Pollution Exclusion Bars Coverage for “Defective Drywall” Claims, North Carolina District Court Determines
January 26, 2016 |A federal district court in North Carolina has ruled that a pollution exclusion clause barred coverage for claims alleging that drywall manufactured, sold, used, or distributed by the insured company emitted high levels of sulfur into the air inside homes.
The Case
Lawsuits against New NGC, Inc., asserted injuries and damages arising from exposure to what was alleged to be defective drywall manufactured, sold, used, or distributed by NGC. In particular, plaintiffs alleged that the NGC drywall emitted high levels of sulfur into the air inside the homes that created a noxious odor and caused potentially dangerous health consequences to the eyes and respiratory system.
NGC sought coverage from its insurance carriers. After they asserted that there was no coverage, NGC filed an action and a primary insurance carrier moved for summary judgment, contending that the pollution exclusion barred coverage.
The Court’s Decision
The court granted the insurer’s motion.
In its decision, the court found that the pollution exclusion clause was not ambiguous. It also found that the sulfur qualified as a harmful or dangerous “substance” “introduce[ed]” into structure[s]” as contemplated by the clause. The court stated that the sulfur that was released by the drywall qualified as “pollution” because it was “a substance that makes the environment impure, harmful, or dangerous.”
Moreover, the court also found, the air of the home qualified as the environment because it was the “air of a structure.”
Therefore, the court concluded, the injuries and damages alleged in the lawsuits against NGC were caused by pollution of the environment according to the terms of the exclusion.
The case is New NGC, Inc. v. Ace American Ins. Co., No. 3:10-cv-00022-RLV-DSC (W.D.N.C. May 13, 2015).
Rivkin Comment
Courts sometimes construe policy terms in light of the policyholder’s expectation of coverage. Here, the court refused to do so, finding that such a construction would substantially expand the risk undertaken by the insurer and effectively rewrite the contract to favor one sophisticated commercial entity over another.
