Recent news reports have alerted many in Florida, particularly South Florida, of a phenomenon involving imported drywall from China and its unbecoming side effect: sulfur gas. The story begins during the post-Katrina rebuilding efforts and the lack of domestically- manufactured drywall as a result of a (then) strong construction boom compounded by the Gulf Coast reconstruction demands. Suppliers turned to alternative manufacturing sources and, in particular, drywall made in China.
Drywall (known by various names such as wallboard or sheetrock) is manufactured using gypsum, a mineral mined and processed to form a solid surface sandwiched between heavy paper. Apparently, the material mined in China has an unusually high sulfur content and, once installed in a building, a strong odor akin to rotten eggs is experienced. While the odor may be enough to cause disgust and be considered a source of respiratory illness, the problem is compounded by the fact the concentration of sulfur gases can cause damage to exposed copper commonly found in air conditioners, wiring, and plumbing within buildings.
By now, you may be asking yourself if there is insurance coverage for this. Looking at the standard homeowners, commercial property, and general liability policies in use today, the likely answer is no. In the case of the homeowners and commercial property forms, each contains a provision dealing with the discharge, dispersal, seepage, migration, release, or escape of pollutants.
ISO H0-3 Coverage A excludes:
Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against named under Coverage C.
Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
Exclusion found in the ISO Cause of Loss—Special Form and definition in the Building and Business Personal Property Coverage Form
Discharge, dispersal, seepage, migration, release or escape of “pollutants” unless the discharge, dispersal, seepage, migration, release or escape is itself caused by any of the “specified causes of loss”. But if the discharge, dispersal, seepage, migration, release or escape of “pollutants” results in a “specified cause of loss”, we will pay for the loss or damage caused by that “specified cause of loss.”
“Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
Additionally, the Causes of Loss—Special Form contains additional exclusions that likely apply. For instance, the concurrent causation exclusion includes losses that involve “faulty, inadequate, or defective…materials used in repair, construction, renovation or remodeling” as well as restricting coverage involving “rust or other corrosion, decay, deterioration, hidden or latent defect
or any quality in property that causes it to damage or destroy itself.”
Another property form that may apply under the appropriate circumstance is the Builders Risk Coverage Form. Not uncommon, many builders risk forms use an inland marine format and are proprietary versions. Consequently, individual review of the applicable builders risk would apply; yet, speaking generally, most forms likely include exclusions involving pollutants, use of faulty materials, and the corrosion/decay provision as previously discussed.
There are numerous general liability exclusions that could apply, depending on the vantage point. Briefly, if any commercial general liability policy involved with a claim arising from allegations of bodily injury or property damage associated with Chinese drywall and includes the Total Pollution Exclusion (CG 21 49), there is essentially no coverage for losses caused by “pollutants.” Without
this endorsement, other exclusions found in the CGL that would likely apply include:
- Pollution (exclusion f)
- Damage to “your work” (exclusion l)
- Damage to Impaired Property or Property Not Physically Injured (exclusion m)
In the case of exclusion l (#2 above), coverage may exist for the insured for the loss of use of tangible property not physically injured (see “property damage” definition) if the subcontractor exception applies (i.e. the policy does not include CG 22 94 or CG 22 95) and other exclusions (e.g. f and m) are not applicable.
Unfortunately for those living in homes with Chinese drywall, there is no fortune cookie to make matters better.