Home Insurers Not Liable for Toxic Drywall Claims

NEW ORLEANS (CN) - Insurance companies do not have to pay homeowners' claims related to toxic Chinese drywall, a federal judge has ruled.

U.S. District Judge Eldon Fallon found that because homeowners' insurance policies expressly state they do not cover for faulty or defective material, they do are liable for Chinese drywall, which, according to the judge's ruling, can be considered both "faulty" and "defective".

The Chinese drywall corrodes metal wiring and plumbing, including air conditioners, refrigerators and other appliances, and gives off a rotten-egg smell, homeowners claimed. Houses with Chinese drywall must be gutted and new drywall must be installed before the problems associated with the drywall can be resolved.

Homeowners had argued the drywall was not "faulty" because it conformed to its intended purpose, but also happened to be toxic, according to court papers.

Fallon disagreed, writing that despite the drywall's functionality, it still "constitutes a faulty material."

"Although the drywall serves its intended purpose as a room divider, wall anchor and insulator, the allegations in the complaints provide that the drywall emits foul-smelling odors and releases gases which damage silver and copper components in the home, including electrical devises, appliances, and wiring," Fallon wrote.

The ruling granted motions to dismiss to 10 insurance companies fighting claims from homeowners over the drywall.

So far a settlement has been reached with just one manufacturer of toxic drywall, but there are many other manufacturers of the building material that have failed to even acknowledge the litigation.

Millions of sheets of imported Chinese drywall flooded the U.S. market during the housing boom after a series of disastrous hurricanes, particularly in the southeastern United States, in the past 10 years created a housing shortage.

The Consumer Product and Safety Commission discovered a connection between the Chinese drywall and consumer complaints of sulfuric gas emissions and corroded pipes and wires.

The thousands of suits filed nationwide over the drywall were consolidated last year under Fallon in New Orleans. The city had the most toxic drywall filings, as thousands of homeowners rebuilt their houses using Chinese drywall following Hurricane Katrina.

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