Arch, Liberty Mutual Settle Chinese Drywall Claims Made Against Distributor

Al Slavin
A.M. Best Co.
April 27, 2011

Arch Insurance Co. and Liberty Mutual Fire Insurance Co. have agreed to pay upwards of $8 million to settle claims brought against a Chinese drywall distributor insured by the two carriers.

The proposed settlement in the ongoing Chinese drywall class-action case is now pending with U.S. District Judge Eldon Fallon in U.S. District Court for the Eastern District of Louisiana. The two carriers served as the primary insurers for Interior/Exterior Building Supply, and are just one of many defendants in complex multidistrict litigation being administered in federal court in New Orleans.

"It's our goal to see as many people get back into their homes as possible," said Philip Nizialek, a New Orleans-based attorney who represents Interior/Exterior Building Supply. "At the same time, we don't admit responsibility. We just wanted to get our insurance limits into the settlement pool and we have done that with this settlement."

Nizialek said more than $1 million that the defendants had paid into court-approved pilot program would be deducted from the settlement amount.

Nizialek said claims against another $72 million in coverage limits from the excess carrier, North River Insurance Co., have been assigned to the court-appointed plaintiff's steering committee. The policy periods span four years.

Arch declined to comment. Attempts to reach Liberty Mutual for comment were not immediately successful.

The Chinese drywall claims stemmed from the widespread use of the imported product following hurricanes Katrina and Rita. A drywall shortage resulted in hundreds of millions of square feet of Chinese drywall being exported to the United States, sold to distributors and suppliers, resold to builders and installers, and installed in thousands of properties domestically, according to court records. Plaintiffs maintain that the Chinese drywall allegedly emits foul odors and damages metal, electronic elements and devices, as well as causing personal injuries to those living in the homes. Those locations were primarily in Florida, Louisiana, Alabama, Mississippi, Texas and Virginia.

Late last year, Fallon ruled in favor of 10 homeowners insurers who had asked that the cases against them be dismissed. Fallon ruled that coverage was barred under the faulty materials and corrosion exclusions contained in the policies (BestWire, Dec. 22, 2010).

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