Homeowners Stricken With Chinese Drywall Now Face New Threat Of Losing Insurance Policies

Their insurers are declining to fill their claims, then canceling the policy or issuing notices that policies won't be renewed until the problem is fixed. The homeowners have little recourse since neither the Chinese manufacturers nor the Chinese government are likely to respond to any lawsuits or reimburse them for the defective drywall.

Are Chinese Drywall Losses “Uninsured?”
Published on August 18, 2009 by Scott Wolfe Jr.
www.chinesedrywallblog.com

Late in July, “ClaimsJournal.com” published an online article titled: “Chinese Drywall: Builders and Subs
Face Huge Uninsured Losses.“ The article’s author takes its reader through a number of hot-button issues
related to the insurance coverage available to homeowners and builders for Chinese Drywall damages.

Calling the per house damages “astronomical,” the article warns that many builder and homeowner polices
may exclude damages based on the pollution exclusion or the “your work” exclusion. . .

From our experience in dealing with homeowner and builder claims, it seems the insurance industry is
positioning itself to deny coverage for contaminated drywall exposure. But more troubling than this is that
many homeowners and builders are taking this position as a matter-of-fact.

While there are certainly legal challenges to recover against insurance companies for these losses, the
insurance companies face legal challenges in excluding coverage. Homeowners and builders have two
things on their side: (a) The insurance company has the burden of proving the applicability of its exclusion;
and (b) Any ambiguities will be interpreted against the insurance company. Homeowners and Builders
should not consider the exclusion of coverage as a foregone conclusion, and should place their insurer on
notice of the claim. While litigation may result in coverage applying to this loss, without a timely claim and a
lawsuit to enforce the same, builders and homeowners will lose their rights.
What is Multi-District Litigation (“MDL”)?

MDL is a procedure to consolidate similar cases for the purpose of, among other things,
conserving resources and preventing inconsistent rulings in different courts. All such
cases are assigned to a judge in one federal district court. In June 2009, a panel of
federal judges ruled that lawsuits filed around the country against home builders,
suppliers and manufacturers of Chinese drywall would be transferred to the Eastern
District of Louisiana, where Judge Eldon Fallon will preside over discovery and pre-trial
hearings.

As one of his first tasks Judge Fallon appointed a steering committee consisting of
several of the plaintiffs' and defendants' lawyers. This committee is responsible for
arguing pretrial motions, deciding which legal theories to pursue and conducting common
discovery.

MDL has similarities with class actions, but they are not the same. Unlike a class action
lawsuit where the plaintiffs’ issues are litigated in one case and then the plaintiffs share in
the recovery, MDL cases typically address pre-trial matters, but then the cases (some of
which are individual cases and others are class actions) are remanded back to their
original courts of jurisdiction for trial.