Mississippi Court Holds Pollution Exclusion Applicable to Chinese Drywall Claim

In its recent decision in Prestige Properties, Inc. v. National Builders and Contractors Ins. Co., 2013 U.S. Dist. LEXIS 146738 (S.D. Miss. Oct. 10, 2013), the United States District Court for the Southern District of Mississippi had occasion to consider the application of a total pollution exclusion in a general liability policy to underlying claims involving Chinese-manufactured drywall.

The insured, Prestige Properties, was a Mississippi contractor hired to perform repairs on a client’s home that had been damaged as a result of Hurricane Katrina.  Part of these repairs involved replacing damaged drywall. Prestige later was named as a defendant in the Chinese drywall multidistrict litigation pending in the Eastern District of Louisiana.  Prestige’s client alleged that Prestige had used defective Chinese manufactured drywall in their home and that the drywall resulted in bodily injury (eye irritation, nausea, respiratory ailments, etc.) and property damage (corrosion and damage to appliances, wiring and object with metal surfaces).

Prestige was insured for the relevant time period under a commercial general liability policy issued by National Builders.  National Builders disclaimed coverage to Prestige on the basis of its policy’s total pollution exclusion barring coverage for:

f. Pollution.

(1)  "Bodily injury" or "property damage" which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" at any time.

(2)  Any loss, cost or expense arising out of any:

(a)   Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants"; or

(b)  Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, "pollutants."

On motion for summary judgment, National Builders pointed out that the underlying suit alleged that the drywall was defective in that it emitted various sulfide and other noxious gases through off-gassing.  These allegations, argued National Builders, fell squarely within the terms of the exclusion.  While no Mississippi court considered the application of the exclusion on similar facts (i.e., to releases of gas indoors), National Builders cited to case law from other jurisdictions holding the exclusion applicable to indoor air quality claims.  National Builders also cited to case law from other jurisdictions holding the exclusion applicable to Chinese drywall claims.  See, e.g., Evanston Ins. Co. v. Germano, 514 F. App'x 362 (4th Cir. 2013), TravCo Ins. Co. v. Ward, 284 Va. 547, 736 S.E.2d 321 (Va. 2012); Granite State Ins. Co. v. American Bldg. Materials, Inc., 504 F. App'x 815 (11th Cir. 2013).  Prestige, on the other hand, cited to the decision in In re Chinese Manufactured Drywall Prods. Liab. Litig., 759 F. Supp. 2d 822 (E.D. La. 2010), in which the Eastern District of Louisiana, applying Louisiana law on the pollution exclusion, including the seminal decision in Doerr v. Mobil Oil Corp., 774 So. 2d 119 (La. 2000), held the exclusion inapplicable to Chinese drywall claims. 

The Prestige court distinguished the holding in In re Chinese Manufactured Drywall Prods. Liab. Litig. on the basis that the Louisiana court was considering coverage under homeowners policies rather than commercial general liability policies.  The Prestige court further reasoned that Mississippi’s Supreme Court would not follow the restrictive application of the pollution exclusion as set forth by Louisiana’s highest court in Doerr, but instead would apply the exclusion pursuant to its “plain terms.”  In other words, no distinction would be drawn between traditional and non-traditional environmental pollution.  As such, the court granted summary judgment in National Builder’s favor.