Florida Chinese drywall, pollution exclusion, “your work” exclusion, and “sistership” exclusion.

In Auto-Owners Ins. Co. v. American Building Materials, Inc., No. 8:10-CV-313-T-24-AEP (M.D. Fla. May 17, 2011), insured drywall supplier ABM was sued by general contractor KB Homes seeking damages because property damage to houses built by KB Homes using defective Chinese drywall supplied by ABM.  ABM’s CGL insurer Auto-Owners defended ABM under a reservation of rights and filed suit against ABM and KB Homes seeking a judicial declaration of  no to duty to defend or indemnify ABM against the KB Homes lawsuit.  On cross motions for summary, the federal district trial court directed entry of judgment in favor of ABM and KB Homes and against Auto-Owners, holding that Auto-Owners had a duty to defend and indemnify ABM against the KB Homes lawsuit.  The court first noted that it was undisputed that the KB Homes complaint sought damages because of “property damage” caused by an “occurrence.”  Applying Florida law, the court first held that the pollution exclusion, exclusion f., did not apply.  Specifically, whereas the exclusion expressly provides that it applies only when the pollutants occur at a site where the insured is “performing operations,” here it is undisputed that the off-gassing occurred after ABM had delivered the drywall.  The court next held that the “sistership” exclusion, exclusion n., did not apply. Specifically, whereas the exclusion applies when the insured’s work, the insured’s product, or “impaired property” is “withdrawn or recalled from the market or from use by any person or organization,” here there was no allegation or evidence that Chinese drywall “has been recalled from the market.”   The court did not address the “withdrawn from use” prong.  Finally, the court held that the “your product” exclusion, exclusion k., did not apply because the definition of “your product” excludes real property and here  ABM’s drywall became real property when it was installed by others in the KB Homes houses.