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Monthly Archives: November 2012

21NOV 2012

Due to the use of Chinese drywall in construction projects, there has been an advent of class action litigation against contractors and suppliers of Chinese drywall for personal injuries and property damage.  Recently, insurers have started the process to deny coverage for the contractors who installed Chinese drywall.

Since the mid‐1980s virtually all Commercial General Liability (CGL) policies have contained some form of the total or absolute pollution exclusion.  The Total Pollution Exclusion endorsement eliminates virtually all coverage for pollution incidents, including those retained in the standard commercial general liability (CGL) policy despite its “absolute” pollution exclusion.

For example, the three Insurance Services Office, Inc. total pollution exclusion endorsements remove coverage for bodily injury or property damage that “would not have occurred in whole or part but for” a pollution incident.  The Insurance Service Office introduced the “total” pollution exclusion endorsement in 1988.

Generally, a “total” pollution exclusion can be characterized as any post‐“sudden and accidental” pollution exclusion which does not limit the exclusion to certain enumerated circumstances and, instead, precludes coverage for any and all exposure to pollutants.  The case law has defined “pollutants” to include carbon monoxide, lead paint, asbestos, biological pollutants, odor from compost, chemical fumes, welding rods, dirt and rocks, salt water, and gasoline.

With the recent advent of Chinese Drywall litigation, insurers are now looking to the Total Pollution Exclusion endorsement to deny coverage, both as to the duty to defend, and to indemnify.

In the recent case of First Specialty Insurance Corp. v. Milton Construction Company, [1] the U.S. District Court for the Southern District of Florida held that the insurer had no duty to defend its insured in a putative class action in the Eastern District of Louisiana for property damage and personal injuries allegedly caused by defective Chinese drywall.[2]  All of the allegations against Milton in the Louisiana action arose out of the allegedly defective, and unreasonably dangerous, drywall and the harmful effects of the sulfur compounds that allegedly exited the drywall, causing property damage and personal injuries.[3]

The United States District Court held that Florida law applied over the Louisiana law cited by the homeowner.  The United States District Court based its opinion on the Florida Supreme Court case of Deni Associates of Florida, Inc. v. State Farm Fire & Casualty Insurance Co., 711 So. 2d 1135 (Fla. 1998).  In this seminal case, the Florida Supreme Court addressed whether a pollution exclusion applied to two separate incidents, one involving indoor air contamination caused by an accidental ammonia spill inside a commercial building, and another involving two bystanders who were accidentally sprayed with insecticide near a citrus grove.

In considering this pollution exclusion, the Florida Supreme Court rejected the suggestion that it was ambiguous.  The court also rejected the argument that the provision should apply only to environmental or industrial pollution, because nowhere in the policies did such a limitation appear.

This result, while following the majority rule, is contrary to the law of some jurisdictions, including Louisiana.  In applying the pollution exclusion to the facts of the case, the Florida Supreme Court found it “clear that the incidents at issue were excluded from coverage under the respective insurance policies.”  The court reasoned that both ammonia fumes and insecticides were “irritants” or “contaminants” and, as such, “pollutants” under the policies.

The District Court, following Deni Associates, noted that other courts in the Southern District of Florida have found allegations pertaining to the release of sulfur gases from defective Chinese drywall clearly within pollution exclusions virtually identical to the one in this case.

Therefore, the District Court held that the sulfur compounds constitute “pollutants” and the Total Pollution Exclusion applies.  The Court further noted that the homeowner’s attempt to manufacture ambiguity by relying on Louisiana law fails.

The impact of this decision will likely mean that insurers will continue to pursue declaratory actions to enforce Total Pollution Exclusion endorsements and to deny insurance coverage for defense and indemnity for those whose policies contain such endorsements.  The upcoming coverage decisions at the forefront of these court opinions will be interesting to observe for those with an interest in Chinese drywall litigation.




[1] First Specialty Insurance Corp. v. Milton Construction Company, U.S. District Court, Southern District of Florida, Case No. 12,20116-Civ-Scola, July 16, 2012, Robert N. Scola, Jr. Judge, 23 Fla. L. Weekly Fed. D366a


[2] See Block v. Gebrueder Knauf Verwatungsgesellschaft, K.G., et al., Case No. 11-1363 (E.D. La., filed June 8, 2008).


[3] Specifically, the plaintiffs alleged that sulfur compounds exited the Chinese drywall, causing “rapid sulfidation and damage to personal property (such as air conditioning and refrigerator coils, faucets, utensils, electrical wiring, copper, electronic appliances and other metal surfaces and property.” La. Compl. ¶¶ 25, 26. The release of the sulfur compounds also allegedly “caused personal injury resulting in eye problems, sore throat and cough, nausea, fatigue, shortness of breath, fluid in the lungs, and/or neurological harm.” Id. ¶¶ 27, 30.



05NOV 2012

Florida’s Lien Law statute generally provides in Section 713.29 that the prevailing party in a lien foreclosure or bond enforcement action shall be entitled to its reasonable attorney’s fees.  The sense of certainty that appeared on the face of this Statute historically weighed favorably on a party’s evaluation of whether and how to prosecute or defend a lien or bond claim.  Over the years, however, courts throughout the State began to dismantle this sense of certainty by refusing awards of attorney’s fees based upon the “net judgment” rule. Instead, the Courts began following and ultimately adopted the rule defining a “prevailing party” as the party who prevailed on the “significant issues” of the case.  See Prosperi v. Code, Inc., 626 So.2d 1360 (Fla. 1993).

The Florida Supreme Court all but eliminated the utility of Fla. Stat. § 713.29 as a planning tool in deciding prospectively how and whether to litigate lien foreclosure cases in Trytek v. Gale Industries, Inc., 3 So. 3d 1194, 1203 (Fla. 2009), by holding that “a trial court has the discretion to make a determination that neither party has prevailed on the significant issues in litigation…,” thus requiring no award of attorney’s fees to either party. In Trytek, a contractor filed an action to foreclose a lien in the amount of $12,725.00.  Tough the contractor succeeded on the lien foreclosure, it recovered a net judgment of only $1,525.00 due to the homeowners’ successful recovery on their counterclaim. The trial court determined that the homeowners were the prevailing party, as the focus of the litigation was the damage caused by the contractors actions, which were the subject matter of the counterclaim. The court awarded attorney’s fees to the homeowners because it felt compelled to do so, though it expressed a preference to enter an Order requiring that each party shall bear its own attorney’s fees and costs. The Trytek Court freed the trial courts of the requirement to enter awards for attorney’s fees, effectively ruling that while Fla. Stat. § 713.29 required an award of attorney’s fees to the prevailing party, it did not require the identification of any prevailing party in the litigation.

Recently, the Fifth District Court of Appeal exacerbated the problem spawned by the Trytek decision.  In Continental Casualty Co. v. Baylor, 2012 WL 3870415 (Fla. 5th DCA 2012), the Court applied the same uncertain analysis articulated in Trytek to fee awards on claims to enforce private project payment bonds. As case law continues to emerge in support of the Trytek analysis, the only legitimate cure appears to be legislative intervention. In fact, the Associated General Contractors of America may be on the verge of proposing legislation to initiate a correction of the course of Florida law on this issue. Whether a proponent of the “net judgment” or “significant issues” standard in defining prevailing parties for purposes of awarding attorney’s fees under Fla. Stat. § 713.29, an inescapable consensus must be reached that the current course of uncertainty embarked upon by the Trytek and Baylor  Courts is a detriment to all parties involved.