Insurance Litigation Update


Claims Arising from Defective Drywall Are Excluded Under Most CGL Policies: During the housing boom in the mid-2000s, domestically manufactured drywall was in short supply, so hundreds of millions of pounds of drywall manufactured by a Chinese subsidiary of German manufacturer Knauf GIPS KG were imported into the United States and installed in homes, primarily in the Southeast. Consumers who bought homes containing Knauf’s drywall claim that a sulfur-containing gas released by the drywall has an unpleasant smell and causes damage to wiring and electrical appliances. Knauf and other foreign manufacturers have admitted that their drywall was defective, but they contest whether any court in the United States can force them to pay for the damages they caused, arguing that they are not subject to jurisdiction here. Homeowners have therefore resorted to suing the homebuilders, installers and distributors who purchased and resold Knauf’s defective products. Thousands of lawsuits seeking damages from those American companies and their insurers have been consolidated in a multi-district litigation before the Honorable Eldon Fallon in the Eastern District of Louisiana. In re Chinese Mfd. Drywall Prods. Liab. Litig., (MDL No. 2047) (E.D. La. 2010).

Insurance companies have claimed that the total pollution exclusion found in most comprehensive general liability policies excludes coverage for claims arising from defective drywall. A typical total pollution exclusion bars coverage for “bodily injury” or “property damage” that would not have occurred in whole or in part but for “the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.” Such exclusions may define “pollution” as an “emission, discharge, release or escape of pollutants into or upon land, the atmosphere or any watercourse or body of water provided that such emission, discharge, release or escape results in environmental damage.” The exclusion may also state that pollutants include “any solid, liquid gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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