Federal Judge Dismisses Suits Against Insurers Over Chinese Drywall Coverage

A federal judge in Louisiana in mid-December let 10 insurance companies being sued by Louisiana homeowners over property damage resulting from the installation of defective drywall from China off the hook for coverage from those claims.

Judge Eldon E. Fallon of the U.S. District Court for the Eastern District of Louisiana on Dec. 16 granted motions filed by the 10 insurers that variously asked for dismissal or for judgment on the pleadings in a class action lawsuit involving only insureds in Louisiana.

The decision was made in one of many class action lawsuits filed by homeowners in several southern and southeastern states as a result of damage to their homes caused by drywall that was imported from China during the past decade.

The federal Consumer Product Safety Commission estimates that 7 million sheets of Chinese drywall were imported between 2000 and 2009 — enough to have built tens of thousands of homes. Some consumer advocates have estimated that the cost of property damage could reach $3 billion.

The drywall is said to off-gas harmful chemicals that cause various health problems and corrode wiring and household appliances, among other things, and make the houses in which it is installed unlivable.

As of March 2010, around 2,100 claims had been filed in federal court over the drywall. Suits were brought against homebuilders, developers, installers, realtors, brokers, suppliers, importers, exporters, distributors, manufacturers from China, and insurance companies.

Because of the commonality of facts in the various cases, litigation concerning the faulty drywall was designated as multidistrict litigation (MDL). In June 2009 all federal cases were consolidated and assigned to the U.S. District Court, Eastern District of Louisiana.

In the most recent case, the plaintiffs sought to force the insurance companies that had previously denied their claims to cover damage to the insureds’ property that resulted from the faulty drywall.

The companies involved are: Allstate Insurance Co.; ASI Lloyds; Auto Club Family Insurance Co.; Federal Insurance Co.; Property & Casualty Insurance Co. of Hartford; Homesite Insurance Co.; Standard Fire Insurance Co.; State Farm Fire & Casualty Co.; USAA Casualty Insurance Co.; and USAA.

Judge Fallon found that coverage existed for property damage in the policies in question in the recent cases. However, he determined that two exclusions typically found in homeowners insurance policies and cited by the companies as grounds for denying the homeowners’ claims negated that coverage, namely the exclusions for loss relating to corrosion and faulty materials.

In examining the various exclusions brought forward by the insurers, Fallon determined that three of them did not apply, the exclusions for: latent defects; pollution and/or contamination; and dampness or temperature.

In March 2010, a state district court also rebuffed an insurance company’s use of the pollution exclusion and two other exclusions in an “all risk” homeowners insurance policy to deny claims resulting from Chinese drywall.

Specifically, the Civil District Court in New Orleans Parish, in Simon Finger and Rebecca Finger versus Audubon Insurance Company, No. 09-8071, said Audubon’s “Pollution or Contamination” (POL), Gradual or Sudden Loss” (GSL) and “Faulty, Inadequate or Defective Planning” (FIDP) exclusions could not be used as “affirmative defenses” to deny coverage for damage resulting from the drywall.

Federal safety officials have advised homeowners with Chinese drywall to completely remove the tainted product and replace all electrical components and wiring, gas service piping, fire suppression sprinkler systems, smoke alarms and carbon monoxide alarms.

The advice comes from the U.S. Department of Housing and Urban Development (HUD) and the CPSC, which found a strong link between drywall made in China and the home corrosion reported by thousands of U.S. property owners in whose homes the drywall was used.

Topics Lawsuits Carriers USA Legislation Louisiana Property China Homeowners Pollution