In Busch Properties, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA., No. 14–3688, 2016 WL 722950 (8th Cir. 2016), the 8th U.S. Circuit Court of Appeals held that: (1) under Missouri law, the insured’s legal obligation to remediate mold was not “liability imposed by law,” and thus remediation expenditures were not within commercial general liability (CGL) policies’ coverage; and (2) the insured’s remediation expenditures were not covered under a CGL policy as a sum that the insured was “legally obligated to pay as damages for…liability assumed by the Insured under contract.”
Busch Properties, Inc (Busch) sued its insurer, National Union Fire Insurance Company (National Union) after National Union denied coverage for Busch’s expenditures to remediate mold in a condominium complex that it managed. National Union argued that no coverage existed because Busch was not legally obligated to make the repairs. Essentially, National Union argued that Busch contracted to manage the property, discovered mold on the property and voluntarily repaired the property without being sued. Although Busch had unit owners sign a consent form prior to remediation, National Union noted that Busch admitted no liability for the mold and was not required to proceed with the remediation if it chose not to.
The District Court agreed with National Union, stating “[w]ithout a settled claim or a settlement or judgment arising from a lawsuit, [Busch] cannot show it was ‘legally obligated to pay by reason of liability imposed by.’”
Busch appealed, arguing that “coverage existed because it undertook remediation efforts based upon its existing obligations sounding in contract and tort” and “[t]he fact that these obligations were not reduced to a settlement agreement or judgment rendered them no less obligatory or enforceable.” Moreover, Busch stated it had an independent contractual obligation to maintain the complex’s common areas, and when Busch’s employees discovered mold, Busch “was legally required to fulfill its maintenance obligations or otherwise face liability for breach.” Additionally, Busch believed it assumed liability in its consent agreement with the individual unit owners.
On appeal, the 8th Circuit disagreed, holding that because Busch voluntarily entered into two contractual agreements that obligated it to maintain the complex, it had a preexisting obligation to remediate the mold, and preexisting obligations are not considered “liability imposed by law.” Furthermore, the court held that Busch’s policy provided coverage for an indemnification or hold harmless agreement; not a contractual agreement such as the consent agreement signed by the unit owners.
This is a good result for insurers under Missouri law; however, insurers should be aware of the dramatically different holdings among the various state jurisdictions analyzing the “liability imposed by law,” and “liability assumed by the Insured under contract” policy language.