The exclusion allows insurers to refuse to cover a legal defense
while liability is being determined. State law, however, affects the
applicability of the pollution liability exclusion in drywall cases.
Early cases may serve as bellwethers. A Louisiana judge
ruled in March that three policy exclusions asserted by a home–
owners’ insurer didn’t apply to drywall. The judge concluded
that the pollution liability exclusion didn’t apply because it
was intended to apply to “environmental damage,” rather than
damage from defective building materials. He found that the
“gradual or sudden loss exclusion” didn’t apply because it was
intended to protect insurance companies from having to cover
gradual wear and tear. The judge concluded that the “faulty, inadequate, or defective planning exclusion” didn’t apply, noting
that even if the drywall is emitting sulfuric gases, it still functions as drywall should—finishing interior rooms, holding paint,
and supporting pictures, cupboards, and shelves.
While builders’ insurance policies may contain exclusions
precluding coverage, it’s common for drywall subcontractors’
policies to cover builders as “named insureds.” Subcontractors’ policies are often less restrictive than builders’ policies
and could provide a source of coverage to builders whose own
policies preclude it.
A remaining wild card is whether workers’ compensation
claims eventually will arise out of the handling of defective drywall by both builders and suppliers.
The ramifications of defective drywall extend to reinsur-
ers, as well. Claims against individual corporations could create
significant losses, and substantial settlements or judgments
could result in hefty billings to reinsurers. Because bodily in-
jury claims may have accrued over a period of years, multiple
policy years could be involved.
The Docket on Drywall
The manufacturers most frequently implicated in the production of defective drywall are Knauf Plasterboard Tianjin Co.
LEGISLATIvE LoGjAm
Legislators, particularly those from Gulf Coast states, have intro- duced a number of bills aimed
at banning the importation of defective
drywall or recalling drywall already in this
country. none so far has moved forward
into law.
■ ■ In March 2009, Sen. bill nelson (D-
Fla.) and Sen. Mary Landrieu (D-La.)
introduced S. 739, the Drywall Safety
Act of 2009, a bill that would have
required the Consumer Product Safety
Commission (CPSC) to recall defective
drywall and to ban its further importa-
tion until new safety standards could
be promulgated. S. 739 was referred to
the Senate Committee on Commerce,
Science, and Transportation. no further
action was taken on the bill.
