In the past, we discussed whether Homeowners Insurance will be liable for Chinese Drywall damages in Louisiana.  While the jury is still out on this issue, we’ve posted on a number of occasions that the courts may very well find coverage for chinese drywall losses within homeowner insurance policies.

Now, many are reporting that a guest lecturer at the National Association of Public Insurance Adjusters just recently predicted that courts will find at least some coverage for Chinese Drywall damages (As per Merlin Law Group).   Earlier in the year, the folks at Merlin Law Group also posted that the FC&S Bulletin’s June 2009 edition also indicated that there would be coverage for Chinese Drywall losses under homeowner insurance policies.

So, while it’s far from certain that Chinese Drywall damages will be covered by standard homeowner insurance policies…it’s also far from certain that courts will disallow such coverage.   One thing is certain:  insurance companies have largely taken the position that the policies do not cover the damages, and are denying these claims across the board.

This begs the question:  what is the next step?

In Louisiana, most policy holders have just 1 year to file suit for insurance benefits.  The time period begins from when the policy holder knew or should have known of the occurrence or loss.

News of Chinese Drywall problems broke across Louisiana between January and March 2009.   Arguably, those with Chinese Drywall “should have known” of the problem starting at this time.   To be safe, homeowners with Chinese Drywall are facing a very important deadline as the new year approaches.

With so many questions about who is liable for this Chinese Drywall mess, it would be quite devestating for homeowners who may have a viable claim against their homeowners insurance, to lose that claim because they failed to take the necessary action before the alloted time expired.

News around the country is that the insurance industry may be liable for these Chinese Drywall losses.   If you have Chinese Drywall losses, you should consider filing suit to enforce your claim for coverage….or risk losing the opportunity.

Should Louisiana homeowners be filing homeowner insurance claims for their Chinese Drywall damages?   The answer is complicated, but ultimately, our answer is yes.

Will There Be Coverage?

Over the past few months, we’ve discussed whether insurance companies will cover losses related to Chinese Drywall (See Insurance Coverage category).

Our predication was that claims would be denied based on Pollution Exclusions, and from what we’ve seen so far, insurance companies across the country are beginning to churn out these types of denial letters.

While the talk amongst insurers and adjusters is that these damages are not covered, an insurance company declaring something to be true does not make it so.   The applicability of the “pollution exclusion” will ultimately depend on a number of factors, some known and others currently unknown: (1) the language of the exclusion; (2) The scientific explanation behind the damages; and (3) Your home’s jurisdiction.

What The Blogosphere Says

A quick read of our blog, and you’ll know what we’re saying about homeowners insurance claims:  that insurers may very well be liable for these losses.   But what are some others in the country saying?

An August 2009 article from Inside Counsel has a long discussion (and quotes us!) about suits against homeowner insurers, and notes that the “pollution exclusion” may not be as clear as the insurance companies would like to believe.    The debate is lively in Florida according to the Herald Tribune.  Merlin Law Group’s Property Insurance Coverage Law Blog has a great post about both sides of the argument.

We suggested in the past that Louisiana homeowners may have a better case than homeowners in other states, because of Louisiana’s narrow interpretation of the pollution exclusions applicability.

What To Do…What To Do

This much is clear:  If you don’t file your insurance claim now (or soon), the time available to you to file the claim will pass.   How depressing it would be for homeowners who sat on their hands for this debate to reach a judge 12 or 14 months from now, and the decision to favor homeowners!

This can happen.

Many of the claims available to homeowners, builders, suppliers, subcontractors and other parties to this Chinese Drywall mess are based on a lot of legal mysteries.   How will the New Home Warranty Act be interpreted?   Will insurance policies exclude or cover losses?   Are actions against the suppliers already prescribed?

Who knows – in 12 months, we may know that builders are absolutely not liable in Louisiana, but insurers are, or vice versa.   Homeowners should file insurance claims against their casualty policies, and should file suit against the insurer after the claim is denied, because there very well may be coverage.   And with insurers denying all Chiense Drywall claims, pursuit of the claim through litigation is the only way to get paid.

Will My Premiums Increase?

This is something homeowners should discuss with their insurance agent.   However, it is very possible that premiums may be increased if you assert a claim for insurance coverage.   If the claim is paid, the payment will likely be used in calculating any rate increases.

If the Chinese Drywall loss was just a small $5k or $10k claim, there might be good reason to not file the claim.  However, some Chinese Drywall claims have $50k-100k or more in damages.  Depending on your financial stability, the risk of losing this amount may be greater than the risk of a future premium increase.

We Sue Insurers

Wolfe Law Group has filed suits against homeowners insurance companies related to Chinese Drywall damages, and we’d be happy to discuss filing suit against your insurer, too.    Learn more about our firm by reviewing this promotional brochure.

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.

In the past, we’ve discussed insurance coverage issues and the pollution exclusion here at the Chinese Drywall Blog.

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.

In Louisiana, with a one-year prescriptive period ticking very quickly against drywall claims, the insurance company’s best argument against coverage is soon-to-come.

The Controversy and Uncertainty

This much is clear:  it is not certain how the courts will interpret insurance policies and insurance policy exclusions, as they apply to Chinese Drywall claims.

Many predict that the insurance industry will rely on what is called a “pollution exclusion” to deny Chinese Drywall insurance claims.

A South Carolina Construction Insurer, Contractor-Insure.com, makes this claim in a recent press release:

Most contractor General Liability insurance policies contain the Total Pollution Exclusion.  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.

While the press release largely discussed builder general liability policies, the same controversy exists for homeowners insurance policies.

Further, the controversy and predication are proving to be true, as across the country there are already suits on the issue.

As already reported on the Chinese Drywall Blog, in Baker v. American Home Insurance Company, a homeowner sued their insurance carrier claiming coverage for Chinese Drywall claims.   In Builders Mutual v. The Dragas Company, a builder’s general liability insurer brought a declaratory judgment action to have a judge declare that Chinese Drywall damage was not insured.

The claimed exclusion:  Pollution.

Both suits are very important to homeowners with Chinese Drywall claims.   But for Louisiana homeowners….how will the issue be resolved?

Why Louisiana Is Different

Unlike in South Carolina and most other states, Louisiana has very narrowly interpreted the pollution exclusion.   We reviewed the applicability of the pollution exclusion to Louisiana insurance claims in a previous blog post here:  Home Builders v. Insurance Pollution Exclusion.

There, we quoted the seminal case in Louisiana on this subject titled Doerr v. Mobil Oil Corp.  The long and short of things:  “Using the Doerr analysis, it seems that builders or suppliers would not be considered a “polluter” within the meaning of the exclusion” in Chinese Drywall claims.

For homeowners with Chinese Drywall, and builders with potential exposure, this is welcome news.    While the issue remains unresolved, the Doerr decision at least gives homeowners and homebuilders hope that Chinese Drywall losses may be insured, and therefore, within reach.

The problem now?   Getting homeowners and home builders to timely make claims and pursue recovery.

On the Chinese Drywall Blog, we’ve talked about class action suits, individual suits against builders and suppliers, suits by builders against its suppliers, and other similar actions.

However, in Florida, one couple seeks to hold another party liable for their Chinese Drywall damages:  their own homeowners insurer.

The claim makes a great deal of sense, and it adds to the mystery of who will eventually be responsible for the Chinese Drywall damages.

The suit was brought in a Florida U.S. District Court, and is captioned Baker v. American Home Assurance Company, Inc., Middle District of Florida, No. 09-cv-188-FtM-99DNF.  (read here)

According to the complaint, the homeowners made a claim in December 2008 related to damages caused by Chinese Drywall.  The complaint describes the cause of the damage as coming from “drywall…emitting gases which have damaged the Subject Property and the contents therein.”

After inspection and testing, the insurer denied the claim for “contamination.”     The Baker complaint argues that the damages were not caused by “contaminants” as defined by the policy.

The policy at the center of the Baker action defines “contaminates” as follows:

An impurity resulting from the mixture of or contact with a foreign substance.

According to the complaint, there was not ‘mixture or contact with a foreign substantance,’ and therefore, the pollution exclusion would not apply.

The Baker exclusion is far less detailed then some of the other pollution exclusions found in Commercial General Liability policies…and therefore, may be interpreted differently.

If pollution exclusions in homeowners policies are generally less complex than GCL policies, it may be prudent for homeowners to make timely claims against their homeowner policies if they are faced with Chinese Drywall damages.

It’s too early to predict exactly who will be responsible for damages associated with Chinese Drywall, especially since so many parties are involved.   To rely simply on one remedy (i.e. a class action) is probably an irresponsible choice for homeowners faced with significant damages.

We’re likely to see a flood of suits in the coming months against builders, home insurers, suppliers and other responsible parties.   Home insurance policies will likely file subrogation claims against builders, suppliers and other parties as well.

We’ll monitor the Baker suit as it proceeds.  Stay tuned.