Louisiana Court: Policy Exclusions Can’t Be Used to Deny Drywall Claims

A Louisiana court has rebuffed an insurer’s use of the pollution exclusion and two other exclusions in an “all risk” homeowners insurance policy to deny claims resulting from Chinese drywall.

Specifically, the Civil District Court in New Orleans Parish, in Simon Finger and Rebecca Finger versus Audubon Insurance Company, No. 09-8071, said Audubon’s “Pollution or Contamination” (POL), Gradual or Sudden Loss” (GSL) and “Faulty, Inadequate or Defective Planning” (FIDP) exclusions could not be used as “affirmative defenses” to deny coverage in the case.

The Fingers filed a claim related to damage caused by “off-gasing” from the drywall under their homeowners policy in June 2009. Audubon denied the claim citing the exclusions listed above.

In the order describing its reasoning, the court asserted that under an “all risk” policy, an insured “has a ‘very light’ burden and must show only that damage” occurred. The onus is on the insurer to clearly define why claims are denied. In addition, “exclusions must be interpreted as narrowly as possible to provide maximum coverage for the insured,” the court said.

According to the court, the pollution “exclusion does not, and was never intended, to apply to residential homeowners claims for damages caused by substandard building materials.”

The court additionally noted that the “fact that Chinese drywall releases various gases into the home is not sufficient to qualify as a ‘pollutant’ under the pollutant exclusion.” It also said the corrosion caused by off-gasing is the loss not its cause.

The court’s opinion was written by Judge Lloyd J. Medley on March 22, 2010.