Chinese Drywall Insurance Coverage Litigation Begins

As claims mount and federal and state agencies have begun a quest to determine who is responsible for the Chinese drywall fiasco, insurance disputes regarding coverage for the claims are beginning to make their way through the courts. In March 2009, the first complaint regarding homeowner’s insurance for drywall claims was filed.  Two Florida policyholders sued their homeowners’ insurer, seeking coverage for property damage resulting from Chinese drywall in their home.  See Baker v. American Home Assurance Company, filed in the United States District Court for the Middle District of Florida under No. 09-cv-188.   In a bare-boned complaint, the policyholders alleged that they notified their insurer of a loss in December 2008 resulting from the gases emitted by drywall. It goes on to allege that the insurer verbally denied the claim based on “contaimination,” but that no formal declination has been issued. In its answer, the insurer denied coverage based upon the pollution exclusion, the wear and tear exclusion, and the faulty materials exclusion.  It also asserted the claim fell outside the policy period.  It appears the insurer is asserting that the damage occurred at the time the drywall was installed, not the time it began to emit noxious odors.

Insurance disputes relating to contractor’s CGL policies are also on deck.  In April 2009, one of the principal defendants in Florida’s Chinese drywall litigation, Lennar Corporation, was widely reported to state that it believed that its insurance would cover the drywall claims. The insurer has not commented. At the exact same time, however, in the Eastern District of Virginia, the insurer of another homebuilder commenced a declaratory judgment action seeking a declaration that it did not owe defense or indemnity to its insured for Chinese drywall based on the pollution exclusion and the work-product exclusions. Builders Mutual Insurance Company v. Dragas Management Corporation, 2:09-cv-185. 

Meanwhile, on the civil litigation front, actions are being taken to pave the way for a slew of litigation by or on behalf of homeowners affected by Chinese drywall. Senators Mary Landrieu, D-La. and Bill Nelson, D-Fla, continue to voice concerns regarding Chinese drywall at the federal level.  Federal agencies have begun investigating the drywall itself, and it has been reported that a number of federal agencies are currently developing procedures for air-quality tests. New Orleans Times-Picayune reported on June 7, 2009 that Sen. Landrieu’s staff said that the federal tests could lay the groundwork for the CPCU to bring a civil action against the drywall manufacturers, and last week, in Louisiana, State Senator Julie Quinn, R-Metairie, sponsored legislation that would allow consumers in that state to sue the seller of the drywall for all damages and attorneys fees.  Currently, such suits are not possible under Louisiana law.


The Judicial Panel on Multidistrict Litigation ruled on June 15, 2009 that 10 actions involving claims relating to Chinese drywall be transferred to the Eastern District of Louisiana and assigned to Hon. Eldon E. Fallon.  The claims had be filed in the Southern District of Florida, the Middle District of Florida, the Northern District of Florida, the Eastern District of Louisiana and the Southern District of Ohio.


Finding the claims involved common issues of fact, the JPML noted that there is no clear focal point for the litigation, and that transferring the litigation to the Eastern District of Louisiana would “serve the convenience of the parties and witnesses” and allow for efficient administration of the litigation.   Regarding its assignment of the cases to Judge Fallon, the JPML noted that he has extensive experience in multidistrict litigation “as well as the ability and temperament to steer this complex litigation on a steady and expeditious course.”

Related cases have been filed in the Southern District of Alabama, and the Eastern District of Virginia, but were not included in the order.  The defendants in the Eastern District of Virginia action opposed inclusion in the multidistrict litigation, and asked any transfer of the action be considered at a later date.  The JPML granted that request.

Download Baker complaint by clicking here.

Download Builder's Mutual complaint by clicking here

Download Multi-District Litigation Order Consolidating Chinese Drywall Litigation here

By Sarah J. Delaney and Daniel W. Gerber

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