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Chinese Drywall and the Survival of the Fittest Insurance Company p3

10/23/2015 | Real Estate Blog

We are finishing up our discussion of a case from outside of Pennsylvania over damage caused by Chinese drywall. In our Oct. 19 post we talked about the extent of the drywall issue and how hard it was for affected homeowners to secure compensation for their losses. The case we have been talking about is not about a civil action against the drywall manufacturer, but a couple’s attempt to convince their property insurance company that the loss they suffered — the use and enjoyment of their new home — was covered by their homeowners policy.

When we left off in our last post, we were talking about the couple’s response to the insurance company’s claim denial. The policy, the insurance company said, did not cover latent construction material defects. The couple argued that it wasn’t the drywall itself that caused the harm; it was the effect the humidity, a covered weather event, had on the drywall.

The court disagreed. The humidity may have made the situation worse, but the root cause — the “most substantial or responsible” factor — was the sulfur in the drywall. And, the court said, the harm from the fumes was also not covered because the policy excluded damage from pollution and contamination.

The plaintiffs tried one last argument: The loss was an “ensuing” loss under the policy, a loss that resulted from excluded causes. The court disagreed here, too. An ensuing loss would have to be from a covered cause for the policy to kick in.

So, say a flood caused an electrical fire that burned down your garage. The flood was not covered, but it resulted in a fire, a covered loss. Therefore, it is an ensuing loss.

There is no evidence to suggest that the insurance company added the defective materials exclusion before, during or after the bulk of the Chinese drywall cases came to light in the mid- to late 2000s. Still, it would not be unusual to find that a property insurance company has closed the barn door after other insurers’ horses have bolted.

There are so many things that can go wrong with a construction project, and a homeowner’s time and money may be better spent arguing with the construction company than with the insurance company. Review the details of your coverage to make sure there are no gaps. Then, if something does go wrong, contact an attorney to discuss your options.

Source: Westlaw Daily Insurance Briefing, “Chinese drywall an ‘excluded peril’ under all-risk policy, Florida panel says (Fla.App. 2 Dist.),” Sept. 29, 2015, via WestlawNext