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Insurance Claims Against Defective Chinese Drywall Set To Be Denied

Defective Chinese drywall used in many new homes since 2003 releases sulfur dioxide which is causing corrosion to electrical systems, copper piping, HVAC and other metal fixtures. The damages to tear out and replace the drywall and affected electrical systems will be astronomical on a per house basis. Lawsuits are starting to pop up everywhere against builders and drywall subs and their General Liability policies. However, contractor insurance carrier claims adjusters are planning on using a number of little known policy exclusions in order to escape payment on claims which will result in uninsured losses and bankruptcy for many builders and drywall subs.

"Most contractor General Liability insurance policies contain the Total Pollution Exclusion," according to John Sadler, President of Sadler Contractor Insurance. "All claims adjusters who have been interviewed will take the position that the sulfur dioxide fumes released by the defective Chinese drywall are 'pollution' and as a result all legal defense and damages under the General Liability policy will be denied."

For the minority of contractor General Liability policies that don't have the Total Pollution Exclusion, the fallback position by the claims adjusters will be to use property damage to contractor's work exclusions in order to deny a large percentage of the damages.

The damages claimed in the typical Chinese drywall lawsuit will likely be exhaustive and will extend past the obvious tear out and replacement of drywall and corroded electrical systems and will also encompass replacement or remediation of household contents that have been subjected to the fumes as well as bodily injury for health problems of occupants.

Since most of these damages are not likely to be covered by contractor General Liability policies, home owners will likely target US distributors of Chinese drywall as well as the corporate and/or personal assets of builders and drywall subs.

More detailed information as well as tips on how builders can better protect themselves under their General Liability policy, see our blog posting at Contractor-Insure.com.

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