Filed Under:Agent Broker, Commercial Business

Conflicting Rulings On Defects Leave Looming Questions Over Drywall Claims

Homebuilders, contractors on the hook for remediation may not be able to tap CGL cover

A bewildering 12 months of state and federal court rulings have further complicated the insurance and liability landscape for homebuilders and contractors facing homeowners’ Chinese drywall damage claims, attorneys and brokers say.

Nine state and federal courts and one state legislature over the past year have addressed whether a construction defect—a defective product or faulty workmanship—is fortuitous and therefore an occurrence under the commercial general liability insurance policy.

In addition, depending on the relationship a buyer has with an underwriter, large accounts sometimes can negotiate even broader coverage terms, noted Mark E. Reagan, the Morristown, N.J.-based chairman of the Global Construction Practice at Marsh.

Some insurers, meanwhile, have invoked the pollution exclusion to deny Chinese drywall-related claims, said Rod Taylor, a Windermere, Fla.-based managing director in the Environmental Services Group at Aon Risk Solutions, a unit of Aon Corp. Therefore, because of their product liability coverage—which typically is exempt from the pollution exclusion—drywall manufacturers, distributors and suppliers are more likely to be covered for drywall-related claims than builders and contractors, Mr. Taylor observed.

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