Chinese Drywall Litigation News: Part III

Builders and Contractors Exchange
Weekly Bulletin: 26 aug 2010

Chinese Drywall Litigation News: Part III
By: Jim Harvey

LAW TIPS

While state and federal courts have recently ruled in favor of homeowners damaged by Chinese Drywall, awarding large sums for the virtual demolition and rebuild of the home interiors, a local federal court has ruled that insurance coverage does not exist for these types of damages. In June, 2010, Judge Doumar of the United States District Court for the Eastern District of Virginia, ruled that a homeowner’s insurance policy did not cover damage from Chinese Drywall. The policy in that case contained exclusions for latent defects, faulty materials, corrosion and pollution, all of which combined to deny coverage, despite the court’s finding that a loss had occurred.

Like many insurance policies, coverage does not exist for replacing a defective item, but may provide coverage if the defect caused damage to other property. In other words, insurance does not cover the defective drywall, but might cover damage to other property such as wiring, plumbing, electronics and HVAC units, unless it is excluded by other terms of the policy. Because the policy provided exclusions for corrosion (that damaged plumbing and electrical wires and components) and pollution, the damage to plumbing, wiring, HVAC units, appliances, electrical components, and use of the home as a whole were not covered damages under the policy. This victory for the insurance industry leaves homeowners and others damaged by Chinese Drywall to seek their remedies primarily from the manufacturers and suppliers of the defective drywall.

While this litigation has proved initially successful, questions remain as to when and if all of the potential judgments resulting from Chinese Drywall damages can be paid. If the defendants run out of assets, or cannot be reached in the United States, then homeowners may face a long and tortuous route to full compensation.

Authored by attorneys, these articles are meant to bring awareness to these topics and are not intended to be used as legal advice. For more information, contact Mike at 757-446-8626 or Bill Franczek at 757-446-8600. Visit www .vanblk.com , for our library of Construction Law Tips. Suggestions for a topic? E-mail bfranczek@vanblk.com.