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A Texas 3rd Court of Appeals decision that slashes damages awarded to the owner of a mold-ravaged home from $32 million to $4 million could stem the tide of such cases against insurers, says a spokesman for an insurance trade association. “Certainly, it will take out the monetary carrot hanging out there for people to file these suits,” Joe Woods, assistant vice president of government affairs for the Alliance of American Insurers, says of the Austin court of appeals Dec. 19 ruling in Ronald Allison/Fire Insurance Exchange v. FIE/Mary Melinda Ballard and Ronald Allison. Although the Ballard case dealt with bad faith more than mold damages, the large award put the spotlight on mold issues nationwide and prompted the filing of many more cases, says Woods, whose association represents approximately 320 property and casualty insurers nationwide. Charles Silver, a University of Texas School of Law professor who teaches tort law, says the 3rd Court of Appeals’ decision to cut the award was to be expected. “Trial judges and appellate judges routinely reduce non-economic damages,” Silver says. “I think there’s a risk, if it’s appealed to the Texas Supreme Court, that it will be cut even further.” Ballard filed the suit in May 1999, alleging that FIE, a subsidiary of Farmers Group Inc., mishandled her claims stemming from water leaks in her home discovered in 1998. According to the 3rd Court of Appeals’ opinion, the approximately 7,400-square-foot house and several outbuildings were purchased in a foreclosure sale for $275,000 in 1990. Neither the plaintiffs nor the defendant could claim a complete victory in the 3rd Court of Appeals’ decision, and the case is expected to go to the Texas Supreme Court. Fred Hagans, president and principal shareholder in Houston’s Hagans, Bobb & Burdine and lead attorney for Ballard and Allison, says he’s disappointed that the court would “second-guess the jury” on damages. But Hagans says his disappointment is “tempered with gratitude” that the court affirmed substantial actual damages. The three-judge appellate panel found insufficient evidence to support the jury’s finding of unconscionability on FIE’s part and that there was no evidence that the insurer knowingly breached its duty of good faith and fair dealing toward Ballard. Because the appeals court found no knowing violation, it struck the punitive and mental anguish damages totaling $17 million awarded by the jury. The 3rd Court of Appeals also affirmed 250th District Judge John Dietz’s pretrial exclusion of evidence of the personal injuries alleged by Allison, Ballard’s husband. Allison claimed in a brief that exposure to mold — including a toxic type called stachybotrys — in Ballard’s Dripping Springs home caused him to suffer brain damage, termed “toxic encephalopathy.” However, the 3rd Court of Appeals found sufficient evidence to uphold the jury’s findings of a Deceptive Trade Practices Act violation and that FIE breached its duty to act in good faith and deal fairly with Ballard after she submitted claims for mold damage to her house. The appeals court affirmed slightly more than $4 in actual damages, which includes approximately $2 million FIE already had paid Ballard. “There is some evidence from which a jury could find that FIE failed to attempt in good faith to effectuate prompt, fair and equitable settlement of claims after its liability had become reasonably clear,” Justice Jan Patterson said in the opinion in which she was joined by Chief Justice Marilyn Aboussie and Justice David Puryear. The court also upheld Dietz’s decision to deny FIE’s motion to transfer venue to Hays County, where the Ballard home is located. If the ruling on venue had gone the other way, the case would have to be retried. Because of its significant reduction in the jury’s damages awards, the appeals court remanded the issue of attorney fees to the trial court for a recalculation. The original award had included $8.9 million in attorneys’ fees, the opinion said. FIE attorney Joseph Knight, a Baker Botts partner in Austin, says the most important point in the 3rd Court of Appeals decision from his perspective is its affirmation of Dietz’s ruling that excluded the testimony of Allison’s causation expert witnesses. The opinion said that Dr. Wayne Gordon and Dr. Eckartdt Johanning — two leading experts in the study of the health effects of molds mycotoxins, toxic substances produced by mold — agreed that exposure to mold caused Allison’s toxic encephalopathy. But Dietz found that a study done by Gordon and Johanning of 20 people who were exposed to mold in a building — their foundational data to prove general causation — was unreliable according to the factors in Merrell Dow Pharmaceuticals Inc. v. Havner, a 1997 decision by the Texas Supreme Court. The Texas Supreme Court ruled in Havner that if an expert relies on unreliable foundational data, any opinion drawn from the data is also unreliable. According to the 3rd Court of Appeals’ opinion, Gordon testified in his deposition that calculation of a confidence interval for the results of the study and a calculation of the risk factor were “premature.” Gordon also was unable to say whether the techniques used in the study were generally accepted, the opinion said. “I believe if [Allison] couldn’t make it to the jury, nobody is going to make it to the jury” with a claim of personal injury due to mold exposure, Knight says. Hagans says the ruling on Allison’s personal injury claims will be appealed. It’s highly probable that other parts of the 3rd Court of Appeals’ decision will be appealed, he says.

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