Louisiana Federal Court Finds There Is No First Party Property Coverage for Homeowners' Chinese Drywall Claims

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In In re Chinese Manufactured Drywall Products Liability Litigation, 2010 WL 5288032 (E.D. La. Dec. 16, 2010), a federal court in Louisiana overseeing the Chinese drywall multi-district litigation issued an order dismissing homeowner claims against several insurance carriers for first-party insurance coverage resulting from damage caused by defective Chinese drywall. The court addressed whether the homeowners' insurers were responsible for paying for the cost to replace the drywall and repair the homes.

The insurers moved to dismiss the homeowners' claims based on the applicability of the following policy exclusions: (1) latent defect; (2) faulty materials; (3) corrosion; (4) pollution/contamination; and (5) dampness. Applying Louisiana law, the court determined that there was no coverage based on two of these exclusions – the faulty materials and corrosion exclusions. Specifically, the court noted that the broad definition of "faulty materials" mandated application of the exclusion and that it was inconsistent for the homeowners to argue that they suffered loss because of the Chinese drywall but that the drywall was not in any way faulty. The court also held that the corrosion exclusion should be broadly applied because much of the homeowners' damage was caused by corrosion of metal components from the release of sulfur gas from the drywall.

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