Insurers may have to cover Chinese drywall damage claims, despite policy exclusion provisions being cited to deny such claims, according to one expert on insurance law. The assertion was made during a hearing on drywall issues conducted by the National Association of Insurance Commissioners Catastrophe Insurance (NAIC) Working Group at the NAICâ€™s Winter National Meeting.
According to a report from P&C National Underwriter, Charles Miller, of the Insurance Law Center in Berkeley, Calif., cited language contained within Fire, Casualty & Surety (FC&S) bulletins to raise questions about whether exclusions apply to Chinese drywall damage. FC&S is a resource for insurers for interpretation of both commercial and personal lines coverages, P&C National Underwriter said.
According to Miller, FC&S notes that courts have found the pollution exclusion in homeowners policies only applies to â€œtraditional environmental damage.” He asserted that the release of gases from Chinese drywall into homes does not constitute traditional environmental damage.
Other exclusions some insurers have used to deny Chinese drywall claims are known as latent defect and inherent vice exclusions. This involves “a loss due to any quality in the property that causes the property to damage or destroy itself that results from something in the property itself.â€ According to Miller, the Chinese drywall is not destroying itself, but rather causing ensuing damage to its surroundings, which should be covered.
Finally, in regards to construction defect exclusions, Miller cited language from the June 2009 FC&S bulletin, which states, â€œAny ensuing loss as a result of the faulty drywall would be covered, for example, if the drywall caused corrosion damage to wires or pipes.â€
According to P&C National Underwriter, Miller called on regulators to protect consumers by conducting multistate market conduct exams to ensure proper investigations into Chinese drywall are being conducted.
So far, the Consumer Products Safety Commission (CPSC) has received 2,276 reports from residents in 32 states, the District of Columbia, and Puerto Rico concerning Chinese drywall. Gases emitted from Chinese drywall are being blamed for significant property damage, including damage to HVAC systems, smoke detectors, electrical wiring, metal plumbing components, and other household appliances. These gases also produce a sulfurous odor that permeates homes, and cause metals, including air conditioning coils and even jewelry, to corrode. People living with Chinese drywall have also suffered eye, respiratory and sinus problems that may be linked to the gases.
Tests recently released by the CPSC of 51 homes confirmed that the presence of hydrogen sulfide is the essential component that causes copper and silver sulfide corrosion found in Chinese drywall homes.