Between 2004 and 2008, there was a scarcity of buildingsupplies in the wake of a national housing boom and severalhurricanes devastating eastern and southern coasts of the UnitedStates. Desperate for solutions, some builders began using drywallimported from China to build and repair. That imported drywall has beenlinked to property damage in the homes, such as corrosion of metalsurfaces, as well as claimed health issues. Thus began theonslaught of third-party liability claims by homeowners againstbuilders and drywall subcontractors, as well as others involved inthe 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 recouphave been significant, as the expense of identifying, tearing out,and replacing drywall, coupled with repairing other propertydamage, has been substantial. Complicating the job of claimsadjusters across the country is the fact that courts have remainedlargely divided in their interpretations of policy language andexclusions in such cases.

To wade through these complex liability issues with aplomb, casualty adjusters canlearn more at “Chinese Drywall Coverage Decisions: Impact on FutureCasualty Claims” at the PLRB/LIRB conference later this month. John B. Mumford, Jr.,one of the attorneys presenting the session, gaveClaims' Christina Bramlet the scoop onwhat attendees can expect.

What will be the primary focus of your session withfellow attorney John P. Malloy?
We plan to examineCGL coverage issues in the context of claims by homeowners againstbuilders, drywall subcontractors, and suppliers. It is still a hotissue as courts, policyholders, and insurers continue to deal withthese issues. Our take on the presentation is essentially that theChinese drywall phenomenon has implicated a variety of CGL coverageissues. We'll look at what the courts have done and try to extractlessons to apply to future claims.

Would you give us some background on theissue?
Sure. It was not until several years afterthese materials were utilized that an alleged relationship betweenChinese drywall and negative effects were noted. People began torealize there could be a correlation between Chinese drywall andproblems with air conditioning coils and building wiring, and somehomeowners were also alleging health issues. This led to the claimsby homeowners against builders, drywall subcontractors, andsuppliers, who in turn sought coverage for these claims from theirCGL insurers. Courts have now issued opinions on thesecoverage issues—including the application of the pollutionexclusion.  

So the session will be a review of courtdecisions?
We will go beyond offering a simple reviewof court decisions. The emphasis will be on how past decisions arelikely to affect future outcomes, and how claims professionals canuse the information. It will be more of a “what can we learn fromthis.”

What makes these Chinese drywall claims and court opinions agreat learning opportunity is the number of CGL coverage issues they present and the differing analysis andoutcomes reached by the courts. For example, was there anoccurrence? If so, how many and when did the claimed propertydamage occur? Does the pollution exclusion apply? Do the “yourwork,” “your product,” and accompanying property damage exclusionsapply. Courts in different states—and even courts in the samestate—have analyzed and addressed these issues in different ways.And there is a lot to be learned from this.  

What are some special challenges presented by suchcases?
One interesting takeaway for carriers isstrategies for dealing with a claim where the science is developingat the same time. At the outset of all this, when the Chinesedrywall claims were first being tendered and carriers were asked tomake a coverage determination, the “what, why, and when” of Chinesedrywall was still being developed. This experience providedimportant lessons to apply in the future to claims where the originor source of the damage is some new phenomena.