Chinese Drywall Insurance Coverage

The “Chinese drywall” problem is just starting to snowball. According to Independent Agent Magazine, “the property loss from Chinese drywall could exceed every U.S. hurricane except Katrina (2005) and Andrew (1992).”

How much is that? The expected property loss settlements could top $20 to $30 billion dollars.

An estimated 500 million pounds of tainted drywall came into the United States from 2004 to 2006 — that is about 7.1 million 4’x8’ sheets of drywall and it may be in more than 100,000 homes.

While the number of homes affected is greatest in Florida, Louisiana, Mississippi, Alabama and Virginia, the drywall supplies have affected all but 12 states.

The image below shows the impact of Chinese drywall will be widespread based on complaints received as of May 12, 2010 at the Consumer Products Safety Commission.

We’ve only seen the tip of the iceberg on this ordeal with regard to insurance claims and claim settlement. To date, only three home builders have settled minor lawsuits with the Chinese drywall manufacturing companies. Additionally, individual homeowners are currently consulting attorneys to determine their possible courses of action in recouping money spent on the defective drywall.

There are really two separate issues here from an insurance standpoint. At the moment, property losses are the top concern. That is; tearing out and replacing the tainted drywall (which to most, seems like it should be included in property damage coverage), technically described as a pollutant. We have not even scratched the surface for potential health-related claims associated with exposure to the “polluted” product.

Chinese-made drywall is increasingly being known to have certain health risks, partially due to a high levels of hydrogen sulfide: a colorless, flammable sulfur gas that can cause metal corrosion in homes. Some of the most commonly reported health symptoms related to Chinese drywall include headaches, sinus infection, persistent cough, as well as recurrent headaches. The drywall can release other harmful sulfur gasses like copper sulfide and carbonyl sulfide when exposed to high temperatures and humidity.

Does My Homeowner’s Insurance Cover the Cost to Remove and Replace the Drywall?

Unfortunately, the likely answer is “NO.” Almost every homeowner’s insurance policy contains a “pollution exclusion.” Odds are, you haven’t heard of the exclusion, as most insured are typically concerned only with the overall premium of a policy versus the exact coverage afforded (or not).

This basically means there is no coverage available for any pollution related claims. Of course, this will likely be argued in courts for some time. It seems that there should be additional coverage for people finding themselves with a toxic drywall installation situation. There is, and it’s a liability policy that is often overlooked and thus, many people do not have.

What options do I have?

If the pollution exclusion defense holds up in courts for your insurance company, seeking damages via a lawsuit from your home builder, the contractor who performed the installation in your home or business, or the company who sold you the drywall (if you installed it yourself) may be your only option.

All parties referenced above should have their own commercial general liability insurance (CGL), which covers products and completed operations, or in this case, the actual drywall and its installation.

But the odds of getting money out of these companies may be slim. The aforementioned “pollution exclusion” exists on the CGL homeowners policy as well. While insurance companies do offer pollution liability, the odds your local contractor or hardware store has this coverage is about the same as you having it. If you’re suffering medical bills, or an erosion of metals within your home, it is still worth looking into.

This doesn’t mean you can’t recoup damages from these organizations, it just means you can’t get money from their insurance companies. Unfortunately, many of these companies may simply file bankruptcy to avoid paying for these damages out of their own pockets.

When looking into Chinese drywall remediation, consider going with an American-made drywall. Make sure that it doesn’t come from a Chinese drywall manufacturer.

(top photo: iluvrhinestones)