading about. The former Bellevue (now a Hyatt) is just down the street from my office and I eat lunch in the food court there fairly regularly. The original Bellevue-Stratford sign hangs on the wall. They seemed to have solved the problem.]

Relying on these decisions, the Reed court held that the exception to the mold exclusion -- fungi or bacteria contained in a good or product intended for bodily consumption -- applied to provide coverage.

Come on. Look, I have no problem admitting when an insurer loses a case that it should lose. My writing record over the years makes that crystal clear. But this Cirque du Soleil-like reasoning is ludicrous. There is no doubt that the exception in the mold exclusion, for fungi or bacteria contained in a good or product intended for bodily consumption, is meant to apply to food items, such as mushrooms.

The drafters of the mold exclusion have only themselves to blame for this result. The mold exclusion didn’t need a mushroom exception. No court would have applied the exclusion to a case involving bad mushrooms. And how often do bad mushroom cases actually arise? But, by adding such a provision, the exclusion created an opening that policyholders have been successfully walking through.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

Read more from this issue of Coverage Opinions.

For more information about LexisNexis products and solutions connect with us through our corporate site