.... The Coverage Issues Continue.
Commercial General Liability or "CGL" Insurance Policies are the main kind of Liability Insurance Policies issued to general contractors and to subcontractors on construction projects. They are then the main kind of Liability Insurance Policies that are likely to be involved in Chinese Drywall Claims, if at all.
"Property Damage" in or under a CGL Policy generally includes physical injury to tangible property. It can also include resulting loss of use of that tangible property, in basic and general terms.
Like "Bodily Injury" Liability Coverage, "Property Damage" Coverage is ordinarily limited in a CGL by a requirement that there be a covered "Occurrence" within the Policy Period. That time is often held by the Courts to be when the Property Damage manifested itself. Cf. Download Mancini v. Insurance Corporation of New York (S.D. Cal. Order of Stormes, United States Magistrate Judge, Filed June 18, 2009), attached Official Slipsheet Opinion at 7 (Interrogatories which inquired into types of Damages, and into types and costs of Repairs held relevant where stated legal standard of Insurance Coverage was manifestation of the Property Damage).
An alternative measure of when the Property Damage first Occurred is when the injury happens, not when someone sees it. As in the case of "'cracks in the walls and ceilings'" of a home in Texas that were "allegedly caused by the faulty foundation" at issue in Download Wilshire Insurance Co. v. RJT Construction, LLC (5th Cir. Opinion Filed August 26, 2009), attached Official Slipsheet Opinion at 3-4, which were the alleged Property Damage and "not merely a warning of prior undiscovered damage," so the chemical degrading of other work caused by the fumes of Chinese Drywall is arguably the Property Damage itself and not merely a warning of prior undiscovered damage, either.
There is also an Exclusion at work in many Construction Cases, which is applicable to work performed by subcontractors on behalf of an insured general contractor. The Exclusion applies to Property Damage. It involves the Products-Completed Operations Hazard Coverage found in most CGL Policies. In basic and simple terms, it is an Exclusion of Liability for Damage to Your Work when the "Work" such as a house or other building is completed. Then and only then does the Damage to Your Work Exclusion apply to exclude Liability Coverage for Property Damage to "your work" arising out of it or any part of it.
However, there is a major exception to this Exclusion if either (1) the damaged "work" or (2) the work out of which the Property Damage arises, was performed on the Insured's behalf by a subcontractor. "The exclusion, however, only precludes coverage for liability for repairing or replacing the insured's own defective work; it does not exclude coverage for damage to other property resulting from the defective work." Download Wilshire Insurance Co. v. RJT Construction, LLC (5th Cir. Opinion Filed August 26, 2009), at 6. The facts of the Wilshire Insurance Co. case are a good illustration of when the "Your Work" Exclusion does, and does not, apply. "The complaint alleges that the faulty foundation caused damage to other parts of the house that RJT did not work on including the walls and ceilings. The 'your work' exclusion does not preclude coverage for damage to the parts of the house resulting from the allegedly faulty foundation." Id.
In many other jurisdictions, including Florida, the Courts have expressly held in recently decided cases that damaged work performed by a subcontractor which causes damage to other work on the project can be an "Occurrence" neither expected nor intended from the standpoint of the Insured General Contractor under the modern CGL Policy forms. So long as there is otherwise covered "Property Damage" in such a case, there can be CGL Coverage accordingly even though the damage-causing "work" was performed for the general contractor by the sub. E.g., Auto-Owners Insurance Co. v. Pozzi Window Co. (Fla. Dec. 20, 2007, withdrawn and revised opinion substituted on June 12, 2008); United States Fire Insurance Co. v. J.S.U.B., Inc. (Fla. Dec. 20, 2007).
In terms of Property Damage Claims arising out of the installation and use of Chinese Drywall, this analysis and these holdings clearly appear to apply with equal force. The installation of the offending Drywall from China will often be done by a subcontractor, of course. The same subcontractor will also ordinarily purchase the Chinese Drywall, not the general contractor. As was posted here on August 25, 2009 for example, the installation of Chinese Drywall in homes built in the United States has resulted in many Bodily Injury and Property Damage Claims arising out of its reportedly nasty smell of sulfur and corrosion of tangible property such as copper tubing in air conditioning systems. Although there are no reported Cases on the Insurance Coverage Issues, it appears to be fairly clear that Chinese Drywall Claims can constitute a potentially covered "Occurrence" which results in potentially covered "Property Damage," Liability for which is not expressly excluded under the modern CGL simply because the "work" of buying or installing the offending Chinese Drywall was done on the Insured General Contractor's behalf by a subcontractor.
This may or may not be good news for Homeowners. In some instances, the builder may become bankrupt and its re-emergence from Bankruptcy Proceedings may be a newsworthy event in itself. Paul Owens, "Good News For WCI Homeowners With Chinese Drywall" (House Keys Blog, Florida Sun-Sentinel.com, posted Friday, August 28, 2009). However, the homeowners still need to establish that their builders have Insurance Coverage including under CGL Policies.
Other Exclusions remain to be addressed however.
Next: The Pollution Exclusion in the CGL Policy and its Effects on CGL Coverage either for "Bodily Injury" Claims or for "Property Damage" Claims which are based on the use of Chinese Drywall.
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