Is My Drywall Chinese? - HB Litigation Conferences

So.2d 400, 405-406 (La. App. 2005). States where the law is unfavorable on the
“occurrence” issue include Pennsylvania, Georgia, Iowa, and Nebraska. The law in other
states is still developing. Even in states where the law is favorable on the “occurrence” issue,
contractors will still be required to establish as a factual matter that they did not learn of the
harmful effects of the drywall at issue until after it was installed.
Whether a contractor is covered for the cost of removing and replacing the defective
Chinese drywall itself -- as opposed to the cost of repairing the property damage caused by
the drywall -- is less clear. Many decisions distinguish between the cost of repairing property
damage caused by faulty work or material, on the one hand, and the cost of repairing or
replacing the faulty work or material itself on the other. See, e.g., Auto-Owners Ins. Co. v.
Pozzi Window Co., 984 So.2d 1241, 1247-49 (Fla. 2008) (windows not covered if defectively
manufactured but covered if defectively installed). A strong argument can be made that the
cost of repairing or replacing Chinese drywall is covered to the extent that such repair or
replacement is necessary to repair the property damage caused by the drywall. See, e.g.,
Newman, 2008 WL 648546, at *5 (cost of replacing defective synthetic stucco is covered
because synthetic stucco must be removed in order to repair damage to the substrate caused
by synthetic stucco). In addition, an exception to the CGL policy’s “your work” exclusion
arguably contemplates coverage not only for work damaged by a contractor’s subcontractor
but also for the subcontractor’s faulty work itself. See, e.g., Lamar Homes, 242 S.W.3d at
11 (“when a general contractor becomes liable for damage to work performed by a
subcontractor . . . the subcontractor exception preserves coverage that the “your work”
exclusion would otherwise negate”); Limbach Co. v. Zurich American Ins. Co., 396 F.3d 358,
361-63 (4th Cir. 2005 (applying Pennsylvania law) (same).
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