A federal court in North Carolina held that a pollution exclusion excludes coverage for property damage and bodily injury resulting from defective drywall. New NGC, Inc. v. Ace American Ins. Co., 2015 WL 2259172 (W.D. N.C. May 13, 2015).

A manufacturer of drywall was sued in several lawsuits alleging that its drywall was defective and the defects resulted in bodily injury and property damage as it emits high levels of sulfur into the air inside homes which (1) harms the structure of the homes and personal property and (2) causes health problems. The manufacturer tendered the lawsuits to its insurers, one of which declined to defend asserting that the injuries fell within the policy’s pollution exclusion. The manufacturer sought declaratory judgment and breach of contract damages, and the parties filed cross-motions for partial summary judgment.

The policy’s pollution exclusion excludes from coverage injury or damage arising out of pollution, defined to include the presence in or introduction into the environment of any substance alleged to have the effect of making the environment impure, harmful, or dangerous. The insurer argued that the release of sulfur qualifies as “pollution” because sulfur is a substance that makes the environment of the homes impure, harmful, or dangerous. The manufacturer countered that the exclusion’s definition of “pollution” is more narrow than that and excludes coverage of only “traditional environmental” claims. The court held that construing the exclusion in the narrow manner asserted would effectively rewrite the contract and would expand the scope of risk undertaken. The court granted in part the insurer’s motion to dismiss and denied the insured’s motion for partial summary judgment.