Chinese Drywall and Insurance Coverage

I ran across an interesting post about the need for contractors to evaluate their liability risk resulting from the installation of Chinese made drywall, the subject now of an intense amount of litigation. The article was written by John M.Sadler (john@sadlerco.com) of Sadler and Company. The article also has appeared in Claimsjournal.com.

John points out, what many of us policyholder insurance coverage lawyers already know. When many serious liability risks arise, many insurers, as one famous court decision once stated in a products liability context, run for cover rather than coverage. Insurers like this have sought to insulate themselves from the liabilities that contractors often assumed they had coverage for by use of pollution and other exclusions with respect to work performed by sub-contractors on behalf of the contractor. As John suggests in his article,

"Builders can protect themselves from future construction defect and pollution claims by implementing the following practices:

* Implement mandatory subcontractor agreements with all subs including insurance requirements for General Liability, hold harmless/indemnification provision, and a requirement for all subs to participate in arbitration proceedings.

* If the builder’s General Liability policy includes the Exclusion-Damage To Your Work Performed By Subcontractors On Your Behalf (CG2294) or a similar exclusion, find out if the insurance carrier provides a buyback for an additional premium
charge.

* Ask the insurance agent if any insurance carriers are available that don’t use exclusion CG2294 or have a less severe version that covers resulting property damage to the builder’s non faulty work.

* Purchase a Pollution Liability policy."

Read John's full article here.

One of my partners, Leon Kellner, wrote an article on the same subject published in the Florida Homebuilders Association Magazine. As he stated:

"Insurance coverage [for drywall liabilities] may not be the sexiest of topics, but the intracies of insurance policies may prove to be paramount in deciding who winds up footing the bill for the tainted drywall."

Read Leon's full article here.

As the liabilities and problems relating to drywall mount and increase, particularly in the southeastern part of the U.S., Leon's words may prove to be very prescient indeed.