Inside this Issue

A1 - The Expanding Reach of the Crawford Decision and the Impact On Construction Indemnity Agreements
A2 - Default Termination of Contractor Defective for Failure of Owner to Provide Architect’s Certificate of Good Cause for Termination
A3 - Economic Loss Doctrine Applied in Guam to Bar Design-Build Contractor’s Negligence Claim against its Design Professional Subcontractor for Purely Economic Losses
A4 - Contractor Owed Liquidated Damages Where it Failed to Timely Seek Change Order for Owner Caused Delay
A5 - Hirer of an Independent Contractor Implicitly Delegates Site Safety Responsibility Other than for Its Own Employees
A6 - Damages Caused By Chinese Drywall Are Excluded From Coverage Under Homeowner’s Insurance

Article 1

The Expanding Reach of the Crawford Decision and the Impact On Construction Indemnity Agreements

See similar articles: Crawford | duty to defend | Indemnification clause

By: Michael D. Wilson, Jr.
Gordon Rees, LLP

275 Battery Street
Suite 2000
San Francisco, CA 94111
(415) 986-5900

In the period since the California Supreme Court published the seminal decision in Crawford v. Weathershield (“Crawford”) and refused to consider or reverse the California Court of Appeal Decision in UDC-Universal Development, L.P. v. CH2M Hill (“CH2M Hill”) the construction industry has been trying to come to grips with the importance and significance of these court rulings that set forth the defense and indemnity obligations owed by architects, engineers, design professionals and contractors in the State of California. While the California Senate made an unsuccessful attempt to overturn these court decisions with Senate Bill 972, many design professionals and subcontractors involved in active litigation proceedings took a “wait and see” approach to evaluating, responding and accepting tenders of defense and indemnity issued by developers and general contractors. This in turn lead to a new court decision that not only reaffirmed the Crawford ruling, but reminded the construction industry of the potential repercussions of not accepting a valid tender of defense under a contractual indemnity agreement. In particular, the California Court of Appeals, Fourth Appellate District published Searles Valley Minerals Operations, Inc. v. Ralph M. Parsons Service Company, 191 Cal.App.4th 1394 (2011) (“Searles”), which held that a party’s Crawford rights – the right to defense and indemnity upon a proper tender -- can be assigned and enforced by an assignee.

The Searles Decision:

In Searles, a indemnity action arose from an adverse judgment in an underlying wrongful death action by decedent Michael Todd Moore’s heirs. In the wrongful death action, the heirs sued several defendants including Kerr-McGee Chemical Corporation (“KM”), Ralph M. Parsons Service Company (“Parsons”), and Parsons’ subcontractor, all of whom had a role in owning or manufacturing a pneumatic conveyor system at a soda ash processing plant in Trona, California. Prior to the accident, KM had entered into a construction contract with Parsons for the design and construction of the processing plant. Included within that agreement was an indemnity provision, in which Parsons agreed to defend and indemnify KM for any personal injury or wrongful death actions arising out of Parsons’ or its subcontractors’ negligence. After Parsons completed construction of the processing plant, however, KM sold the property to Searles Valley Minerals Operations, Inc. (“Searles Valley”) under a purchase agreement. Under the terms of the purchase agreement, Searles Valley agreed to indemnify KM for any accidents or injuries on the premises that resulted in KM being sued. The purchase agreement between KM and Searles Valley also included an assignment of the construction contract between KM and Parsons. As a result, when Moore was killed while trying to remove a door of the pneumatic conveyor system, and Moore’s heirs brought the wrongful death action, KM tendered its defense to both Parsons and Searles Valley. While Parsons rejected KM’s tender, Searles Valley accepted the tender, and in the process incurred over $800,000 in attorneys fees and costs providing KM with a defense in the case that ultimately went to trial. At the conclusion of the trial, the jury awarded the Moore plaintiffs approximately $6.75 Million in damages, and made a finding that neither KM nor Parsons had any fault in causing the accident. Shortly thereafter, Searles Valley filed the indemnity action seeking to enforce the defense and indemnity obligation – as between Parsons and KM – that was acquired via assignment in its purchase agreement, in order to seek reimbursement of the defense fees and costs it incurred as a result of Parsons rejecting KM’s tender.

When litigation commenced, Parsons filed a demurrer to Searles Valley’s complaint, on the basis that KM – the party with whom Parsons had contracted with to create a defense and indemnity obligation – had suffered no harm or damages in the wrongful death action. KM did not incur any damages as a result of the jury’s findings in the wrongful death action, and KM did not incur any out-of-pocket losses since Searles Valley paid for KM’s defense. In turn, when the trial court ruled in Parsons’ favor and Searles Valley appealed, the key issue was whether Searles Valley could recover from Parsons, as an assignee, the defense costs and fees spent defending KM in the wrongful death action.

In reaching its decision on the key issue before it, the court in Searles noted that under California case law, most contract rights – including those rights and duties arising out of an indemnity agreement -- can be assigned. When such an assignment occurs, the assignee “stands in the shoes of the assignor,” taking all rights and remedies subject to any defenses which the obligor has against the assignor prior to the notice of the assignment. Once a claim or right has been assigned, the assignee is the owner and has a right to sue on it. Next the court in Searles cited to the California Supreme Court’s Crawford decision, to reiterate the rights and duties that arise out a contractual indemnity provision. Specifically, the court stressed that in accordance with the Crawford decision and California Civil Code section 2778, a contract provision containing a promise by one party to indemnify another against claims, defenses or liability, “embraces the costs of defense” against such claims, demands or liability, insofar as such costs are reasonably incurred in good faith. Additionally the indemnity provision triggers a duty, upon request by the indemnitee, to defend actions or proceedings brought against the indemnitee with respect to matters embraced by the indemnity provision. The court in Searles also restated the rule established in the Crawford decision that when an indemnitor declines the indemnittee’s tender of defense, the indemnitee can take steps to provide its own defense, but can subsequently seek reimbursement of all reasonable fees and costs of putting on a defense.

Based on the facts before the court in Searles, it was undisputed that under the Crawford decision, Parsons would owe KM a defense and indemnity obligation in connection with Moore’s wrongful death action. It was also undisputed that if KM incurred reasonable defense costs in the wrongful death action as a direct result of Parsons declining the valid tender, KM could seek reimbursement. Yet, in this instance, not only did Searles Valley pay KM’s defense costs, but Searles Valley had obtained KM’s indemnity rights via assignment. As such, the court in Searles ruled that a party’s Crawford rights could be assigned an enforced by an assignee.

Searles’ Impact:

The court in Searles cautioned that its ruling is limited to only those cases where contracts containing an indemnity provision do not also have a provision prohibiting an assignment, that would operate to prevent a party from trying to enforce another party’s defense and indemnity rights. That being said, this latest ruling will no doubt have the impact of reminding developers, design professionals and contractors that the ruling in the seminal Crawford case and related CH2M Hill case set forth the current rule of law governing indemnity agreements, and the potential consequences for denying a valid tender of defense. Thus, while you should consult with your attorney to determine if an indemnity provision either confers a right to defense and indemnity or in the alternative vests in another construction participant rights to a defense and indemnification, all future discussions should also include an analysis of the transferability of those indemnity rights and/or obligations, and how the transferability of those rights can be used as leverage during the course of a case. Searles Valley Minerals Operations, Inc. v. Ralph M. Parsons Service Company, 191 Cal.App.4th 1394 (2011).

About the Author:

Michael D. Wilson, Jr.

275 Battery Street
Suite 2000
San Francisco, CA 94111
(415) 986-5900

Michael Wilson, Jr. is an associate in the San Francisco office of Gordon & Rees. He has extensive experience representing clients in state court matters, as well as proceedings before the American Arbitration Association. Mr. Wilson’s practice focuses on counseling and defending owners, developers, contractors, design professionals and construction managers in a variety of construction-related matters, including contract disputes, construction defect, toxic tort, and personal injury claims including premises liability. Mr. Wilson has also represented business entities and private owners in insurance coverage matters, class action litigation, asbestos/silica litigation, and eminent domain proceedings.

For more information on the Crawford, CH2M Hill, and Searles rulings, and how these cases impact construction indemnity agreements, or for more information on any other developments in Construction Law, please feel free to contact the attorneys at Gordon & Rees LLP.

This article is re-printed with permission in ConstructionRisk.com Report, Vol. 14, No.4 (April 2012).

Article 2

Default Termination of Contractor Defective for Failure of Owner to Provide Architect’s Certificate of Good Cause for Termination

See similar articles: Cure Notice | Default Termination | Sureties

Where City terminated its contractor for cause, the contractor moved for summary judgment arguing that the termination was defective for lack of an architect’s certificate of good cause for termination as required by the applicable AIA A201 contract document. On the project, the city and contractor each accused the other of causing delay. The city issued a Notice of Termination, stating that its letter constituted a seven-day written notice of termination of the Contract, but it did not provide an architect’s certificate. An email to the city from an individual at the architectural firm called the “project coordinator” (who was not a licensed architect) stating that the contractor “continues to multiply the challenges of completion of the project” and asking the question, “Is this the point where we agree to call an end to this situation?” was found not to constitute an architect’s certificate of cause. The court concluded: “An architect’s certification not having been rendered, a condition precedent [to termination] failed…” Summary judgment was therefore granted and affirmed. The surety also filed for summary judgment, arguing that written notice of the termination was not given to it simultaneously and this prejudiced its ability to mitigate its loss. Town of Plainfield v. Paden Engineering Co., Inc., 943 N.E.2d 904 (2011).

Surety Discussion

In affirming summary judgment for the surety, the court held that the surety was not required to show actual prejudice arising from the city’s failure to give the surety timely notice of intent to default terminate and permit the surety to choose one of the five options available to it upon such a notice. The court made a point of distinguishing surety contracts and insurance policies and the differences in treatment of sureties and insurance companies, and explained that “A surety’s liability must be measured by the strict terms of his contract.” “Lack of timely notice was presumptively prejudicial.” “We may not rewrite clear and unambiguous language of a contract to alter the obligations of parties…. As such, we will not extend the coverage of the performance bond beyond that for which the parties have contracted. Nor will we re-allocate the opportunity for mitigation of damages bargained for by the Sureties and agreed to by [the city]. In short, [the city] is bound by the terms of the contract into which it entered and the Sureties are liable for no more than the contract provisions would dictate.”

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 14, No.4 (April 2012).

Article 3

Economic Loss Doctrine Applied in Guam to Bar Design-Build Contractor’s Negligence Claim against its Design Professional Subcontractor for Purely Economic Losses

Design-Build contractor (Maeda Pacific Corp) engaged a design firm to prepare a cost estimate that it used in preparing a bid to the U.S. Naval Facilities Engineering Command (“Navy”) for a water supply system at the Andersen Air Force Base in Guam. After being awarded the design-build contract, the contractor engaged the design firm to provide design engineering for the project as well as construction quality control management. The design-builder awarded a design-build subcontract to another contractor (“Smithbridge”) to design and construct a water tank for the facility, and that firm in turn awarded a design subcontract to another design firm for structural engineering services for the tank. When the tank was substantially complete, the tank roof collapsed during a test of the water pumping system. A forensic engineer later determined the cause of the collapse to be a gross overload due to the absence of air vents that had not been designed for the tank. Maeda sued the two design firms, alleging breach of contract and negligence, claiming that it “seeks only damages associated with repairing and replacing” physical damage to its work. Both designers moved for summary judgment, arguing that the cost of repairing the damage caused by the collapse are “economic losses” that are not recoverable in a negligence cause of action. Opposing the motion, the design-builder argued that the rule does not apply to parties that lack a contractual relationship, or when there is a contractual relationship but the law imposes a duty independent of the contract. After doing a nice explanation of the history and purpose of the economic loss doctrine, the Supreme Court of Guam in the case of Maeda Pacific Corp. v. GMP Hawaii, Inc., 2011 WL 5825988 (Guam 2011), held that “in the context of commercial construction litigation, where a party in privity of contract with a design firm is seeking to recover economic damages, and no personal injury or damage to property other than the subject of the contract is alleged, such a party is limited to contractual remedies, and a negligence action may not be maintained.” In addition, the court held that the doctrine also barred an action against the designer with whom the design-builder was not in privity of contract.

The court explained its holding as follows:

We hold that the economic loss doctrine does indeed apply in Guam. We further hold that in the context of commercial construction litigation, where a party in privity of contract with a design professional is seeking to recover for economic loss damages, and no personal injury or damage to property other than the subject of the contract is alleged, such a party is limited to contractual remedies, and a negligence action may not be maintained. We reject the argument that a different standard of care should be applied to design professionals beyond what is applied to other parties. Finally, we hold that where a party reasonably could have, by contracts with the defendant or through an intermediary, protected itself from the loss, a lack of privity will not render the economic loss doctrine inapplicable.

Comment: The court does an excellent job of describing the economic loss doctrine and then explaining why it should appropriately be applied to claims against design firms for purely economic losses regardless of whether the claim is by someone in contract with the designer of someone with no contractual relationship.

Article 4

Contractor Owed Liquidated Damages Where it Failed to Timely Seek Change Order for Owner Caused Delay

Where a general contractor failed to follow contract procedures to submit a time extension request, a city was entitled to collect liquidated damages from the contractor despite the fact that the city caused the delay. Since the contractor failed to follow the procedures to claim an extension of time, the trial court would not even consider the evidence of whether the late completion was caused by actions of the city. The appellate court affirmed that parties are permitted to specify by contract that a contractor intending to assert that delay was caused by the owner so as to avoid the effect of the contractor’s failure to complete its work on schedule must give written notice of its intention to assert such a claim within a reasonable time. The court explained that “To alter the contract by time—regardless of reason—the contract required the party seeking the alteration to obtain a change order either by mutual agreement or by submitting a claim to the engineer with a request for a formal decision in writing.” Since neither procedure was used, “the time was not extended, regardless of which party was to blame for the late completion.” The contractor argued that liquidated damages could not be awarded for any part of the delay caused by the city even if the contractor failed to follow the contract procedures for obtaining a time extension. In rejecting that argument, the appellate court in Greg Opinski Constr. v. City of Oakdale, 132 Cal.Rptr.3d 170 (2011), stated:

The court was correct to rely on [contractor’s] failure and enforce the terms of the contract. It makes no difference whether [Contractor’s] timely performance was possible or impossible under these circumstances. The purpose of contract provisions of the type authorized by [civil code] is to allocate to the contractor the risk of delay costs—even for delays beyond the contractor’s control—unless the contractor follows the required procedures for notifying the owner of its intent to claim a right to an extension.

Comment: The holding of this case should be a powerful reminder that contract terms establishing procedural conditions for changes are generally enforced by courts even when the results may seem unfair – such as imposing liquidated damages when the delays were not necessarily caused by the contractor. When a schedule is starting to slip because of conditions or changes beyond the control of the contractor, a contractor is well advised to promptly advise the owner in writing of the reasons for the schedule slippage and to follow the contractual requirements for promptly submitting a written request for a change order seeking a time extension.

Article 5

Hirer of an Independent Contractor Implicitly Delegates Site Safety Responsibility Other than for Its Own Employees

See similar articles: Independent Contractor | Jobsite Safety | Multi-employer liability | OSHA

The general rule that that employees of an independent contractor that are injured in the workplace cannot sue the party that hired the contractor to do the work applies even when the party that hired the contractor failed to comply with workplace safety requirements that were statutorily imposed by CAL-OSHA. US Airways hired an independent contractor to maintain and repair its luggage conveyor at the San Francisco International Airport. It did not direct the work and did not have its own employees participate in the work. The conveyor lacked certain safety guards required by applicable regulations and, while inspecting the conveyor, one of the contractor’s workers got his arm caught in its moving parts. After workers’ compensation insurance of the contractor paid benefits for the injury, the insurer sued US Airways, claiming the airline caused the injury. The trial court granted summary judgment because it found no evidence that the airline affirmatively attributed to the accident. This was reversed by the intermediate court of appeal -- holding that under CAL-OSHA, the airline had a nondelegable duty to ensure that the conveyor had safety guards, and that it was a question of fact to be determined by a jury whether the failure to perform that duty “affirmatively contributed” to the injury. But this was reversed by the California Supreme Court which affirmed the summary judgment for the airline on the basis that the airline can indeed delegate to the contractor its tort law duty, if any, that it had to ensure workplace safety for the contractor’s employees. Seabright Insurance Company v. US Airways, Inc., 258 P.3d 737 (CAL 2011).

In reaching its decision here, the Supreme Court of California did a thorough review of case precedent from various courts of appeal of California as well as previous California Supreme Court decisions, beginning with the case of Privette v. Superior Court, concerning delegation of responsibility to an independent contractor. In particular, the court discussed the interplay of workers’ compensation and the limitation upon suits that can be brought by employees against their employers, and how the same principles can apply when bringing suit against the one that hired the independent contractor that employed the work since “the hirer of an independent contractor generally has … ‘no right of control as to the mode of doing the work contracted for....’ ”.

The court explained that in a previous holding (Hooker v. Department of Transportation), it held that the hirer of the independent contractor cannot be found liable “merely because [it] retained the ability to exercise control over safety at the worksite,” but that it is fair to make the hirer liable if it “exercised the control that was retained in a manner that affirmatively contributed to the injury of the contractor's employee.” The court also cited a decision in the case of Kinsman v. Unocal Corp., where it held that if the injured party is the contractor's employee, and therefore entitled to workers' compensation benefits, policy concerns regarding allowing the hirer to escape liability for bystanders who are injured by the contractor’s negligence do not apply. Thus under the Kinsman decision, “a hirer is presumed to delegate to an independent contractor the duty to provide the contractor's employees with a safe working environment.”

The outcome of this case is so important, and the reasoning of the court is so well presented that rather than attempting to paraphrase or explain it, it is perhaps best to quote from the decision at length as follows:

The Privette line of decisions discussed above establishes that an independent contractor's hirer presumptively delegates to that contractor its tort law duty to provide a safe workplace for the contractor's employees. At issue here is whether the hirer can be liable to the contractor's employees for workplace injuries allegedly resulting from the hirer's failure to comply with safety requirements of Cal–OSHA and its regulations. That raises the question whether the tort law duty, if any, to comply with Cal–OSHA and its regulations for the benefit of an independent contractor's employees is nondelegable, an issue we discuss below.

Before hiring independent contractor Aubry, defendant US Airways owed its own employees a duty to provide a safe workplace. We do not suggest that defendant could delegate that preexisting duty to Aubry (such that defendant could avoid liability if the conveyor had injured defendant's own employee). But under the definition of “employer” that applies to California's workplace safety laws (see § 6304), the employees of an independent contractor like Aubry are not considered to be the hirer's own employees, and the issue here is whether defendant US Airways implicitly delegated to contractor Aubry the tort law duty, if any, that it had to ensure workplace safety for Aubry's employees. The latter duty did not predate defendant's contract with Aubry; rather, it arose out of the contract. Any tort law duty US Airways owed to Aubry's employees only existed because of the work (maintenance and repair of the conveyor) that Aubry was performing for the airline, and therefore it did not fall within the nondelegable duties doctrine.

The policy favoring delegation in this case is bolstered by the same factors we considered persuasive in Privette (citation omitted) [which],noted that the cost of workers' compensation insurance for an independent contractor's employees is presumably included in the contract price the hirer pays to the contractor, and therefore the hirer indirectly pays for that insurance. Privette further noted that workers' compensation guarantees compensation for injured workers, “spreads the risk created by the performance of dangerous work to those who ... benefit from such work,” and “encourages industrial safety.” (citation omitted). Also, in light of the limitation that the workers' compensation law places on the independent contractor's liability (shielding the latter from tort liability), it would be unfair to permit the injured employee to obtain full tort damages from the hirer of the independent contractor—damages that would be unavailable to employees who did not happen to work for a hired contractor. This inequity would be even greater when, as is true here, the independent contractor had sole control over the means of performing the work. (Citation omitted) In sum, we see no reason to limit our holding in Privette simply because the tort law duty, if any, that the hirer owes happens to be one based on a statute or regulation.

Accordingly, plaintiffs here cannot recover in tort from defendant US Airways on a theory that employee Verdon's workplace injury resulted from defendant's breach of what plaintiffs describe as a nondelegable duty under Cal–OSHA regulations to provide safety guards on the conveyor.

As determined by the court, the key to a hirer of an independent contractor successfully delegating worksite safety responsibility to an independent contractor (including duties imposed by the hirer by requirements such as state OSHA regulations), is that the hirer does not exercise control over the independent contractor’s work.

Article 6

Damages Caused By Chinese Drywall Are Excluded From Coverage Under Homeowner’s Insurance

Chinese Drywall caused damage that was not from coverage under a homeowner’s insurance policy because of several exclusions for (1) faulty, inadequate or defective materials, (2) latent defects, (3) rust or corrosion and (4) pollution. Two years after purchasing their home, the homeowners began having chronic malfunctions in the heating, ventilation and air conditioning (HVAC) system. It was determined that Chinese Drywall had been used in building the house and that it was releasing sulfuric gases causing corrosion of various metal components, including HVAC coils, refrigerator units, electrical wiring, plumbing, jewelry, appliances, electronics, and other household items. The homeowners filed suit against the homebuilder, the builder’s CGL insurance carrier (State Farm Insurance) and its own homeowner’s insurer (Louisiana Citizens). On cross motions for summary judgment on the homeowner’s policy, Louisiana Citizens argued that each of the four exclusions reference above applied to bar coverage under the policy. The trial court granted summary judgment in favor of the insurance company. This was affirmed on appeal in Ross v. C. Adams Construction & Design, LLC, 70 So.3d 949 (La. 2011) for the reasons explained herein.

Although the court agreed with the homeowner that the inherent qualities of the Chinese drywall caused a direct physical loss to the home, each of the exclusions of the policy cited by the carrier were effective to exclude coverage. First, the court said that “using the plain meaning of ‘faulty, inadequate, or defective material’ leads to a conclusion that the drywall in question is a faulty, inadequate, or defective material and is specifically excluded by the homeowner’s policy.” The complaint even referred to the drywall as “defective,” noted the court. Due to the defect causing it to emit sulfuric gasses, even if the drywall were still in place in the home, it could not be considered to be serving its intended purpose as a component of a livable residence. It was faulty, inadequate, and defective, and therefore excluded from coverage.

Next, the policy states that it does not insure for “mechanical breakdown, latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself….” Was the Chinese drywall latently defective? In answering this, the court states, “A latent defect is considered a defect that is hidden or concealed from knowledge, as well as from sight, and which a reasonable customary inspection would not reveal.” The original complaint by the homeowner included an allegation that the material contained hidden defects and that the emission of gasses was unknown to them. This, says the court, falls within the definition of latent defect and is therefore excluded from coverage pursuant to the latent defect exclusion.

Another exclusion of the policy states, “We do not insure, however, for loss … caused by … smog, rust or other corrosion, or dry rot.” The complaint alleged that the drywall caused corrosion, and since the policy on its face states it does not cover corrosion, the court found this exclusion applies.

The final nail in this insurance coverage coffin was the pollution exclusion that provided the following:

2. We do not insure, however, for loss: ...

c. Caused by: ...

(6) Any of the following: ...

(e) Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against named under Coverage C.

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.

As understood by the court, “The sulfuric gas emitted from the [ ] drywall qualifies as a pollutant pursuant to this definition in the policy. Therefore, any damage caused by the release of these gases is excluded from coverage by the homeowner’s insurance policy.” For all these reasons, the court affirmed judgment in favor of the insurance carrier.

Comment: This decision only addresses the summary judgment motion concerning the homeowner’s insurance policy. It does not deal with the suit by the homeowner against the contractor of the contractor’s general liability carrier. Depending upon the contractor’s policy terms and conditions, it is conceivable that there could be coverage under the contractor’s policy. The “your work” exclusion could be an important potential impediment to coverage. If the drywall was installed by a subcontractor, however, the subcontractor exception to the “your work” exclusion might apply so that the contractor may have coverage for the damages caused by the defective work performed by its subcontractor. That will be little comfort to the contractor, however, if the policy contained a broad pollution exclusion since the sulfuric gasses that caused the corrosion could be deemed by the courts in California to the environmental pollutant subject to the exclusion. The need for contractor’s pollution liability (CPL) insurance is once again manifested by the problems associated with Chinese drywall.

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ConstructionRisk.com Report (April 2012)