i.      Damage caused by CDW meets definition of covered loss;

                                                         ii.      Policy Exclusions

Hi everyone, During our last meeting, Fred Dudley asked that I compare Judge Bucklew's recent May 17 summary judgment order (wherein she found that the pollution exclusion to a commercial general liability policy does not apply in Chinese drywall context) to Judge Fallon's December 16, 2010 order on motions to dismiss (also finding that the pollution exclusion does not apply in a homeowner's policy). To my knowledge, Judge Fallon has not heard oral arguments on Neal Sivyer's motion in a commercial general liability context. Judge Fallon considered several motions to dismiss brought by various insurers wherein thy argued that the homeowners' insurance policies excluded coverage for losses caused by pollution or contamination. He applied a three-step analysis used by the Louisiana Supreme Court in Doerr v. Mobil Oil Corp. in determining that the pollution and/or contamination exclusions did not bar coverage. The Doerr considerations are: (1) whether the insured is a "polluter" within the meaning of the exclusion; (2), whether the injury-causing substance is a pollutant; and (3) whether there was a "discharge, dispersal, seepage, migration, release, or escape" of a pollutant by the insured. In applying the Doerr considerations, Judge Fallon found that: (1) the homeowners did not constitute polluters "under any sense of the word;" (2) whether the Chinese drywall is a pollutant is at best a factual issue; and (3) whether there was a "discharge, dispersal, seepage, migration, release, or escape" is also a fact issue. Therefore, based on these considerations, Judge Fallon found that the pollution exclusion did not apply. Here is a summary of the order (a copy of which is attached): a. ORDER & REASONS on various carriers' motions to dismiss complaints for homeowners insurance coverage i. Damage caused by CDW meets definition of covered loss; ii. Policy Exclusions 1. Carriers did not meet burden of proving applicability of latent defect exclusion; 2. Pollution exclusion does not apply; 3. Dampness, water vapor, temperature extreme exclusion does not apply; 4. Faulty materials exclusion excludes coverage for damages caused by CDW 5. Corrosion exclusion excludes coverage for damages resulting from corrosion caused by CDW iii. Ensuing loss exception to coverage exclusions (provides coverage for covered losses not excluded by faulty materials and corrosion exclusions) 1. Loss caused by odor of drywall is not ensuing loss - no coverage 2. Loss caused by corrosive properties of drywall is not ensuing loss - no coverage 3. Court grants carriers' motions with respect to ensuing losses since plaintiffs allege no ensuing losses in the complaints, however, court does not preclude homeowners from seeking coverage under ensuing loss provisions if secondary losses occur in the future (i.e., loss caused by fire due to corroded electrical wiring) iv. Coverage for Other Losses 1. No coverage for personal property loss b/c only certain perils covered of which CDW is not included 2. No coverage for Loss of use of home to the extent the policy does not provide coverage for such losses 3. No coverage for personal injury to the extent the policy does not provide coverage for such loss 4. No coverage for additional living expenses to the extent the policy does not provide coverage for such losses 5. No coverage for diminished value to the extent the policy does not provide coverage for such losses v. No bad faith denial of coverage, breach of duty of good faith, or misrepresentation vi. Plaintiffs' Valued Policy Law Claims dismissed vii. Court did not award Plaintiffs the injunctive relief requested (preventing carriers from canceling policies, raising rates, etc.) In Judge Bucklew's order, she ruled that the pollution exclusion in a commercial general liability context did not apply where the "pollutants" at issue did not arise while the insured was performing operations. She relied on Scottsdale Ins. Co. v. American Safety Indemnity Co, wherein the court there held "the plain language of the Pollution Exclusion limits its reach to a pollutant releases at locations where the insured contemporaneously performs operations, rather than pollutant releases at locations where the insuered performed operations earlier." A copy of Judge Bucklew's order is also attached for your use. Please let me know if you have any questions. Ty G. 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