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Conflicting Rulings On Defects Leave Looming Questions Over Drywall Claims

Is a construction defect an occurrence covered by a commercial general liability policy? That’s the key question for homebuilders and contractors facing Chinese drywall damage claims. The insurance and liability issues are becoming increasingly complicated by conflicting state court rulings over the lingering coverage question.

By Dave Lenckus | Updated on March 07, 2011

A bewildering 12 months of state and federal court rulings have further complicated the insurance and liability landscape for homebuilders and contractors facing homeowners’ Chinese drywall damage claims, attorneys and brokers say.

Nine state and federal courts and one state legislature over the past year have addressed whether a construction defect—a defective product or faulty workmanship—is fortuitous and therefore an occurrence under the commercial general liability insurance policy.

Four jurisdictions determined it is; three said no; two ruled that a construction defect that causes consequential damage to property other than the work product is an occurrence; and one federal court contributed to conflicting case law that has developed in Oregon since its high court ruled in 2000 that a construction defect is not an occurrence (see “Scorecard” sidebar for an overview of all these decisions).

Attorneys even disagree over whether CGL policies governed by the three pro-insurer rulings should cover homebuilders and contractors for the cost of replacing defective drywall.

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