Florida Builder Sues Insurers Over Chinese Drywall Claims

A luxury residential construction firm has filed suit against 14 insurance companies to force them to cover claims relating to allegedly defective Chinese drywall.

The suits were filed by WCI Chinese Drywall Trust, which was formed in bankruptcy proceedings of residential homebuilder WCI Communities Inc. to assume WCI’s liability or losses relating to Chinese drywall claims, to pursue recoveries from insurers and to prosecute actions against subcontractors and suppliers. WCI builds homes and residential communities in Florida, New York, New Jersey, Virginia, Maryland and Connecticut.

WCI began receiving complaints in 2006 of property damage and bodily injury allegedly arising from Chinese drywall that included increased rates of corrosion of soft metal materials such as air conditioning coils, refrigerator tubing, electrical wires and television connections; various health issues; and tarnishing of silver and sift metal within the homes.

WCI projects that as many as 700 homeowners may eventually file claims.

WCI asserts that all of its and the subcontractors’ insurers have either denied coverage, reserved their rights, failed to reply at all or in other ways refused to acknowledge coverage.

The insurance policies at issue consist of liability and excess policies sold to WCI as well as various subcontractor policies on which WCI is a named and additional insured. Aggregate insurance policy limits purchased by WCI, its subsidiaries and subcontractors amount to more than $200 million.

The five insurance companies for WCI listed in the suit and their potential exposure are: American International Specialty Lines Insurance Co.- four $25 million policies and another $1 million policy; Illinois Union Insurance Co.- $15 million; Lexington Insurance Co.- $15 million excess and another excess policy with unspecified limits; Old Republic Insurance Co.- $3 million; and Steadfast Insurance Co.- $15 million and $25 million excess policies.

The nine insurers for drywall subcontractors cited in the suit are American Guarantee and Liability Insurance Co.; Amerisure Insurance Co./Amerisure Mutual Insurance Co.; Auto-Owners Insurance Co.; FCCI Commercial Insurance Co./FCCI Insurance Co.; Hermitage Insurance Co.; Landmark American Insurance Co.; Mid-Continent Casualty Co.; National Union Fire Insurance Co. of Pittsburgh PA; and Scottsdale Insurance Co.

Even though the suit was filed in U.S. District Court for the Eastern District of federal court in Louisiana, where similar suits are being consolidated into a multi-district litigation case, the claims at issue are primarily in Florida. The suit was filed for the trust by lead counsel Anna M. Piazza of Anderson Kill & Olick in New York and local counsel Burton LeBlanc of Baron & Budd in Baton Rouge.

WCI s not the first homebuilder to face the possibility of drywall suits. Another large construction firm, Lennar Homes, last year acknowledged that it had reserved nearly $40 million to remedy problems with about 400 homes. Lennar has also filed its own lawsuit in a Florida state court against drywall installers, suppliers and manufacturers to help cover the cost of the repairs.