By Janet Elliott, Houston Chronicle Knight Ridder/Tribune Business News
Dec. 20--AUSTIN, Texas--The $32 million verdict that put mold on the map was drastically reduced Thursday by a state appellate court.
Insurance trade groups praised the decision, saying it could bring sanity to the mold debate and the homeowners insurance crisis precipitated by an explosion of mold claims.
'Many believe this case and all of its exposure resulted in our state's deluge of mold claims,' said Mark Hanna, a spokesman for the Insurance Council of Texas. 'If that was the beginning, hopefully today's court decision will signal the end of what has been a catastrophic period of time for the homeowner insurance market in Texas.'
Austin's 3rd Court of Appeals threw out $5 million in mental anguish damages that had been awarded to Dripping Springs homeowner Melinda Ballard, $12 million in punitive damages and nearly $9 million in attorneys' fees. The court said the fees should be recalculated in light of the reduced award.
The court upheld $4 million in actual damages, finding that Fire Insurance Exchange, a Farmers Insurance affiliate, delayed handling Ballard's mold claims, causing the problems to drastically worsen. The court said there was sufficient evidence that Farmers acted in bad faith and violated the Insurance Code and Deceptive Trade Practices Act.
But the court said there wasn't evidence to uphold a Travis County jury's finding that Farmers committed fraud or intended to harm Ballard and her family.
The case began as a single claim for water damage to a hardwood floor and evolved to include mold contamination of the entire 22-room mansion and outbuildings.
Fred Hagans, a Houston lawyer who represented Ballard, said an appeal to the Texas Supreme Court is likely. If the 3rd Court ruling stands, Ballard would collect about $8 million, including prejudgment and post-judgment interest and attorney fees.
Ballard, who parlayed her battle with Farmers into a nationwide crusade for policyholders, said she's not going away.
'With me, it's never been about the money. It's been about justice,' said Ballard, who grew up in an affluent Houston family. 'I don't want this to be the precedent set in the state of Texas.'
Ballard said she will 'happily take credit for educating homeowners to better deal with water damage claims' but denied that her case started any crisis.
'Most Texans are smart enough not to have bought into the insurance companies' line that their increased rates are my fault,' said Ballard.
Justin Schmitt, a spokesman for Allstate, said after Ballard's verdict was announced in June 2001, the company began getting about 250 mold claims a month. That's how many Allstate received in all of 2000.
'Prior to this verdict, mold was never a covered peril,' said Schmitt. 'The impact of this case reverberated throughout the industry.'
In the past year, homeowners have had to pay more -- in some cases, much more -- to get insurance. Some companies are not writing policies for new customers, and most homeowners no longer can get the broad water damage coverage that 95 percent of homeowners had before the crisis.
In less than four years, mold losses have topped the $3 billion mark in Texas, according to data from the Texas Department of Insurance.
Consumer groups have accused the insurance industry of using mold claims to increase profits and recover losses from securities investments.
Farmers, the second-largest writer of homeowners' policies in Texas, recently settled a dispute with the state over allegations it illegally priced some policies. As a result, Farmers agreed to reduce its rates by 6.8 percent.
Company officials praised the ruling as a step in the right direction.
'We are heartened that the court found we did not act fraudulently,' said John Hageman, head of Farmers' Texas operations.
But Michelle Levy, a spokeswoman for Farmers, said the court's decision isn't likely to result in rate reductions since Farmers had never paid out any money to Ballard.
The 3rd Court also affirmed the trial judge's decision not to allow Ballard's husband, Ronald Allison, to present evidence that he suffered serious health problems from exposure to the mold.
Joe Knight, a Baker Botts lawyer who represented Farmers during the appeal, said that ruling may stem a wave of mold litigation.
'If mold cases are going to be big cases, plaintiffs need to assert personal injuries,' said Knight. 'If Mr. Allison couldn't get to the jury on that claim, then no plaintiff can get to the jury on that claim.'
The Texas Medical Association earlier this year released a report concluding it found no evidence in medical literature that mold is toxic and can cause severe health problems.
Ballard bought the 7,400-square-foot, Southern-style mansion in 1990 for $275,000 at a foreclosure sale. Her water damage claims began in late 1998 with a few plumbing leaks.
Problems continued, causing expensive hardwood floors to buckle and mold to grow. Farmers fixed some of the problems.
In April 1999, an indoor air quality consultant Ballard had met on a plane flight took air samples and advised her to immediately move. Ballard, Allison and their young son fled the house, leaving behind their belongings.
At that time, the house was insured for $750,000 and the contents for $450,000. Ballard sued Farmers in May 1999.
Farmers estimated it would cost $382,000 to remediate the mold and repair the house and contents. Ballard's consultants said it would cost $1 million.
Ballard's million-dollar dream home now sits abandoned, visited only occasionally by Ballard and reporters clad in hazard suits. She lives in a rented house in Austin.
Hagans said when Ballard finally gets paid by Farmers, she plans to tear down the house and rebuild.
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(c) 2002, Houston Chronicle. Distributed by Knight Ridder/Tribune Business News.