Posts Tagged ‘Chinese Drywall Blog’

IRS Aid to Help Victims of Chinese Drywall

Just last week the Internal Revenue Service (IRS) announced a plan to help homeowners who have corrosive Chinese Drywall in their home with tax breaks on items that have been destroyed as a result of the Drywall.

IRS website gives a good break down on the relief effort affecting repairs for drywall losses from drywall installed between 2001-2009. Entitled Revenue Procedure 2010-36, the procedure covers the following:

  • Homeowner must pay for the repair of the loss and make the claim in the year of payment.
  • You cannot make a claim that has been paid for by insurance or reimbursed by another source.
  • If the homeowner does have a pending claim or suit they can claim reimbursement for 75% of the unreimbursed amount.

Many news sources have reported on this same topic: New York Times, New Orleans Times Picayune.

This is the first major federal effort to help compensate homeowners with tainted drywall. The drywall has affected homeowners in many states with the most concentrated in Florida and Louisiana.

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Great Resources on Louisiana Construction Law

I spent a great deal of time over the past five years working hard to provide the Louisiana building industry with a comprehensive construction law resource.   The by-products of that work is this blog, along with our topic and location specific blogs:  Louisiana Construction Law Blog, the Louisiana Green Building Law Blog, and the Chinese Drywall Blog.

But, of course, I’m not the only game in town.   And I couldn’t possibly be.   There are tons of other great blogs and resources out there for folks to stay abreast on construction law issues.   In fact, I subscribe to all of these blogs and resources and get a lot of information from them.

Here are some of my favorites:

-  Louisiana Law Blog.   Not updated often, but whenever something is posted, it’s something worth reading.   Published by the KeanMiller firm, the only downside here is that the posts aren’t always about construction law issues.   It’s more of a general blog that touches on construction law issues.

- Louisiana Construction Law Blog on Blogspot.  Aside form our firm, this is the only other firm that blogs exclusively about Louisiana Construction Law.   Their blog, while new, is also very resourceful, and they are doing a great job of blogginThis article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.g about issues that affect Louisiana contractors.

- Mike Purdy Public Contracting Blog.  Not a blog specifically about Louisiana issues, but there is plenty here that can help a Louisiana contractor who does public construction work.

- Shields Mott Lund Newsletters.   While not a blog, and a bit reminiscent of how newsletter content was disseminated by law firms in the 1980s, there’s no denying that once you find this information, it is good.

- Louisiana State Board of Contractors Announcements.   Not only is the board’s website a good place to find information on the state’s licensing requirements, but they also have an “announcements” page, where they sometimes alert folks to changes in the law that affect the construction industry.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.

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Analyzing Orleans Parish Decision Striking Homeowners Insurance Co.’s Affirmative Defenses

Last week, it was widely reported that Orleans Parish Judge Medley issued a ruling striking certain policy exclusions relied upon by a home insurer in denying a Chinese Drywall claim. We posted about the news on our blogs as well.

Since then, the plaintiff’s motion and the judge’s actual order has circulated through news agencies and the blogosphere, giving us attorneys some time to review the same. It’s a practical certainty these issues will get appealed to the Louisiana 4th Circuit, and so reviewing the decision’s reasoning is important as other plaintiffs’ cases prepare to build upon it.

First, there is no need to reinvent the wheel in our review of this decision, as Merlin Law Group’s Property Insurance Coverage Law Blog posted an excellent analysis of the decision: Chinese Drywall Claims May Be Covered Under Homeowners Policy – Favorable Developments in Louisiana. I highly recommend reading this blog post, as it goes into significant detail about Judge Medley’s reasoning.

I also recommend reading the judge’s actual order and reasons for judgment in Simon Finger v. Audubon Insurance Company (Judge Medley Order on Motion to Strike Exclusions).

General Analysis

Before getting into the court’s review of each policy exclusion, Judge Medley’s reasons provided the requisite overview of Louisiana’s jurisprudence in interpreting insurance policies. Namely, that interpretation of insurance contracts is a question of law (Brown v. Drillers, Inc., 630 So.2d 741,749-50, La. 1994), and that insurance policies should be interpreted to effect, not deny, coverage (Breland v. Shilling, 550 So.2d 609-11, La. 1989).

To aid in the court’s determination of whether the insurance provisions were or were not ambiguous, the court quoted the deposition of Audubon Insurance Company’s corporate representative, Kathleen Spinella, who testified as follows:

Q: I said, given your experience in working with insureds and how they might interpret or understand the policy, do you think that a person would read this and think that they would need to buy additional coverage to cover Chinese drywall?

A: It would depend on the person. If I read it, I would know it. I’m a person. There’s other persons that may not.

When an insured has an “all risk” policy, like the one in question in the case, the insured has only a very light burden to show that damage to the property occurred. Thereafter, the insurance company must prove the applicability of its exclusions, and exclusions are strictly construed.

The Pollution Exclusion

Read the Chinese Drywall Blog’s previous discussions about the “Pollution Exclusion.”

The Audubon Insurance policy construed by the Orleans Court had a pollution exclusion as follows:

We do not cover any loss, directly or indirectly, regardless of any cause or event contributing concurrently or in any sequence to the loss, caused by the discharge, dispersal, seepage, migration or release or escape of pollutants. Nor do we cover the cost to extract pollutants from land or water, or the cost to remove, restore, or replace polluted or contaminated land or water. A “pollutant” is any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and “waste.” A “contaminant” is an impurity resulting from the mixture of or contact with a foreign substance. “Waste” includes materials to be disposed of, recycled, reconditioned or reclaimed.

Citing Doerr v. Mobile Oil Corporation, the court reminded Audubon Insurance that the pollution exclusion does not, and was never intended to apply to residential homeowners claims for damages caused by substandard building materials. Both the precedent in Doerr and the Louisiana Department of Insurance have isolated a pollution exclusion’s applicability to incidents that cause “environmental damage.”

“The fact that Chinese Drywall releases various gases into the home is not sufficient to qualify as a “pollutant” under the policy exclusion.”

Gradual or Sudden Loss Exclusion

Audubon Insurance also claimed the “gradual or sudden loss” exclusion applied, which provided:

We do not cover any loss caused by gradual deterioration, wet or dry rot, warping, smog, rust or other corrosion. In addition, we do not cover any loss caused by inherent vice, wear and tear, mechanical breakdown or latent defect. However we do insure ensuing covered loss unless another exclusion applies.

Judge Medley’s decision reminded Audubon that the Gradual or Sudden Loss exclusion is designed to exclude expected losses. In the case of Chinese Drywall, the losses relate to an off-gasing of the drywall and not by normal wear, tear and/or gradual deterioration of the material.

The fact that the exclusion uses the phrase “rust and corrosion,” and there may be rust and corrosion in the home, does not change the purpose and meaning of the exclusion. In the case of Chinese Drywall, the rust and corrosion is not the cause of the damage – the drywall is.

The more troubling component for the insured (plaintiffs) of the Gradual or Sudden Loss exclusion is the “latent defect” or “inherent vice” terms. Homeowner policies typically exclude damages caused by a product that has a latent defect or inherent vice, which, although not defined in the insurance policy is typically defined as “a product imperfection that is not discoverable by reasonable inspection.”

Chinese Drywall, the court points out, is not damaging or destroying itself. The drywall itself is working fine as drywall. This fact runs afoul to jurisprudence and secondary analysis of the “Gradual or Sudden Loss” exclusion, which typically excludes coverage for losses caused by defects in a material causing damage or destroying itself as material. Thus, justifying the exclusion because it is caused by a latent defect in the material causing expected damage.

Faulty, Inadequate of Defective Planning Exclusion

Finally, Audubon Insurance claimed the “FIDP” exclusion applied, which provided:

We do not cover any loss caused by faulty, inadequate or defective:
a. Planning, zoning, development, surveying, siting;
b. Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
c. Materials used in repair, construction, renovation or remodeling, grading or compaction; or
d. Maintenance; of part or all of any property whether on or off the residence. However, we do insure ensuing covered loss unless another exclusion applies.

Here again, Judge Medley observes that the Chinese Drywall itself is not defective, and has the benefit of relying upon the insurance company’s own expert report and own testimony that the drywall itself is not defective. It does not even address (d) of the exclusion, which it notes in a footnote, Louisiana courts have “permitted the ensuing loss provision to provide for coverage for damages resulting from a previous excluded loss.”

Conclusion

This is a really terrific decision for Louisiana homeowners who have filed insurance claims. For those who have not filed a homeowners insurance claim, time is running out!

The decision will be appealed to the 4th Circuit, and the 4th Circuit’s review of the decision will be de novo. So, this is not the end of the road. It does, however, demonstrate that there is a real argument against homeowner insurance carries available to homeowners who are looking desperately for a remedy to their Chinese Drywall problems.

While grounded in good argument, there may be some problems in store for this decision.

First, as discussed previously on this blog, Louisiana is unlike most other states in its interpretation of the pollution exclusion, and so while it may not apply in Louisiana, it may still have application in other states. Second, the insurance company in this suit (Aubudon) relied very heavily on the pollution exclusion, and was a bit unprepared for arguments concerning whether the drywall was or was not itself defective (see: Lawmakers seek Chinese Drywall Fire Hazard Declaration).

More to come…

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CPSC Stiff Recommendations Positive Development for Homeowner Claims

While the country waited for federal Judge Fallon to issue his ruling concerning the remediation requirements in homes with Chinese Drywall, the U.S. Consumer Product Safety Commission released a report of its own calling for applicable homes to remediate the problem by removing and replacing all drywall, fire alarm equipment, sprinkler systems, electrical equipment, wiring and gas piping.

Builders, Manufacturers, Insurers and anyone else who may have liability for the loss are calling the protocol overkill, while homeowners with the drywall are breathing a sigh of relief.

Read the reports and get more information from the U.S. Consumer Product Safety Commission’s online Drywall Information Center.

Good News for State Litigation

In the past, we’ve posted about why the federal class actions may not be optimal for homeowners with Chinese Drywall. the recent decision by Orleans Parish Judge Medley holding a homeowner insurer’s feet to the fire is an example of how state litigation is proceeding faster than federal litigation, and the recent protocol from the CPSC is another example.

One of the items holding back plaintiffs in the state litigation is the lack of clarity for themselves, and their experts, as to how the Chinese Drywall should be remediated. The release of the CPSC’s report, however, provides the plaintiffs and their experts with authority in proceeding in their state matters.

Break-Down of Interim Justifications

The remediation guidelines are styled “Interim Remediation Guidelines,” in that they are released by the Commission based on the “information available at this time.” In other words, the science on these questions is not entirely complete but homes need to be remediated, and while the end result may change, these iterium guidelines will cast a wide net to ensure homes need not be remediated twice.

Read the Interim Remediation Guidelines in full here.

Item 1: Remove all Drywall. The justification for this is that there has been “scientific and practical” challenges identifying which drywall is contaminated, and which is not. So, unless one can say positively that certain drywall is not contaminated, the safe bet is to remove it.

Item 2: Fire safety alarm systems, electrical components, wiring, gas service piping, sprinker systems should all be removed according to the commission, as this should “address the metal components in the home at greatest risk of being affected by drywall-induced corrosion in a way that may affect the occupants’ safety.”

Here, the Commission is not making recommendations of removing these items because they are positively damaged, but simply because they are metal components of the home, they may be or become damaged, and damage of these items is a safety hazard.

Item 3: The Commission’s focus on safety is illustrated by what they did not include in their guidelines: the replacement of copper water service piping and HVAC evaporator coils. The Commission says such items may be replaced, but it is not included in the guidelines because there is no direct connection to safety.

Overkill?

The Commission themselves comments on this:

The Task Force recognizes that other remediation approaches could ultimately prove more cost-effective and/or less invasive, such as the preservation of insulated wiring, but additional study is required on such approaches. Ongoing CPSC studies on long-term corrosion, due later in 2010, should provide relevant scientific information.

This article was originally posted on Wolfe Law Group’s topic-specific Chinese Drywall Blog.

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Orleans Parish Judge Says Insurance On The Hook for Chinese Drywall

In the past, we’ve discussed whether homeowner insurance policies will be liable for Chinese Drywall damages.   This week, Judge Medley in Orleans Parish Civil District Court gave Louisiana it’s first answer holding that the exclusions relied upon by the Defendant insurance companies didn’t make the cut.

Of course, the Defendant insurance company (Audubon Insurance Co) will appeal this ruling, but this is a really great first step for plaintiffs who are looking everywhere for a solution to Chinese Drywall woes.

So, which exact exclusions were adjudicated?

The pollution exclusion, which Judge Medley rejected based upon the Louisiana Supreme Court’s treatment of such clauses in cases like Doerr v. Mobil Oil Corp, which qualifies the pollution exclusion in insurance policies to only cover “environmental damage.”

The “latent defect” exclusion was also rejected, with Medley ruling that the clause didn’t apply because the drywall itself wasn’t a latent defect.    The drywall worked just fine as actual drywall, and therfore, wasn’t a latent defect in itself.

Homeowners Ought to Act Fact to Make Claims

In December 2009, we wrote that “Fast Action” was required for homeowners to make Chinese Drywall claims against their homeowners insurance policies.    Why?    Because policy-holders in Louisiana only have one year to bring claims (and file a lawsuit to enforce the claim) from when they knew or should have known of the loss.

Many homeowners are not making claims because they’re concerned about having their insurance policies cancelled.   Certainly, this is an issue as Louisiana insurance companies have already begun canceling policies on homes with contaminated drywall.    The danger cannot be explained away, but there are two important things to remember about this:  (1) policies are being cancelled regardless of whether claims are being made; and (2) homeowners insurance may be your best bet for fast recovery of drywall damages.

The particular case decided by Judge Medley isn’t part of the federal MDL (or class action).   Like many other homeowners with these problems, the plaintiffs in that case are seeking remedies against their builder and insurer through individual actions in state court.  As evidenced by the Medley decision, these actions are being adjudicated and are posting successful results.

This article was originally posted on Wolfe Law Group’s topic-specific Chinese Drywall Blog.

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