This is part-one of a two-part series that will discuss the recent ruling in the case of Walker v. Teachers Insurance Company.

HarrisMartin is reporting that the first ruling on Chinese Drywall insurance coverage has been made in Florida and the decision is favorable to the insureds. Tampa, Florida, residents, Melissa and William Walker filed a claim with Teachers Insurance Company for damages at their Odessa home caused by Chinese Drywall. The policy of insurance Teachers issued to the Walkers provided “all-risk” structure coverage for the home, but the claim was denied. In 2009, the Walkers filed suit against Teachers and, most recently, were granted a partial summary judgment in favor of coverage for the loss. The trial court found that none of the exclusions in the homeowners’ policy applied to circumstances of this loss.

Chip’s posts on Chinese Drywall have provided great background on drywall litigation and updates as the cases were unfolding in jurisdictions outside of Florida. Back in April of 2010, we learned how a Louisiana trial court gave hope to homeowners in Simon Figer & Rebecca Finger v. Audubon Insurance Company. Most notably, we learned it was the specific provisions of the policy that helped the Court find for the policyholders. The policy language, coupled with testimony by the insurer’s corporate representative about the scope of the investigation, specifically showed how the exclusion for defects could not be the basis for denial. The testimony revealed the insurer did not investigate to see if the drywall was installed properly and the representative admitted that certain policy provisions could be interpreted to have different meanings. The Plaintiffs in this Louisiana case convinced the trial court and defeated the defenses raised by the insurance company.

But the Chinese Drywall cases in Louisiana did not end there. In December 2010, Chip posted about another Louisiana decision, In re: Chinese Manufactured Drywall: Products Liability Litigation, that also considered whether damage caused by Chinese Drywall was covered under residential Louisiana policies. While the Federal District Court ruled that Chinese drywall caused the requisite “physical loss” necessary for coverage and determined the loss was accidental, the Court ruled the damages were excluded and that no exceptions could be applied to provide coverage for the damages. The carriers had argued faulty materials exclusions and corrosion exclusions applied and the Court agreed. The Federal Court said “Plaintiffs’ claims for losses related to Chinese drywall are excluded by the faulty materials exclusion and corrosion exclusion … it is now necessary to consider the effect of the ensuing loss for faulty materials and corrosion. These ensuing loss provisions, though the language varies slightly, generally provide coverage for ensuing or resulting losses which (1) constitute covered losses, (2) not excepted from coverage by any coverage exclusion.”

Plaintiff argued the odors emitted by the drywall caused an ensuing losses but the Court said it was not sufficiently different from the losses caused by Chinese drywall and that it was not an extraneous event or inseparable from the drywall and was really a continuous result. The Court was not persuaded that the corrosion was an ensuing loss and did not find a way to apply coverage for these Louisiana policyholders.

Now, we have a court giving us a decision on Chinese Drywall coverage in Florida. Earlier this month, The Walkers were granted partial summary judgment for their loss. Judge Foster held that coverage was available for the Walkers’ personal property and structure damages caused by Chinese Drywall. To understand the Court’s ruling, it’s important to understand the reasons Teachers Insurance Company relied upon for not paying the claim. Teachers said:

  1. there was no direct physical loss to the property;
  2. the damagers were excluded because they were caused by “wear and tear” and;
  3. the damages were a result of erosion, omissions and/or defects and excludedfrom coverage.

The Walkers argued that the corrosion damage to their home was a direct physical loss because it resulted directly from gases released from the drywall. “[T]he corrosion damage…was a ‘direct’ consequence since the emission of emission of the gases set into motion a sequence of events proximately resulting in the corrosion to the metal components within the home.” Judge Foster agreed and determined that there was a direct physical loss at the Walker home because the off-gassing was an “unforeseen” and “uncontemplated” event which caused sudden and accidental chemical reactions, resulting in damage to the components within the home and creating an irritant and hazard to the Walkers.

Next Saturday, my post will further discuss how the Court considered the exclusions raised by the carrier and why the Court struck the insurance company’s defenses.