Filed Under:Claims, Catastrophe & Restoration

Speaking Of: Chinese Drywall Coverage Decisions

With John B. Mumford Jr., JD, Director at Hancock, Daniel, Johnson & Nagel

Between 2004 and 2008, there was a scarcity of building supplies in the wake of a national housing boom and several hurricanes devastating eastern and southern coasts of the United States. Desperate for solutions, some builders began using drywall imported from China to build and repair. That imported drywall has been linked to property damage in the homes, such as corrosion of metal surfaces, as well as claimed health issues. Thus began the onslaught of third-party liability claims by homeowners against builders and drywall subcontractors, as well as others involved in the supply chain, and, in turn, commercial general liability (CGL) coverage claims by these builders and subcontractors.

Of course, the damages various parties have sought to recoup have been significant, as the expense of identifying, tearing out, and replacing drywall, coupled with repairing other property damage, has been substantial. Complicating the job of claims adjusters across the country is the fact that courts have remained largely divided in their interpretations of policy language and exclusions in such cases.

Would you give us some background on the issue?
Sure. It was not until several years after these materials were utilized that an alleged relationship between Chinese drywall and negative effects were noted. People began to realize there could be a correlation between Chinese drywall and problems with air conditioning coils and building wiring, and some homeowners were also alleging health issues. This led to the claims by homeowners against builders, drywall subcontractors, and suppliers, who in turn sought coverage for these claims from their CGL insurers. Courts have now issued opinions on these coverage issues—including the application of the pollution exclusion.  

So the session will be a review of court decisions?
We will go beyond offering a simple review of court decisions. The emphasis will be on how past decisions are likely to affect future outcomes, and how claims professionals can use the information. It will be more of a “what can we learn from this.”

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