Chinese Drywall Losses Continue for Policyholders

Author:Mr Colin Hite
Profession:McGuireWoods LLP

The federal court in Norfolk, Va., continues to serve as the epicenter of insurance coverage cases involving Chinese drywall – and not for the benefit of policyholders. Judge Robert Doumar recently issued a ruling that will make the fight for insurance coverage harder for policyholders. See Travco Insurance Co. v. Ward, Case No. 2:10-cv-14 (U.S. District Court for the Eastern District of Virginia, Norfolk Division). While Travco involves a first-party homeowner's policy, its implications are much broader.

In the ruling, Judge Doumar held that installation of defective drywall was a "direct physical loss" under terms of the insurance contract. The loss is covered. However, he further found that several exclusions apply to ultimately nix coverage for the drywall.

The judge ruled that four separate exclusions also apply to deny coverage to the policyholder at issue. The court held that the following exclusions apply to the homeowner's claim: (1) latent defect, (2) faulty materials, (3) corrosion, and (4) pollution. The most important of the exclusions revolves around the pollution exclusion. As discussed in previous alerts, a fragmented patchwork of court opinions exists interpreting the pollution exclusion clause. Judge Doumar ultimately ruled that the broad interpretation applies and prevented coverage for Chinese drywall under the insurance policy at issue.

The pressure on policyholders continues to mount, in light of the more recent jury verdict in Miami awarding a couple $2.5 million in damages for Chinese drywall. The verdict broke out the award as: $1.7 million for loss of enjoyment; $494,000 for remediation; and a...

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