Travco Ins. Co. v. Larry Ward

715 F.Supp.2d 699

TRAVCO INSURANCE COMPANY, Plaintiff,

v.Larry WARD, Defendant.

Civ. No. 2:10cv14.

United States District Court,E.D. Virginia, Norfolk Division.

June 3, 2010.

Wystan Michael Ackerman, Robinson & Cole LLP, Hartford, CT, for Plaintiff.

Jeffrey Arnold Breit, Breit Drescher & Imprevento PC, Norfolk, VA, for Defendant.

ORDER & OPINION ON MOTION FOR SUMMARY JUDGMENT

ROBERT G. DOUMAR, District Judge.

This matter comes before the Court on a Motion for Summary Judgment, filed by Plaintiff TRAVCO Insurance Company (“Plaintiff”) on March 18, 2010. This case involves a dispute over an insurance policy. Defendant Larry Ward (“Defendant”) owns a residence that is insured under a homeowners insurance policy issued by Plaintiff. (Compl. ¶¶ 1, 8-9.) Defendant's residence contains walls that were constructed using sheets of drywall manufactured in China. (Compl. ¶ 10.) On September 23, 2009, Defendant reported an insurance claim to Plaintiff seeking coverage for damages allegedly caused by this Chinese drywall. (Compl. ¶ 26.) On January 7, 2010, Plaintiff denied Defendant's claim and filed a declaratory judgment action in this Court. (Compl. ¶ 32; see also Compl. Ex. C.) Plaintiff seeks a declaration that it is not liable for the damage caused by the Chinese drywall. (Compl. ¶ 15.)

The home insurance policy in question, homeowner's policy # 9812814746331 (“the Policy”), provides coverage for “direct physical loss to property described in Coverages A and B.” (Compl. Ex. A at 8.). ¹ Coverage A consists of the “dwelling on the ‘residence premises,’ ” and Coverage B consists of other structures on the premises. ( Id. at 2-3.) This coverage is subject to a number of exclusions, including exclusions for latent defects, faulty materials, corrosion, and pollution. ( Id. at 8-12.) The Policy contains an ensuing loss provision, however, which restores coverage for ensuing losses not otherwise excluded by the Policy. The Policy also provides coverage for personal property in Coverage C, but this coverage is limited to “direct physical loss” caused by an enumerated list of causes. ( Id. at 9-10.)

Based on a review of applicable Virginia law, ² the Court finds that the Ward Residence and its components suffered a “direct physical loss” within the meaning of the Policy. The Court also finds, however, that four separate exclusions apply to the damage claimed. Specifically, the claimed losses are excluded by the Policy's latent defect, faulty materials, corrosion, and pollutant exclusions. Moreover, none of the losses now claimed by Defendant qualify for coverage under the Policy's ensuing loss provisions. The Court will not categorically rule out, however, the possibility that other as-yet-unclaimed losses might be subject to coverage under the Policy's ensuing loss provisions. Accordingly, Plaintiff's Motion for Summary Judgment is GRANTED IN PART, DENIED IN PART. The Court hereby enters a declaratory judgment providing as follows:

1. The Policy does not provide coverage for the cost of removing and/or replacing the Drywall in the Ward Residence;

2. The Policy does not provide coverage for the damage claimed by Mr. Ward to the air conditioning equipment at the Ward Residence, which resulted from corrosion;

3. The Policy does not provide coverage for the damage claimed by Mr. Ward to the garage door at the Ward Residence, which resulted from corrosion;

4. The Policy does not provide coverage for the damage claimed by Mr. Ward to the flat screen televisions; and

5. The Policy does not provide coverage for any presently claimed damages caused by the Drywall in the Ward Residence or for any presently claimed damage caused by the discharge of gas from the Drywall, including but not limited to any damage to wiring and copper components of the home.

I. FACTUAL AND PROCEDURAL BACKGROUND 1. The Policy

Defendant owns a residence located at 214 80th St. in Virginia Beach (“the Ward Residence”). (Compl. ¶ 8; Ans. ¶ 8.) Defendant purchased this residence on May 1, 2007. ( Id.) On May 7, 2007, Defendant took out a homeowner's insurance policy, Policy No. 981281476331, issued by Plaintiff. (Comp. ¶ 9; Ans. ¶ 9.) The Policy initially covered the Ward Residence from May 7, 2007 to May 7, 2008; Defendant renewed the policy twice for coverage from May 7, 2008 to May 7, 2010. ( Id.)

The Policy is divided into two Sections. Section I provides property coverage, and Section II provides liability coverage. (Compl. Ex. A.) Section I is further subdivided into four separate Coverage sections. Coverage A provides coverage for the dwelling, Coverage B provides coverage for other structures, Coverage C provides coverage for personal property, and Coverage D provides coverage for loss of use.

The core of the Policy is in Section I-Perils Insured Against, which provides as follows:

1. We insure against risk of direct physical loss to property described in Coverages A and B.

2. We do not insure, however, for loss:

a. Excluded under Section 1-Exclusions; or

b. Caused by:

...

(6) Any of the following:

...

(b) Mechanical breakdown, latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself;

(c) Smog, rust or other corrosion, mold, fungi, wet or dry rot;

...

(e) Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against under Coverage C.

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed

....

Under 2.b. above, any ensuing loss to property described in Coverages A and B not excluded by any other provision in this policy is covered.

(Compl. Ex. A at 8-9.) The Policy does not define “direct physical loss.” However, it does define “Property Damage” as “physical injury to, destruction of, or loss of use of tangible property.” ( Id. at 2.)

Section I-Exclusions sets forth twelve different categories of exclusions. In relevant part, it provides as follows:

B. We do not insure for loss caused by any of the following. However, any ensuing loss which is not excluded by any other provision in this policy is covered.

...

3. Faulty, inadequate or defective:

...

b. Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;

c. Materials used in repair, construction, renovation or remodeling;

...

of part or all of the property whether on or off the “residence premises.”

( Id. at 10-12.)

Coverage C provides for coverage against “direct physical loss to the property described in Coverage C caused by any of the following perils, unless the loss is excluded in Section I-Exclusions.” ( Id. at 9-10.) The Policy then lists seventeen specific perils such as fire and theft. None of these perils is relevant to the present case. ( Id.)

Coverage D provides for the payment of additional living expenses. Specifically, it provides that “[i]f a loss covered under Section I makes that part of the ‘residence premises' where you reside not fit to live in, we cover any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living.” ( Id. at 4.)

2. The Insurance Claim

The Ward Residence contains walls that were constructed using sheets of Chinese drywall (“the Chinese Drywall”). (Compl. ¶ 10; Ans. ¶ 10.) Over time, the Chinese Drywall in the Ward Residence has released sulfuric gas into the Residence. ( See generally Hejzlar Dec.) On August 10, 2009, Defendant filed a lawsuit in the Circuit Court for the City of Norfolk against several development and supply companies, alleging that they constructed his home with “inherently defective” drywall. (Mumford Aff. Ex. A.) The suit is captioned Ward v. Peak Building Corp. In relevant part, Defendant alleges that the Chinese Drywall in his home “emits various sulfide gasses and/or other toxic chemicals through ‘off-gassing’ that create noxious odors and cause damage and corrosion.” Ward v. Peak Building Corp., No. CL09-5167, Compl. 11 (Va. Cir. Ct. filed Aug. 10, 2009). Defendant further claims that the “compounds emitted by the drywall at issue are also capable of ... harming the health of individuals.” Id. 12. The case is currently part of a multi-district litigation pending in the Eastern District of Louisiana. See In re Chinese-Manufactured Drywall Prods. Liability Litig., MDL No.2047, 626 F.Supp.2d 1346 (J.P.M.L.2009).

While this state court lawsuit was pending, Defendant began to prepare an insurance claim. Defendant retained Dr. Zdenek Hejzlar, an occupational safety and health engineer, to inspect his home. On August 26, 2009, Dr. Hejzlar personally inspected the Ward Residence. (Compl. ¶¶ 13-14; Ans. ¶¶ 13-14.) Additionally, Dr. Hejzlar instructed an investigator to perform a second inspection of the Ward Residence on August 31, 2009. (Compl. ¶ 18; Ans. ¶ 18.) Dr. Hejzlar found, inter alia, that the level of sulfur gas inside the Ward Residence was twenty times higher than ambient levels; that there was “widespread impact to susceptible metal surfaces (e.g. copper, silver, chrome) such as HVAC coils, electrical wiring in outlets, ground wires and other metallic surfaces”; and that the residents of the home should be relocated to assure their safety. (Hejzlar Dec.)

On September 23, 2009, Defendant filed a claim with Plaintiff, seeking coverage for damages related to the Chinese Drywall. (Compl. ¶ 26; Ans. ¶ 26.) On January 7, 2010, Plaintiff sent Defendant a letter denying coverage for his claim. (Compl. Ex. C.) Plaintiff also informed Defendant that it would be filing suit in this court “seeking a declaratory judgment that your policy does not provide coverage for your claim.” ( Id.)

3. Present Suit

On January 7, 2010, Plaintiff filed a declaratory judgment action in this Court...