From the December 20, 2010 issue of National Underwriter Property & Casualty • Subscribe!

Policy Exclusions Upheld; Merged Chinese Drywall Cases Dismissed

Insurance policies do not cover losses due to the destructive properties of Chinese drywall because of two policy exclusions, a federal court has ruled.

Therefore, the motions of 10 insurers to dismiss consolidated litigation concerning the drywall were granted by U.S. District Court Judge Eldon Fallon in New Orleans.

Analyzing a handful of policy exclusions, the judge ruled that homeowners could not seek coverage due to the faulty materials and corrosion exclusions within the policies.

Citing the Merriam-Webster Dictionary on multiple occasions to define terms within the exclusions, Judge Fallon said the drywall is a faulty material--much like products containing asbestos--and therefore falls under the policy exclusion.

"Although the drywall serves its purpose as a room divider, wall anchor and insulator, the allegations in the complaints provide that the drywall emits foul-smelling odors and releases gases which damage silver and copper components in the home, including electrical devices, appliances and wiring," the judge wrote in his 50-page opinion.

The drywall is "like the radioactive table bases and building components containing asbestos or lead which function for all practical purposes as table bases and building components but are faulty because of the materials of which they are composed," Judge Fallon wrote.

Also, allegations contained in the consolidated litigation "trigger the corrosion exclusion since the corrosion is responsible for the majority of losses suffered by the plaintiffs."

In what became a moot portion of the ruling, Judge Fallon said the policies' latent defect and pollution/contamination exclusions do not apply.

The domino effect of the judge's determination knocked down the homeowners' case for coverage under "ensuing losses"--damages covered due to a separation in time.

Policyholders alleged the odor and corrosion were ensuing losses, which would resurrect coverage even if previously excluded under the policy. Judge Fallon ruled the losses were "neither sufficiently different in kind from the losses caused by the Chinese drywall, nor the result of an extraneous event."

Yet even the insurers concede that there is a possibility of a second, covered incident caused by the drywall, such as a fire. This would be an ensuing loss. With the passage of time, these types of losses from the drywall may occur.

Some drywall manufacturers have agreed to programs to remediate hundreds of homes in Alabama, Mississippi, Louisiana and Florida.

Comments

Resource Center

View All »

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Get $100 in leads with $0 down!

NetQuote's detailed, real-time leads have boosted sales for thousands of successful local agents across the...

The Growing Role of Excess & Surplus Lines in Today’s...

The excess and surplus market (E&S) provides coverage when standard insurance carriers cannot or will...

Increase Sales Conversion with this Complimentary White Paper

This whitepaper will share proven techniques - used by many of the industry's top producers...

D&O Policy Definitions: Don't Overlook These Critical Terms

Unlike other forms of insurance where standard policy language prevails, with D&O policies, even seemingly...

Environmental Risk: Lessons Learned from Willy Wonka and the Chocolate...

Whether it’s a chocolate factory or an industrial wastewater treatment facility, cleanup and impacts to...

More Data, Earlier: The Value of Incorporating Data and Analytics...

Incorporating more data earlier in claims lifecycles can help you reduce severity payments by 25%*...

How Many Of Your Clients Are At Risk Of Flood?

Every home is vulnerable to flooding. Learn four compelling reasons why discussing flood insurance with...

Gauging your Business Intelligence Analytics Capabilities and the Impact of...

Big Data, Data Lakes and Data Swamps, How to gauge your company's Big Data readiness....

Extending Contact Center Capabilities Across the Insurance Enterprise

Today advancements in technology are making a big impact on business and society. To yield...

Looking for Markets?

Search Kirschner’s Insurance Directory to help service your hard to place risks.

497 Risk Categories | 70,000 P&C Insurance Markets

kirschners
Specialty Markets Insight eNewsletter

Receive updates and analyses on hard to place and challenging coverages. Sign Up Now!

Advertisement. Closing in 15 seconds.