Chinese Drywall Update
by Richard K Traub (NJ) and Brian Margolies (NY)
May 15, 2009

As predicted, the pace of new Chinese drywall claims continues to grow. It is estimated that there are now over one hundred suits in Florida alone, fifteen of which are class actions. Claims and suits continue to be filed throughout the country, including New York, California, Virginia and Louisiana. A hearing is scheduled before the Judicial Panel on Multidistrict Litigation for late May to determine whether the drywall claims pending nationwide should be consolidated in a single court.

As a result of the growing awareness of the problem, on May 21, 2009, the United States Senate Subcommittee on Consumer Protection, Product Safety and Insurance plans to hold a hearing on the health and product safety issues raised by Chinese drywall. The United States House of Representatives also is taking action on this matter, having recently passed an amendment to a bill that would require the Department of Housing and Urban Development to conduct an immediate study into the availability of property insurance coverage for Chinese drywall claims and to report its findings within 120 days.

We also note that another coverage litigation has been filed with respect to Chinese drywall claims: Builders Mutual Insurance Company v. Dragas Management Corp., et al., No. 09cv185, pending in the United States District Court for the Eastern District of Virginia. Dragas is a large real estate developer that has been the target of numerous Chinese drywall claims. In February 2009, Dragas sought coverage under its Commercial Package policy and Commercial Umbrella policy issued by Builders Mutual in the combined amount of $8 million per occurrence and in the aggregate. Dragas had already begun negotiating and resolving the underlying claims. Builders Mutual disclaimed coverage, primarily on the basis of its policies’ total pollution exclusion. Builders Mutual’s suit seeks a declaration that coverage is unavailable to Dragas on the basis of its policies’ total pollution exclusion as well as various business risk exclusions. Builders Mutual also seeks a declaration that each installation of Chinese drywall constitutes a separate occurrence, each of which is subject to the two policies’ respective deductibles. Dragas also has named Fireman's Fund as a defendant with respect to the CGL and umbrella policy it issued to Dragas for the prior year.

The Builders Mutual lawsuit is the second reported insurance coverage lawsuit relating to Chinese drywall. The first, Baker, et al. v. American Home Assurance Company, Inc., No. 09-cv-188, pending in the United States District Court for the Middle District of Florida, involves insurance coverage under a homeowner’s policy.

We will continue to follow important developments in the underlying litigations as well as developing coverage issues.