Exclusions Used to Deny Chinese Drywall Damage Claim Don’t Apply, Louisiana Judge Rules

A Louisiana judge has ruled against an attempt by Audubon Insurance Co. to use certain policy exclusions to deny a Chinese drywall claim. The insurer, a subsidiary of American Insurance Group, had cited three exclusions in its denial of the claim: a pollution exclusion; a gradual or sudden loss exclusion; and faulty, inadequate or defective planning exclusion.

The case was brought by Simon and Rebecca Finger in Orleans Parish Civil District Court. In granting the plaintiffs’ motion, Judge Lloyd Medley ruled that the gradual or sudden loss does not apply because the damage — in this case rust or other corrosion — “is the loss, not the cause of the loss.” As to the faulty, inadequate or defective planning exclusion, the judge said Audubon provided no clear definition of the such an exclusion.

While Audubon had earlier withdrew its use of the pollution exclusion as a reason to deny coverage, Judge Medley addressed it anyway, saying the exclusion was never meant to apply to homeowners claims for damages caused by faulty building materials unless some kind of environmental damage occurred.

The judge also denied Audubon Insurance’s request to quash plaintiffs’ the motion. The ruling allows the Finger’s lawsuit to move forward.

Since late 2008, the Consumer Products Safety Commission (CPSC) has received more than 3,000 reports from residents in 37 states, the District of Columbia, and Puerto Rico regarding defective Chinese drywall. Gases emitted from Chinese drywall are being blamed for significant property damage, including damage to HVAC systems, smoke detectors, electrical wiring, metal plumbing components, and other household appliances. These gases also produce a sulfurous odor that permeates homes, and cause metals, including air conditioning coils and even jewelry, to corrode. People living with Chinese drywall have also suffered eye, respiratory and sinus problems that may be linked to the gases.

Insurers have been denying Chinese drywall damage claims across the board. The Finger’s attorney told The New Orleans Times-Picayune that Judge Medley’s ruling was good news for all Chinese drywall victims in Louisiana, as insurers have commonly been using the same exclusions to deny claims. He said he hoped the ruling would encourage more Louisiana homeowners to file insurance claims for drywall damage, because they now have a chance of having them paid.

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