Homeowners Policy Excludes Chinese Drywall Damage Claim
The Supreme Court of Virginia answered a certified question of law from the U.S. Fourth Circuit Court of Appeals pertaining to coverage under a homeowners policy for Chinese drywall damage claims. This case is Travco Insurance Company v. Ward, 2012 WL 5358705.
In 2007, Ward purchased a newly constructed home and over the following years experienced problems with the home. Ward hired an expert who determined that the problems were caused by Chinese drywall installed in the house during construction. Wall then filed a lawsuit against the developer, builder, and drywall contractor alleging that the Chinese drywall emitted various sulfide gases and/or toxic chemicals that in turn created noxious odors and caused health issues, damage, and corrosion. Ward then filed a claim under his homeowners policy claiming health issues and damage to the interior of the house caused by the Chinese drywall.
The insurer denied coverage based on the following exclusions in the homeowners policy: latent defect; faulty, inadequate, or defective materials; rust or corrosion; and pollutants. The insurer, Travco, brought an action in the U.S. District Court seeking a summary judgment on the basis of the policy exclusions. That court ruled in favor of the insurer; Ward appealed; the U.S. Court of Appeals then certified the coverage question to the Virginia Supreme Court.
The Virginia Supreme Court reviewed each exclusion put forth by the insurer.
Ward claimed that the latent defect exclusion is susceptible to multiple meanings because the use of the terms “latent defect” and “inherent vice” in the exclusion causes ambiguity because latent defect is ordinarily defined as undiscoverable by proper inspection or known tests, while inherent vice refers to a loss from internal decomposition. Travco responded that the drywall in the house contained a latent defect because the defect was hidden or concealed for years before Ward discovered a problem. The court found no ambiguity in the wording of the exclusion. The court said that the exclusion is plain in meaning and Ward lived in his home for approximately two years before discovering a problem with the drywall. The defect was hidden or concealed and not visible or apparent.
Ward argued that the faulty or defective materials exclusion is not applicable because the policy does not define the terms “faulty” and “defective”, and under the ordinary definitions of these terms, the exclusion does not apply because the drywall maintains its form and performs its functions. Travco countered that the faulty materials exclusion applies because drywall that releases sulfuric gas is faulty, inadequate, or defective, and the exclusionary wording is not limited to flaws that prevent an object from serving its intended purpose. The court agreed with the insurer.
As for the rust or corrosion exclusion, Ward maintained that the exclusion does not apply in this instance because the terms are not defined in the policy and the damage was not caused by corrosion, but was the corrosion itself. Travco argued that the corrosion exclusion bars coverage for the damaged metals in the house in that there is no dispute that such damage was caused by corrosion; in other words, the exclusion plainly refers to the process of corrosion. The court used the dictionary to come to the conclusion that the terms in the exclusion were quite clear in meaning. The court said that the dictionary definitions and logical, common understanding of the term “corrosion” do not draw a distinction between naturally occurring and other corrosion. There is no basis for reading a temporal element into the corrosion exclusion. The interpretation made by the insured was not acceptable.
Ward argued that the policy's pollution exclusion is ambiguous, overbroad, unreasonable, and inapplicable because the process by which the elemental sulfur escaped the drywall (off-gassing), is not a discharge of pollutants as contemplated by the exclusion. Travco argued that the pollution exclusion applied because the sulfuric gas emanating from the drywall was an irritant or contaminant and the gas moved from the drywall to the air in the house by way of discharge, dispersal, migration, or release. The insurer said that the terms of the pollution exclusion are plain in meaning and sufficient to encompass the emission of gas from the drywall. The court said that although the release of sulfuric gases from Chinese drywall is not traditional environmental pollution, the court does not construe the pollution exclusion so narrowly. To the court, the sulfuric gas is a definite irritant and contaminant, and it would be difficult to envision how the sulfuric gas reached the air of the house if not by means encompassed by the ordinary meaning of “discharge, dispersal, seepage, migration, release, or escape”. The pollution exclusion was held to be applicable.
The Supreme Court of Virginia decided that each of the four exclusions applied and the damage claims made by Ward were not covered by his homeowners policy.
Editor's Note: The Supreme Court of Virginia found that the exclusions in the homeowners policy clearly prevented coverage for claims arising from the use of Chinese drywall. These types of claims may go on for years throughout the country, but Virginia has established its position that the homeowners policy cannot be used to cover the damage caused by the drywall.