After
Hurricane Katrina dropped three trees on the roof of her home in
Folsom, Lucille Bourdon built a new home in Covington and moved in
December 2006.
Since then,
her air conditioning has failed several times, her hot water tank
split, her water faucets have developed strange pockmarks, her
mirrors and silverware have turned black, and she constantly feels
fatigued. In August, Bourdon figured out that her new home is filled
with Chinese drywall.
Like most
Chinese drywall victims, Bourdon filed a claim on her homeowners
insurance without success. Her insurer, State Farm Fire & Casualty
Co., sent an inspector to thoroughly document the damage,
then denied the claim.
"My
insurance won't take care of it," said Bourdon, 79, who is now
living in a trailer on her property until she figures out how to fix
her home. "They say they don't cover pollution. We can't get any
help from anybody."
Insurers
are wary of Chinese drywall, which the risk management firm Towers
Perrin recently estimated could cost the industry $15 billion to $25
billion, or three to five times the cost of the insured property
losses of Hurricane Rita.
Claims will
involve not only homeowners asking their insurers for help
remediating, but also pursuing the commercial liability policies of
builders, contractors and suppliers who handled the product before
it got to their homes. And if federal investigators can establish a
link between the gases emitted by the drywall and health problems
that people like Bourdon are experiencing, there could be a wave of
bodily injury claims.
So far,
homeowners insurers throughout the state
have been denying Chinese drywall claims on the basis of a
"pollution exclusion" in the policy or "latent defects" in the
materials.
State Farm,
Bourdon's insurer, has a "contamination exclusion" and a "corrosion
exclusion," and spokesman Dick Luedke said that his company's
insurance policies simply aren't designed to assist in these sorts
of situations.
"A
homeowners policy is not designed to
repair or replace defective material that a homeowner has installed
in their home. You're not purchasing a warranty on a product. You're
purchasing coverage on sudden or accidental events that may occur,"
Luedke said. But state Sen. Julie Quinn, R-Metairie, believes that
hope is not lost for homeowners. She thinks that insurers are
misapplying the "pollution exclusion," and cites a 2000 Louisiana
Supreme Court case saying that pollution exclusions are not supposed
to apply to homeowners who inadvertently find themselves with
polluted homes.
Moreover,
Allan Kanner, a past president of the Louisiana Association for
Justice who is working on the consolidated federal litigation over
Chinese drywall, believes the "latent defect" denials are ripe for
challenge. Even if the denials stand up in court, Kanner thinks
they'll apply only to the cost of the drywall itself, and insurers
will still be responsible for the indirect damage that the wallboard
causes, such as failed air conditioners and compromised wiring.
But major
questions on homeowners insurance remain. If, for example, corroded
wiring in a home with Chinese drywall causes an electrical fire, is
the house fire covered? By Kanner's reasoning, it could be, since
insurers could still be responsible for the consequential damages
caused by the defective drywall. But by the logic that some insurers
used after Katrina to deny claims, if an uncovered peril, such as
the drywall, caused a normally covered loss, such as a fire, the
fire wouldn't be covered because the trigger wasn't covered.
Similarly,
questions remain about whether the clock has run out for filing
Chinese drywall insurance claims, since many homeowners installed
the drywall in 2006 but didn't learn until 2009 that it was
problematic. Louisiana gives homeowners two years to file and
resolve claims on their insurance, so if the installation of the
drywall is considered the critical event rather than the discovery
of problems associated with the drywall, homeowners may be unable to
make a claim.
A bigger
deal than claims against homeowners
policies could be people using a special Louisiana law to file
claims against the insurance policies of builders, contractors and
suppliers.
Kerry
Miller, chief defense lawyer in the consolidated federal litigation
over Chinese drywall, said that in most states, aggrieved parties
must sue the builder, contractor or supplier and get a legal
judgment before they can file a claim against that company's
insurance policy. But Louisiana and Wisconsin are the only states in
the nation with "direct action" laws, which enable victims to file
claims directly against a company's insurance policy.
Miller said
that Louisiana's direct action law will help resolve disputes more
quickly, and that's good for everyone concerned. Miller also thinks
the direct action law could help further consolidate the litigation
in New Orleans, because, for example, if a distributor worked in
both Louisiana and Mississippi, drywall victims from outside the
state might be able to make a claim against the company's insurer in
Louisiana based on the direct action law.
"I think
the direct action law will be a great benefit," Miller said. "It
really does shorten the process."
But Randy
Maniloff, an insurance defense coverage attorney in Philadelphia who
has been following Gulf Coast insurance issues, is doubtful that
homeowners will find deep pockets in builders' commercial liability
policies.
Most local
contractors carry only about $1 million of coverage, Maniloff said,
and that's not going to go far in getting people the money they need
to repair in the face of so many claims.
The
National Association of Home Builders testified before Congress that
it will probably cost between one-third of a home's value and
$100,000 to repair. Meanwhile, a major builder, Lennar Homes,
disclosed in a recent financial filing that it had set aside about
$100,000 per home to remediate houses that it built with Chinese
drywall.
Moreover,
in the challenging insurance environment when many companies were
scrambling to buy policies, many of them switched to another carrier
as they found better options. Pinning down which policy should be
responsible and for how long could be tough, Maniloff said.
But Kanner
is optimistic. "I'm very bullish about the homeowner cases, but I'm
more bullish about the commercial cases. I haven't seen a commercial
policy yet that wouldn't seem to cover it," he said.
. . . . . . .
Rebecca Mowbray
can be reached at rmowbray@timespicayune.com or 504.826.3417.
©2009 timespic
