Dragas Management Corp. v. Hanover Insurance
2011 U.S. Dist. LEXIS 87132
| E.D. Va. | 2011Background
- This diversity case seeks to enforce a $4,900,000 arbitration award against Porter-Blaine's insurers, Citizens and Hanover.
- Two Hampton Roads developments, Cromwell Park and The Hampshires, used drywall installed by Porter-Blaine, some imported from China.
- Chinese drywall in 74 homes caused corrosion and property damage due to high sulfur gases, including HVAC coils and copper piping failures.
- DMC remedied damages at its own cost, then arbitrated against Porter-Blaine; arbitration awarded $4.9M plus costs, later converted to a judgment.
- Porter-Blaine carried Citizens CGL and Hanover umbrella policies with pollution exclusions; the 2007-2009 policies are at issue.
- Court must decide whether the absolute pollution exclusions bar recovery for the remediation costs under these policies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the pollution exclusions ambiguous when interpreted together? | DMC argues exclusions vary; ambiguity favors coverage. | Insurers argue uniform, clear exclusions across policies. | Exclusions may be interpreted together; not ambiguous. |
| Is drywall/sludge from Chinese drywall a pollutant under the policies? | Drywall is not a pollutant; sulfur gases are not contemplated. | Sulfur gases from drywall are pollutants by definition and effect. | Reduced sulfur gases are pollutants. |
| Did the pollutant dispersal constitute discharge, dispersal, seepage, migration, release or escape? | Formation of sulfur gases was a natural process, not movement. | Sulfur gases moved from drywall into the home environment. | Sulfur gases dispersed/released; movement occurred. |
| Do the 2007-2009 Citizens CGL and Hanover umbrella policies exclude coverage for remediation costs? | Exclusion should not apply to bar all recovery; ambiguity and policy limits may apply. | Absolute pollution exclusion bars recovery for pollutant-caused damage. | Pollution exclusion bars recovery; coverage denied. |
Key Cases Cited
- City of Chesapeake v. States Self-Insurers Risk Retention Grp., Inc., 271 Va. 574, 628 S.E.2d 539 (2006) (strict interpretation of pollution exclusions; no ambiguity when clear)
- TRAVCO Ins. Co. v. Ward, 715 F.Supp.2d 699 (E.D. Va. 2010) (pollution exclusions not limited to traditional environmental pollution)
- Granite State Ins. Co. v. Bottoms, 243 Va. 228, 415 S.E.2d 131 (1992) (ambiguous exclusions construed against insurer)
- Williams v. State Farm Mut. Auto. Ins. Co., 677 S.E.2d 299 (Va. 2009) (internal policy disparity may create ambiguity in coverage limits)
- Overlook, L.L.C. v. Nationwide Mut. Ins. Co., 785 F.Supp.2d 502 (E.D. Va. 2011) (rejects substantive reasonableness analysis for exclusions in Virginia law)
- Kline v. Fire Ins. Exch., 474 F.Supp.2d 784 (E.D. Va. 2007) (pollutant definition applied to irritants; commonsense approach)
- Johns Bros. & Co. v. Johns Bros. Prop. Mgmt., 435 F.Supp.2d 511 (E.D. Va. 2006) (fuel oil leakage as contaminant; common-sense interpretation of pollution)