Simon Finger et. al. v. Audubon Ins. Co.
(Louisiana Civil District Court, Parish of Orleans, March 23, 2010)
This coverage dispute arose from the insurer’s denial of coverage for claimed damages due to the off-gasing of Chinese drywall installed in the policyholder’s home. The insurer denied coverage based on the application of three policy exclusions: Pollution exclusion; Gradual or Sudden Loss exclusion; and Faulty, Inadequate or Defective Planning exclusion.
The court held that under Louisiana law, the pollution exclusion “does not, and was never intended, to apply to residential homeowners’ claims for damages caused by substandard building materials.” It further held that, “the fact that Chinese drywall releases various gases into the home is not sufficient to qualify as a ‘pollutant’ under the pollution exclusion.” Thus, under these circumstances its applicability was invalid and the insurer’s affirmative defenses based on this exclusion were stricken.
Likewise, the court held that the gradual deterioration exclusion and faulty planning exclusion did not apply because there was no evidence that the drywall was deteriorating or damaging itself via a “latent defect” and could still perform its primary functions (i.e., fire protection, sound and heat insulation, paint application). Specifically, the court noted that the GSL exclusion is designed to exclude expected losses and because the losses here related to drywall off-gasing, rather that wear and tear or gradual deterioration, the exclusion did not apply. Consequently, as none of the exclusions applied, the court stuck each of the insurer’s affirmative defenses based on the exclusions.
For a copy of the decision click here
Paul Steck and Rick Cohen