RICHMOND, Va. (Legal Newsline) – The United States Court of Appeals for the Fourth Circuit has received clarification from the Virginia Supreme Court on an “all risk” homeowners insurance policy exclusion case.
In May 2007, Larry Ward purchased a new home in Virginia Beach, Va. He purchased a homeowners insurance policy from TravCo Insurance Company when he purchased the home.
After experiencing problems with the home, he filed a complaint against the developer, builder and drywall contractor in May 2009 and then filed a claim with TravCo in September 2009.
Ward’s claim against TravCo stated that the Chinese-manufactured drywall that had been installed in his house caused “fumes and odors, health issues, and damage to the home’s air conditioning system, garage door and flat-screen televisions.”
TravCo denied Ward’s claim, saying that the damage caused by the defective drywall was excluded from coverage under the terms of the homeowners’ policy.
The exclusions relevant to the case are:
(1) latent defect;
(2) faulty, inadequate, or defective materials;
(3) rust or corrosion; or
(4) pollutants, defined to include any gaseous irritant or contaminant.
After denying the claim, TravCo then brought an action in the United States District Court for the Eastern District of Virginia, seeking a declaratory judgment on whether the policy excluded coverage.
The company then moved for summary judgment and the district court granted the motion, agreeing that coverage was excluded under the homeowners’ policy.
Ward then appealed to the Fourth Circuit, which was “uncertain whether the Supreme Court of Virginia would conclude that each of these four exclusions is unambiguous and reasonable… in light of the unusual nature of the losses involved” and so it certified a question to the Virginia court as to whether the exclusions should apply.
“Both parties urge, to varying degrees, examination of decisions from other jurisdictions, but this Court need not undertake such analysis” Justice S. Bernard Goodwyn wrote, “because the law of this Commonwealth and the plain language of the insurance policy provide the answer to the certified question.”
On the first two exclusions, the Court found “the damage caused by the drywall was the result of a latent defect” and the “faulty, inadequate or defective material exclusion is applicable to damage resulting from the Chinese drywall” as well.
Ward argued that the “rust and corrosion” exclusion did not apply because “the damage in his home was not caused by the corrosion, but was the corrosion itself.” The Court did not accept his novel argument and Judge Goodwyn wrote that the rust and corrosion clause is “unambiguous and when interpreted according to its plain meaning, encompasses the corrosion caused by the off-gassing of sulfur from the Chinese drywall in Ward’s home.”
Finally, Ward argued that the pollution exclusion was “ambiguous, overbroad, unreasonable, and inapplicable to his loss” but the Court held “that the pollution exclusion is applicable and unambiguously excludes from coverage any damage resulting from the emission of gas from the drywall.”
The Court concluded “Accordingly, for the reasons stated, we will answer all subparts of the certified question in the affirmative.” The Fourth Circuit will now rule on the case having been informed by this clarification of the state court.