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Click here for the full text of this decision FACTS:Javier and Eva Carrizales held a standardized insurance policy issued by State Farm. The policy was the Texas Standardized Homeowners Policy-Form B (Form B). They filed a claim with State Farm for damages resulting from a plumbing leak in their garage. Because the cost of repair was less than their deductible, State Farm did not pay any benefits. Plaintiffs then submitted additional claims. State Farm, after inspection and investigation, paid $107,724.30. For the next year and a half, the Carrizaleses lived in an apartment, for which State Farm paid an additional $60,154.52 in living expenses. The Carrizaleses undertook no significant repairs to the house during that vacancy, and the air conditioner and other utilities were turned off. After filing suit, plaintiffs submitted three mold remediation claims, totaling more than $200,000, which were denied. The Carrizaleses sued State Farm for alleged violations of the Texas Insurance Code, breach of the insurance contract, and breach of the duty of good faith and fair dealing. State Farm removed to federal court. The case was handled at one time or another by four district judges, including Judge Hinojosa, who granted in part and denied in part State Farm’s motion for summary judgment, concluding that Form B excluded coverage for mold damage to the dwelling. Hinojosa also granted summary judgment on the Carrizaleses’ common law and statutory good faith claims. The case proceeded to trial, shepherded by Judge Hudspeth. Based on Hinojosa’s summary judgment ruling, Hudspeth excluded evidence of mold damage. At the close of evidence, the court formulated the jury charge so as to require mitigation of damages on the part of plaintiffs as a condition precedent to State Farm’s liability. The jury found for State Farm. The Carrizaleses challenged Hinojosa’s grant of summary judgment and Hudspeth’s determination that the law of the case precluded reconsideration of the mold issue. HOLDING:Affirmed in part, reversed and remanded in part. Because the Texas Supreme Court has not addressed whether Form B covers mold damage that results from plumbing leaks, the court made an “Erie guess” as to how the state supreme court would decide the issue. The primary issue, the court stated, involved the interaction of two provisions in Form B: the mold exclusion and the exclusion repeal provision. Because the interaction of the two provisions created no ambiguity, the court held that mold is not covered under Form B. Form B, the court stated, divides coverage into two discrete subdivisions, A and B. Coverage A covers all risks to the dwelling unless specifically excluded by �I-Exclusions. Coverage B insures personal property against certain, enumerated perils, including, in subsection nine, damage from plumbing leaks. Subheading 1 of �I lists 11 exclusions, of which only the first eight are referenced in the exclusion repeal provision; mold is one of those exclusions. The dispositive issue, then, is whether Coverage B’s exclusion repeal provision also repeals �I with respect to Coverage A. Water must be present for mold to grow, the court stated. To decide that Form B covers mold damage resulting from discharge, leakage or overflow from plumbing would eviscerate the mold exclusion entirely. The Carrizaleses next contended that the jury instruction incorrectly required them to mitigate damages as a condition precedent to recovery. Contrary to State Farm’s position, a holding that an insured’s duty to mitigate is an affirmative defense to recovery under a homeowners insurance policy would be inconsistent with Texas decisions that only bar recovery for noncompliance with certain policy conditions (e.g., the duty to give timely notice) if the insurer is prejudiced. Barring all recovery for failure to mitigate, the court stated, is an onerous consequence not in keeping with the rule that ambiguous policy provisions are construed in favor of the insured. Thus, the court concluded that the failure to mitigate damages is an offset to recovery under the generic homeowners policy. Accordingly, the court held that the district court erred and abused its discretion when it instructed the jury that mitigation was a condition precedent to recovery. OPINION:Jones, C.J., and Reavley and Smith, JJ. CONCURRENCE:“I concur in the judgment and agree with the holding that mold damage to the Carrizales’ dwelling caused by plumbing leaks is not covered under Form B of the Texas Standardized Homeowners Policy issued by State Farm. I write in the hope that it will be useful to review the Texas law on mold damage under the current policy language. . . . “This case involves a standard form policy mandated by the Texas Insurance Commissioner. . . . If state regulators want to require the exclusion repeal provision to reinstate mold coverage for damage to a dwelling under Coverage A they could do so by simply amending the form to read,”Exclusions 1.a through 1.h under Section I Exclusions do not apply to loss to the dwelling or personal property caused by this peril.’ As currently drafted, the exclusion repeal provision with respect to mold applies only to personal property.” DISSENT:“I would affirm the judgment. I concur in the majority opinion in regard to the coverage issue, but I respectfully dissent from part III.B, regarding the duty to protect property, because the majority finds ambiguity in the contract where there is none; it misinterprets Texas caselaw and policy; and it misapplies the abuse of discretion standard.”

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