In Texas, when you have a mold problem you get an inspection, then a remediation. If you find yourself fighting with your insurance company, you may need a lawyer. I have come across several cases in the last few weeks where property owners had mold issues stemming from hailstorms and windstorms that caused leaks. Their insurance companies took so long to pay the claims that the leaks grew into mold problems.

In Arlington Home v. Peak Environmental Consultants,1 while seeking cancer treatment at the Houston Medical Center, a Saudi woman signed an earnest money contract to purchase a multi-million dollar home in Memorial Park. After signing the contract, she assigned her rights to Arlington Home, Inc. (“Arlington”). Arlington was created specifically to purchase and own the home. Arlington secured inspections necessary to close on the property with the assistance of Coldwell Banker (“Coldwell”).

Here’s where it gets interesting. Coldwell came across an engineering report that revealed past mold and water damage; so, Coldwell hired Live Oak to do a mold inspection. Time was of the essence since the earnest money contract was due to expire within five days. If Arlington didn’t close on time, it would have to pay a $250,000.00 penalty. Live Oak submitted a mold sampling proposal to Coldwell and began testing the next morning. Live Oak agreed to be paid after their work was completed. (That probably wasn’t the smartest thing to do.)

There were three significant issues affecting Live Oak’s mold inspection: First, Live Oak wasn’t told how large the home was ($5.53M and included a gym and wine room). Second, Live Oak wasn’t told about the prior inspections and engineering report that revealed mold and water damage. Third, Live Oak wasn’t able to gain access to a few areas of the home that may have had mold damage.

After its inspection, Live Oak determined that the home had “no significant mold amplification expected to pose a threat to the subject property or its occupants.”2 Live Oak gave the full mold inspection report and its opinions to Arlington prior to the earnest money contract deadline. Arlington closed on the property after getting the “okay” from Live Oak about the mold.

After Hurricane Rita struck the Gulf Coast, Arlington began remodeling the home and noticed a sizeable mold problem. Arlington spent over $539,000.00 to remediate the mold in the home. Arlington sued Coldwell and Live Oak for negligence, negligent misrepresentation and DTPA3 violations. Arlington sued Coldwell for breach of fiduciary duty and sued both Live Oak and Coldwell for attorney’s fees under the DTPA. Live Oak wasn’t going down without a fight, so they counterclaimed for breach of contract (for the $1,400 they were never paid for their work).

A Texas jury found Coldwell and Live Oak negligent and liable for DTPA violations. Specifically, the jury determined that Live Oaks’ acts were the producing cause of Arlington’s DTPA damage claims because Arlington justifiably relied on Live Oaks’ negligent misrepresentations. The jury Live Oak liable for attorneys fees and the cost of remediation (Coldwell had to share in paying 40% of the award as well). The jury awarded Live Oak $1,400.00 for its breach of contract claim against Arlington.

Live Oak immediately filed for a judgment notwithstanding the verdict, and the trial court granted it without explanation. Arlington quickly appealed. The Appellate Court was asked to decide whether Arlington should be allowed to ignore its contract remedies against Live Oak in favor of other tort or DTPA remedies. The Appellate Court ruled that a party may not ignore its contract remedies in favor of other tort or statutory remedies.

The Court noted that Arlington’s negligence claims failed because Texas courts follow the economic loss rule. The rule precludes recovery in tort when the injury is only an economic loss to the suing party. Thus, the “action sounds in contract alone.”4 Here, the contract between Live Oak and Arlington was for performance of a mold inspection. Arlington claimed that the inspection was done negligently. Unfortunately for Arlington, the duty imposed on Live Oak was created by their contract rather than imposed by law. So, the proper action would have been for breach of contract instead of negligence.

Although this case was not for property insurance benefits, it illustrates the importance in determining the proper causes of action before filing suit. Jurisdictions differ on the type of claim that can be used to recover for various causes of harm; what may be acceptable in Texas, may be unacceptable in Louisiana. Even subtle differences in filing requirements and procedures can make or break a case. In this case, the parties wasted years and thousands of dollars for a trial and appeal only to find themselves in the same position as before the litigation started.

1 Arlington Home, Inc. v. Peak Environmental Consultants, Inc., 361 S.W. 3d 773 (Tex.App.—Houston [14th Dist.] Feb. 28, 2012, no writ history).
2 Id. At 776.
3 Deceptive Trade Practices Act, Tex. Bus. & Com. Code §§17.46 – 17.63.
4 Southwestern Bell Telephone Co. v. Delanney, 809 S.W.2d 493 (Tex. 1991).