By Ian Wolinsky
iwolinsky@adachere.com
(786) 587-0665

In the past, we’ve discussed whether homeowner insurance policies will be liable for Chinese Drywall damages. Last week, Judge Medley in Orleans Parish Civil District Court gave Louisiana its first answer holding that the exclusions relied upon by the defendant insurance companies didn’t make the cut.

So, which exact exclusions were adjudicated?

The pollution exclusion, which Judge Medley rejected based upon the Louisiana Supreme Court’s treatment of such clauses in cases like Doerr v. Mobil Oil Corp, qualifies the pollution exclusion in insurance policies to only cover “environmental damage”. The “latent defect” exclusion was also rejected, with Medley ruling that the clause didn’t apply because the drywall itself wasn’t a latent defect. The drywall worked just fine as actual drywall, and therefore, wasn’t a latent defect in itself.

Homeowners Ought to Act Fact to Make Claims

Now is the time for homeowners to take action and make Chinese Drywall claims against their insurance policies. Why? Because policy-holders in Louisiana only have one year to bring claims (and file a lawsuit to enforce the claim) from when they knew or should have known of the loss.

Many homeowners are not making claims because they’re concerned about having their insurance policies cancelled. Certainly, this is an issue as Louisiana and Florida insurance companies have already begun canceling policies on homes with contaminated drywall. The danger cannot be explained away, but there are two important things to remember about this: (1) policies are being cancelled regardless of whether claims are being made; and (2) homeowners insurance may be your best bet for fast recovery of drywall damages.

The particular case decided by Judge Medley in Louisiana isn’t part of the federal MDL (or class action). Like many other homeowners with these problems, the plaintiffs in that case are seeking remedies against their builder and insurer through individual actions in state court. As evidenced by the Medley decision, these actions are being adjudicated and are posting successful results.

The Fingers’ attorney, Allan Kanner, said the ruling is good news for any Louisiana homeowner with corrosive drywall from China. “At least in Louisiana, people can now look at their insurance as possibility for being made whole,” Kanner said.

Mark Herr, a spokesman for AIG, which owns Audubon Insurance, declined to comment on the case. Kanner, however, said that at the conclusion of a March 12 hearing on the matter, Audubon attorney Andrew Braun said the company was likely to appeal Medley’s decision.

Many homeowners in southeastern states such as Louisiana and Florida have found that drywall imported from China amid the housing boom and rebuilding efforts after the 2004 and 2005 hurricanes emits sulfuric gases that smell bad, make people feel sick and corrodes metal appliances, wiring and components in homes. Insurers have universally been denying claims, and because of the challenges of bringing a product liability claim against a foreign manufacturer, many people are stuck with unlivable homes that they can’t afford to fix. About 3,700 people nationwide have reported wallboard problems to the U.S. Consumer Product Safety Commission, which is conducting the largest investigation in its history into what makes the drywall bad and how to fix it.

In his ruling, Medley said that the “pollution or contamination” exclusion didn’t apply because it was intended to apply to “environmental damage” rather than damage to a home from substandard building materials.

Although Audubon had initially cited the pollution exclusion as one reason the policy didn’t cover damage at the Fingers’ State Street home, it later withdrew that assertion, but Medley decided to rule on the applicability of the clause anyway.

Medley also found that the “gradual or sudden loss” exclusion, also known as exclusion for “latent defect,” didn’t apply. The clause was meant to protect the insurance company from having to protect the insurance company from wear and tear or gradual deterioration, Medley said, and that’s not what’s happening with the drywall.

Although Audubon had argued that the exclusion refers to corrosion, Medley said it didn’t matter, because in this case corroded wiring and appliances in the home are the result of the bad drywall rather than corrosion being the cause of other problems. For example, a corroded pipe in a house that bursts and causes other damage might be properly excluded under the policy, but in the Fingers’ home, corroded fixtures are the result of the bad drywall.

Medley notes that Audubon doesn’t define what a “latent defect” is in the policy. He said there’s no evidence that the drywall is destroying itself, as something with a latent defect might, so it doesn’t apply.

In the last category, the “faulty, inadequate or defective planning” exclusion, Medley also talked about defects. He said that even if the drywall is emitting sulfuric gases, it still effectively functions as drywall in a home, because it can be used as product for finishing the interior of a home, holding paint, and supporting hardware for hanging picture frames.

Because Medley found that coverage exists on the policy, he did not tackle the issue of “ensuing losses” from drywall. Many plaintiffs’ attorneys have argued that if drywall was founded to be defective and not covered on the policy, that “ensuing losses,” or other damage caused by the bad drywall, such as corroded wiring or appliances, should be covered.

Kanner said he hoped that the Finger v. Audubon ruling would encourage more homeowners to file insurance claims for drywall damage, because they have a shot at getting paid.

Of course, the Defendant insurance company in this case (Audubon Insurance Co) will appeal this ruling, but this is a really great first step for plaintiffs who are looking everywhere for a solution to Chinese Drywall woes.

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