Is My Drywall Chinese? - HB Litigation Conferences

the several Chinese drywall claims against them. These facts might include the decision at
one point in time to use a single supplier or installer, or the common attributes of the drywall
regardless of the particular home in which it was installed. The ability of contractors to
demonstrate that, as a factual matter, their liability for Chinese drywall claims resulted from a
single cause will ultimately determine how a court will rule on the “number of occurrences”
issue in the contractor’s suit for insurance coverage.
IV. The “Impaired Property” Exclusion
In the first lawsuit between a contractor and its CGL insurer over coverage for the
builder’s liability for claims based on Chinese drywall, one of the grounds on which the
insurer has denied coverage is the “impaired property” exclusion. Builders Mut. Ins. Co. v.
Dragas Management Corp., C.A. No. 2:09cv185 (E.D. Va. filed April 27, 2009). This
exclusion excludes coverage for:
“Property damage” to “impaired property” or property that has not
been physically injured, arising out of:
1. A defect, deficiency, inadequacy or dangerous condition in
“your product” or “your work”; or
2. A delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms.
This exclusion does not apply to the loss of use of other property
arising out of sudden and accidental physical injury to “your product”
or “your work” after it has been put to its intended use.
“Impaired property” is defined in the policy to mean:
tangible property, other than “your product” or “your work,” that
cannot be used or is less useful because:
a. It incorporates “your product” or “your work” that is known or
thought to be defective, deficient, inadequate or dangerous; or
b. You have failed to fulfill the terms of a contract or agreement;
- 6 -