Florida Judge Reaches Varied Results in Chinese Drywall Coverage Cases
The housing boom of the mid-2000s led to a shortage of American-manufactured drywall. Builders and suppliers turned to drywall manufacturers in China to supply their needs. However, shortly after the drywall was installed, problems were noticed. It was uncovered that the Chinese-manufactured drywall contained excessive amounts of hydrogen sulfide, which allegedly damaged metal fixtures and wiring, caused a rotten-egg smell, and led to health problems such as skin and eye irritations, headaches, bloody noses, and respiratory issues. Thousands of lawsuits were initiated between homeowners, builders, suppliers and their respective insurers.
Recently, the United States District Court Middle District of Florida, Tampa Division, rendered seemingly contrary results with respect to two separate coverage litigations brought by insurers against the same insured, American Building Materials, Inc., (“ABM”), a supplier of the Chinese drywall. A close look at the underlying policy language implicated in each litigation reveals the rationale behind the court’s differing results.
In the first litigation, Auto-Owners Insurance Company (“Auto-Owners”) sought a declaratory judgment as to whether it has a duty to defend and indemnify ABM in an underlying state court action brought by KB Home Tampa, Inc. and KB Home, Inc. (collectively, “KB Home”). Auto-Owners Ins. Co. v. American Building Materials, Inc., 2011 WL 1878236 (M.D. Fla. May 17, 2011). Auto-Owners moved for summary judgment on the basis that the Absolute Pollution Exclusion contained in the insurance policy it issued to ABM precludes coverage as a matter of law. The Absolute Pollution Exclusion states that it applies where the alleged bodily injury or property damage arises “out of the . . . discharge, dispersal, seepage, migration, release or escape of pollutants . . . [a]t or from any premises . . . on which an insured or any contractors or subcontractors working directly or indirectly on any insured’s behalf are performing operations . . . if the pollutants are brought on or to the premises . . . .” (emphasis added).
On May 17, 2011, Judge Susan Bucklew rejected Auto-Owners argument, finding that the exclusion only bars coverage for work being done by a contractor when claims arise at the time the work is being performed. Here, it is undisputed that the operations of ABM, as a material supplier, were complete at the time the materials were delivered. Thus, property damage arising from completed installation of drywall did not arise while ABM was “performing operations,” and, as such, it is not excluded under the policy provision.
In contrast, on December 5, 2011, Judge Bucklew granted summary judgment in the second litigation for insurer New Hampshire Insurance Company against the same policyholder, ABM. Granite State Ins. co. v. American Building Materials, Inc., 2011 WL 6025655 (M.D. Fla. Dec. 5, 2011). The policies at issue in this litigation contained a Total Pollution Exclusion. This exclusion provides that “[t]his insurance does not apply to . . . Bodily injury or property damage which would not have occurred . . . but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.” (internal quotations omitted). Here, the court finds that the Total Pollution Exclusion unambiguously precludes coverage for the release or discharge of pollutants where pollutants are defined to include any gaseous contaminant. Consequently, the court concludes that an objectively reasonable insured would not have expected damages caused by defective Chinese drywall, which allegedly emitted harmful gases and caused damage to property and persons, to be covered under the policies.