Chinese Drywall Trust Files Suit Against Insurance Companies

In an attempt to force the payment of Chinese drywall damage claims, a lawsuit has been filed against 14 insurers for WCI Communities Inc. The lawsuit was filed by a Chinese drywall trust set up by the Florida-based builder after it emerged from Chapter 11 bankruptcy last year.

WCI is one of many Florida builders which has acknowledged using Chinese drywall. This past August, Judge Kevin J. Carey approved the firm’s reorganization plan, which allowed WCI to emerge from bankruptcy. Included in the plan was the WCI Communities Chinese Drywall Trust, which the builder funded with $900,000. That money was intended to help offset the cost of litigation against insurers and other companies involved in Chinese drywall disaster. The trust assumed all of the company’s drywall liability, as well as its claims against insurance companies. Nearly 700 homeowners may seek recovery through the WCI Trust.

The trust’s insurance lawsuit was filed in the U.S. District Court for the Eastern District of Louisiana, where the massive Chinese drywall multidistrict litigation is now underway. The 14 insurance companies listed in the suit are:

American International Specialty Lines Insurance Company
American Guarantee and Liability Insurance Company
Amerisure Insurance Company/Amerisure Mutual Insurance Company
Auto-Owners Insurance Company
FCCI Commercial Insurance Company/FCCI Insurance Company
Hermitage Insurance Company
Illinois Union Insurance Company
Landmark American Insurance Company
Lexington Insurance Company
Mid-Continent Casualty Company
National Union Fire Insurance Company of Pittsburgh PA
Old Republic Insurance Company
Scottsdale Insurance Company
Steadfast Insurance Company

This is the first Chinese drywall lawsuit to target insurance companies. The suit seeks to compel the insurers cover more than $200 million in settlements in the drywall litigation. The suit accuses the insurers of improperly denying coverage, reserving their rights, failing to reply to WCI or failing to acknowledge coverage of claims WCI made concerning the defective drywall.

The Consumer Products Safety Commission (CPSC) has received more than 2,700 complaints from dozens of states regarding defective Chinese drywall. The wallboard poured into the U.S. between 1999 and 2007 because of the high demand created by the housing boom. Imports accelerated when the rebuilding that followed Hurricane Charley in Florida in 2004, and Hurricane Katrina along the Gulf Coast in 2005, created a drywall shortage. According to an earlier Wall Street Journal report, some 500 million pounds of Chinese drywall was imported to the U.S. during the housing boom. That means as many as 100,000 homes throughout the country could have been built with the material.

Last summer, tests conducted by the Environmental Protection Agency found that Chinese-manufactured drywall contained elevated levels of strontium sulfide, as well as the presence of several organic compounds associated with the production of acrylic paint that were not present in samples of U.S.-made drywall. Other tests released in November by the CPSC of 51 homes confirmed that the presence of hydrogen sulfide is the essential component that causes copper and silver sulfide corrosion found in Chinese drywall homes. Federal investigators are still trying to determine what health risks exposure to drywall gases might pose.

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