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Chinese Drywall – Judicial Panel on MDL Rules that Coverage Matter Should Not Be Transferred to Chinese Drywall MDL Proceedings and 14 Insurers Sued Over Chinese Drywall Losses

Blogs, Insurance Coverage

In December 2009, the Judicial Panel on Multi-District Litigation (JPML) rejected efforts to transfer an insurance coverage action to the federal Chinese Drywall Multi-District Litigation (MDL), arising out of the use of Chinese manufactured drywall in construction of homes which emitted smelly, corrosive gases, pending in the Eastern District of Louisiana (In Re: Chinese-Manufactured Drywall Product Liability Litigation, MDL No. 2047). In mid-2009. the JPML had conditionally transferred General Fidelity Ins. Co. v. Foster, et al., No. 09-80743 (S.D. Fla.) to the MDL.

Following the conditional transfer, General Fidelity argued that the case involved coverage determinations under Florida law and that insurance coverage actions should not be handled in the MDL proceedings.

In the order vacating the conditional transfer, the JPML found that the case seeks a determination of an insurer’s rights and obligations under a commercial general liability policy and thus “raises distinctly different factual and legal question from the core allegations at issue” in the MDL. The JPML further wrote that, by contrast, “Plaintiffs in the majority of the [MDL] actions…are individuals who seek relief related to property damage or personal injuries arising from drywall manufactured in China and installed in their homes.”

In addition, the WCI Chinese Drywall Trust, a trust formed to handle the Chinese drywall damage claims for over 700 homeowners, recently filed a federal lawsuit in the New Orleans District Court against 14 insurers seeking indemnification for their losses.

The suit, styled Pate v. American International Specialty Lines Ins. Co., et al., No. 2:09-cv-07791-EEF-JCW (E.D.La. Dec. 23, 2009) seeks “a declaratory judgment that the Insurance Companies and the Subcontractor Insurance Companies are obligated to indemnify the WCI Chinese Drywall Trust in connection with the Underlying Claims.”

The complaint in Pate v. American International states, “The Insurance Companies and the Subcontractor Insurance Companies have either denied coverage, reserved their rights, failed to reply to WCI’s notice letters, or otherwise failed to acknowledge coverage.” Complaint at par. 49. A copy of the complaint may be viewed here.

WCI’s lawsuit seeks from the insurers indemnification for “damages that include increased rates of corrosion of soft metal materials throughout the houses (such as air conditioning coils, refrigerator tubing, electrical wires, and television connections); various health issues allegedly arising from the drywall; and tarnishing of silver and soft metal within the homes.” 

The insurance companies involved in Pate v. American International include: 

  • 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 and 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 Pittsburg, Pa.
  • Old Republic Insurance Company Scottsdale Insurance Company
  • Steadfast Insurance Company