A Look Back at Chinese Drywall

Defective drywall

Three years after the headlines

When the southeastern United States suffered from a shortage of building supplies after several major hurricanes, more than 500 million pounds of drywall came from China to build or repair homes in Florida, Louisiana, and Virginia.

The predictions of a drywall crisis on the insurance industry regarding the effect of toxic drywall claims can now be reviewed some three years after the Chinese drywall claims made national headlines.

One theory was there would be added exclusions to insurance policies that would exclude coverage for any Chinese drywall insurance claimspossibility of toxic drywalls. This theory turned into reality:, it is common to see building materials containing gypsum or tainted drywalls excluded in many liability policies.

Looking at the claims

Although there are no facts  to support claims of Chinese toxic drywall causing health issues, Moody’s Investors Service, Inc. predicted an increase in bodily injury claims based on results of Consumer Product Safety Commission testing. So far this has not been the case.

Currently there are more than 15 state and federal cases stating that the pollution exclusions in General liability policies excludes any coverage for Chinese drywall claims. The pollution exclusions are indisputable, in that gypsum could be considered a “pollutant,” and that the sulfide gasses that emit from the drywall could qualify as an “irritant.”

Due to the limited distribution area and limited amount of time on the market, the Chinese toxic drywall is not the asbestos of the 21st century, there have been significant settlements in the past few months, such as:

  • A Chinese manufacturer of the defective drywall entered into a global settlement worth $800 million to $1 billion with all plaintiffs involved, including federal and state litigants
  • Banner Supply Co. and its insurers settled with multi-district plaintiffs for approximately $54.5 million
  • Interior/Exterior Building Supply L.P. and its primary insurers settled for $8 million with multi-district litigants.

The cost to the insurance industry

Although it is not known how much these Chinese drywall claims will cost the insurance industry, it will not be the industry crisis asbestos caused. Based on the state and federal court decisions on excluding recovery for damage under homeowners and Contractor Liability policies, as well as the limitations of the toxic drywall usage, it should significantly minimize the effect on the insurance industry.

See prior blog postings on Chinese drywall:

Source: Andrea Cortland, “Uncovering the likely cost of Chinese drywall liabilities,” Business Insurance. May 28, 2012.
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