Coverage for damage caused by the installation of Chinese drywall was the issue in Dragas Mgt. Corp. v. Hanover Ins. Co., 2011 U.S. Dist. LEXIS 80178 (E.D. Va. July 21, 2011).
Dragas built housing developments. Dragas hired Porter-Blaine Corp. to supply and install drywall for the homes in two of its developments. Porter-Blaine installed defective Chinese drywall in seventy-four of the homes in the two developments. A high level of elemental sulfur contained in the Chinese drywall caused property damage in the homes, including corroding of HVAC coils, damaging wiring, tarnishing or corroding metal objects and causing bad odor.
When Porter-Blaine refused to remove and replace the drywall, Dragas remediated the problem by having the homeowners temporarily move, tearing out the drywall, replacing it, and repairing the other property damage caused by the drywall, all at its own cost. Dragas then invoked the arbitration clause in its subcontract with Porter-Blaine and was awarded $4.9 million in damages. The award was converted into a judgment.
Dragas sued Porter-Blaines' insurers to enforce the arbitration award. Citizens Insurance Co. of America had issued CGL policies to Porter-Blaine. Porter-Blaine also had an umbrella excess liability policy with The Hanover Insurance Company.
Dragas moved for partial summary judgment on the Citizens' CGL policies. It first argued that the installation of and damage caused by the defective drywall constituted an occurrence. The court held that the replacement of the defective drywall was not an occurrence. However, any repair or replacement of non-defective components of the homes constituted an occurrence under the policies.
Next, Dragas argued that each installation of the defective drywall constituted a separate occurrence because the introduction of the drywall was the cause of the resulting damage. Citizens argued that the damage had a single cause, the purchase of the defective Chinese drywall by Porter-Blaine. Following Virginia law, the court looked to the cause of the injury in deciding the number of occurrences. The court determined that each installation of the defective drywall constituted a separate occurrence. It was the act of installing the drywall in each home which set the chain of events culminating in the damage to that home. Thus, there were seventy-four occurrences, one for each affected home.
Finally, Dragas argued that the "your work" exclusion did not bar coverage because Porter-Blaine used subcontractors to install the drywall in each of the homes. The court held that summary judgment on the "your work" exclusion was premature because it was unclear whether Porter-Blaine used subcontractors.
