Insurers Target Chinese Drywall Supplier

Business Insurance - By Jeff Casale - May 17, 2010

Chartis Inc. and several subsidiaries are among insurers attempting to deny coverage of tainted drywall damage under pollution exclusions.

In February, Chartis and four subsidiaries filed a lawsuit in U.S. District Court for the Middle District of Florida against Miami-based drywall and building materials supplier Banner Supply Co., advising they would deny coverage of umbrella policies based on their total pollution exclusion.

Banner and four of its subsidiary Florida offices were named in 146 lawsuits related to Chinese drywall in 2009, according to court documents. Chartis notified Banner in a reservation-of-rights letter that its umbrella policy may not indemnify tainted drywall claims.

New York-based Chartis then filed suit and alleged no coverage was available and it had no duty to defend Banner.

"There is an actual, present and bona fide controversy between the parties concerning the alleged coverage obligations of plaintiffs to defend and to indemnify defendants with respect to claims involving allegedly defective drywall," Chartis said in its suit.

Chartis and its subsidiaries said in the complaint that umbrella policies with a total pollution exclusion bar coverage for any "bodily injury and property damage associated with defective drywall arising from actual, alleged or threatened discharge, dispersal, seepage, migration release, or escape of pollutants as that term is defined by each policy."

The insurer also said the "mere presence of defective drywall is not property damage, and there is no coverage under the policies for any costs arising out of the process of repairing or replacing drywall."

In New Orleans, a judge ordered that Chartis' complaint be added to the Chinese-Manufactured Drywall Products Liability Litigation case No. 2047 class action because "all actions share factual questions."

Chartis' legal team, led by Chicago-based Hinkhouse Williams Walsh L.L.P., said in an April motion that "none of the actions involved in claims addressing whether the damage at issue was covered by the terms of specific commercial general liability insurance policies, nor whether the named defendants might be defended or indemnified by their insurers."

"Florida courts have consistently held on many occasions that the total pollution exclusion is unambiguous and bars coverage in" similar circumstances. "(Our) lawsuit simply asked the court to apply well-established precedent on this issue. Louisiana simply has no nexus whatsoever to the policy interpretation issues presented in the case."

SOURCE:  http://www.businessinsurance.com/article/20100516/ISSUE03/305169996