In Busch Properties, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, No. 4:12CV2318-SNLJ, 2014 WL 5564580 (E.D. Mo. Oct. 31 2014), a federal district court, applying Missouri law, granted summary judgment for a general liability insurer because the policyholder had no legal obligation to pay for mold remediation.  

The insurer issued two umbrella liability insurance policies, each providing more than $20 million in coverage for damages the policy holder became “legally obligated” to pay due to liability imposed by law or assumed under contract.  Id. at *3-*4.  The policyholder, a property manager, paid more than $11 million to remediate mold found at a condominium complex it managed.  Id. at *1.  None of the condominium owners made a formal claim against the policyholder or filed lawsuits in connection with the mold.  Id. at *3.  Rather, the remediation was done pursuant to a consent agreement between the policyholder and the condominium owners.  Id.  Although the consent authorized the policyholder to remediate the mold, it did not require the policyholder to “proceed with the remediation project.”  Id.  The policyholder did not admit liability and the condominium owners did not release the policyholder from any potential liability.  Id

The policyholder argued that because it faced “potential liability,” it was “legally obligated” to pay for the remediation.  Id. at *4.  The court disagreed, holding that for the insured to be “legally obligated,” the payments had to be made pursuant to a judgment or settlement agreement.  Id. at *5-*6.  After conducting a survey of existing law on the “legally obligated” requirement, id. at *4, the court found that even “courts with the broadest view of ‘legally obligated to pay as damages’ require the insured to show potential liability and a reasonable, good faith settlement agreement.”  Id. at *5.  The only recognized exception exists when payment is required by statute, such as mandatory payments into state environmental clean-up funds.  Id.

The court reasoned that “[r]equiring a settled claim … serves the purpose of providing the insurer with an opportunity to investigate and weigh in on the claim and protect the insurer’s interest as established by the insurance policy.”  Id.  In the instant case, there was never any formal claim or lawsuit against the policyholder, and the policyholder did not enter into a settlement agreement with the owners or obtain a release.  Id. at *6.  Accordingly, the court held that the insured was not “legally obligated” to pay for the mold remediation.  Id.  The court also held that the insured did not assume any liability that would trigger the policy’s coverage for “liability assumed by the Insured by contract,” because the consent agreement did not require the policyholder to remediate the mold and the policyholder did not admit any liability.  Id. at *6.

Finally, the court rejected the policyholder’s argument that the insurer was equitably estopped from relying on the “legally obligated” requirement.  The policyholder based this argument on the facts that the insurer allowed the policyholder to proceed with the remediation without advising the policyholder that it would not pay for the remediation costs.  Id. at *6-7.  The court noted that the policyholder decided to remediate the condominium units before notifying the insurer of the damage, and there was no evidence that the remediation plan was “contingent on [the insurer] providing coverage for the costs.”  Id. at *7.  Further, there was no evidence that the policyholder “relied on [the insurer’s] silence in continuing to remediate the units.”  Id.

This case is significant because it clarifies the circumstances under which a policyholder is “legally obligated” to make payments for purposes of general liability insurance, and presents a useful survey of relevant law on this issue.