Between 2004 and 2008, there was a scarcity of building suppliesin the wake of a national housing boom and several hurricanesdevastating eastern and southern coasts of the United States.

Desperate for solutions, some builders began using drywallimported from China to build and repair. That imported drywall hasbeen linked to property damage in the homes, such as corrosion ofmetal surfaces, as well as claimed health issues. Thus began theonslaught of third-party liability claims by homeowners againstbuilders and drywall subcontractors, and others involved in thesupply chain, and, in turn, commercial general liability (CGL)coverage claims by these builders and subcontractors.

Of course, the damages various parties have sought to recouphave been significant, as the expense of identifying, tearing outand replacing drywall, coupled with repairing other propertydamage, has been substantial. Complicating the job ofclaims adjusters across the country is the fact thatcourts have remained largely divided in their interpretations ofpolicy language and exclusions in such cases.

To wade through these complex liability issues with aplomb,casualty adjusters can learn more at “Chinese Drywall CoverageDecisions: Impact on Future Casualty Claims” at the PLRB/LIRBconference later this month. John B. Mumford, Jr., one of theattorneys presenting the session offered a scoop on whatattendees can expect.

What will be the primary focus of your session withfellow attorney John P. Malloy?

Mumford: We plan toexamine CGL coverage issues in the context of claims by homeownersagainst builders, drywall subcontractors, and suppliers. It isstill a hot issue as courts, policyholders, and insurers are stilldealing with these issues. Our take on the presentation isessentially that the Chinese drywall phenomenon has implicated avariety of CGL coverage issues. We'll look at what the courts havedone and try to extract lessons to apply to future claims.

Would you give us some background on theissue?

Mumford: Sure. It was not until several yearsafter these materials were utilized that an alleged relationshipbetween Chinese drywall and negative effects were noted. Peoplebegan to realize there could be a correlation between Chinesedrywall and problems with air conditioning coils and buildingwiring, and some homeowners were also alleging health issues. This led to the claims by homeowners against builders, drywallsubcontractors, and suppliers, who in turn sought coverage forthese claims from their CGL insurers. Courts have now issuedopinions on these coverage issues – including the application ofthe pollution exclusion.

So the session will essentially be a review of courtdecisions?

Mumford: We will go beyond offering a simplereview of court decisions. The emphasis will be on how pastdecisions are likely to affect future outcomes, and how claimsprofessionals can use the information. It will be more of a 'whatcan we learn from this.'

What makes these Chinese drywall claims and court opinions agreat learning opportunity is the number of CGL coverage issuesthey present, and the differing analysis and outcomes reached bythe courts. For example, was there an occurrence? Ifso, how many and when did the claimed property damage occur? Does the pollution exclusion apply? Do the “your work,” “yourproduct,” and accompanying property damage exclusionsapply. Court in different states, and even courts in the samestate, have analyzed and addressed these issues in differentways. And there is a lot to be learned from this.

What are some special challenges presented by suchcases?

Mumford: One interesting takeaway for carriersis strategies for dealing with a claim where the science isdeveloping at the same time. At the outset of all this, when theChinese drywall claims were first being tendered and carriers wereasked to make a coverage determination, the “what, why, and when”of Chinese drywall was still being developed. This experienceprovided important lessons to apply in the future to claims wherethe origin or source of the damage is some new phenomena.

John Mumford handles a range of coverage issues, includingCGL liability, property, professional liability, D&O liability,fiduciary liability, and BI, among others. With respect to Chinesedrywall issues, Mumford is currently representing insurers incoverage litigation in cases addressing both CGL andhomeowners' coverages.