Virginia homeowners may have just lost their last best chance to recover for damages caused by defective drywall made in China. On November 1, 2012, the Virginia Supreme Court ruled that the standard exclusions in a homeowner's policy provide a sufficient basis for the insurance carrier to deny liability. The case will likely have far-reaching implications for all parties involved in the recent swell of "Chinese drywall" litigation. Not only will homeowners be affected, but their general contractors and drywall installer sub-contractors will no longer have the potential of seeking contribution from insurance carriers. The case is TravCo Insurance Company v. Ward, ____Va. ____(2012).
In May of 2007, Larry Ward bought a newly constructed home in Virginia Beach and obtained an "all risk" homeowner's insurance policy from TravCo, which is a division of The Travelers Insurance Company. By May of 2009, the "off-gassing" of sulfide gasses and other toxic chemicals contained within the Chinese drywall had caused Mr. Ward to suffer health issues as well as incur significant property damage. Off-gassing from Chinese drywall is known to cause metal to corrode, affecting metal components used in the construction process itself as well as metal contained in appliances and electronic instruments. In addition to health issues, Ward alleged damage to the HVAC system, garage door and flatscreen televisions. Ward hired an expert who substantiated that these damages were caused by the high sulfur content mixed with other toxic gasses emitted by the Chinese drywall.
Ward made a claim on his homeowner's policy, which was denied by TravCo. TravCo then filed a lawsuit asking the court to declare that coverage was excluded by the terms of the homeowner's policy. Specifically, TravCo took the position that it was not liable for loss caused by: 1) latent defect; (2) faulty, inadequate, or defective materials; (3) rust or corrosion; and (4) pollutants, defined to include any gaseous irritant or contaminant.
Ward argued that the exclusions should not apply because the sulfuric content of the drywall was potentially discoverable through testing prior to the installation and therefore was not a "latent" defect. He also argued that the "faulty, inadequate or defective materials" exclusion should not apply because those terms were not defined in the policy. He further argued that the damage from "rust or corrosion" exclusion should not apply because the damage was the "rust or corrosion" itself and that the "pollutants" exclusion was ambiguous, overbroad and unreasonable.
The Court found in favor of TravCo on all counts, taking the position that the language of exclusions must be construed in light of their plain, usual and ordinary meanings, in other words, that the "off-gassing" was pollutant and a latent defect of faulty, inadequate or defective materials causing rust or corrosion resulting in damage. The Court went on to say that there was no insurance coverage because each of the four exclusions is unambiguous and reasonable in its form, scope and application and excludes coverage for damage resulting from the Chinese drywall.
So, where does this leave the homeowner? Insurance companies are sure to make use of the TravCo decision in denying liability. What about the general contractor who built the house or the sub-contracter who installed the drywall? No doubt, the lawsuits will continue against them for some time to come. And, there will be one less party at the settlement table or in court -- the homeowner's insurance carrier. Of course, there remains the option of suing the Chinese manufacturer directly, but this approach may be cost-prohibitive for many consumers and contractors alike.