News-press: Cape Coral builder’s drywall coverage an issue (08-19-09)

Firm, others face liability limits

By MARY WOZNIAK
mwozniak@news-press.com

After what homeowners say is a nine-month wait, Ananda Homes Inc. of Cape Coral is responding to complaints of defective Chinese drywall, but it’s unclear whether the homebuilder has enough liability insurance to cover claims.

State Farm, Aranda’s insurer, has sent at least 40 letters to Aranda homeowners, saying the insurer had been notified of prospective claims, according to a lawyer for Aranda.

Attorney Robert T. Maher said he represents Aranda in other matters, but stopped handling the drywall issue about seven weeks ago because it was turned over to State Farm.

Aranda is one of dozens of builders grappling with how to fix thousands of homes that contain Chinese drywall. Insurance claims, payments and liability limits are one piece of the dilemma.

Lou Appleman of Cape Coral received a State Farm letter. Appleman formerly did warranty work for Aranda until he was laid off at the end of 2006.

He said Aranda has built about 400 homes. That means the 40 or more homeowners who received letters would represent about 10 percent.

Appleman said he was surprised to get the letter.

Aranda homeowners say for nine months the company refused to tell them who its insurer was.

“I’m glad he finally stepped forward to do something,” Appleman said of John J. Conti Sr., Aranda owner. “That’s where it should start, with his insurance company.”

Neither Conti Sr. nor his son, John J. Conti Jr., responded to phone calls, e-mails, a visit to Aranda headquarters or visits to the Contis’ homes requesting comment.

The drywall smells like rotten eggs and emits sulfur compounds that corrode copper air conditioning coils, wiring inside electrical switches, and numerous other metal household items.

Homeowners with the drywall complain of health symptoms from nosebleeds to respiratory problems.

The move by Aranda may stem from a June 8 letter asking who its insurer is and how much coverage it has. The letter was sent by David Durkee, attorney for Vincent and Joan Geraci of Cape Coral, who filed a lawsuit against the builder.

State Farm answered Durkee on June 19 that Aranda has a limit of $1 million in liability coverage and $5,000 in medical payments coverage.

Durkee is trying to find out whether that means a $1 million cap per house, or whether Aranda also has another cap that would cover a group of claims. He believes that the $1 million applies to each individual claim.

However, Maher said builders typically carry a liability cap of $1 million per incident – in this case, per home – and an aggregate cap of $3 million that would cover a group of incidents.

“I seriously doubt whether Aranda or any of these builders can handle these claims if they all turn out to be legitimate,” he said. But he also said he wasn’t sure what Aranda’s liability limits are.

State Farm can’t disclose particulars about Aranda’s policy due to federal privacy laws, said Justin Glover, the company’s spokesman.

“We have received claims from a small number of builders around the state and we are in the process of investigating those claims,” he said. “We’re looking at them on a case-by-case basis.”

But State Farm’s letter to Aranda homeowners cited several coverage questions, including what is commonly known as the “pollution exclusion.”

Most homeowners and contractors carry this exclusion in their policies.

It means that a loss arising out of “actual, alleged or threatened discharge, dispersal, spill, release or escape of pollutants” would be excluded from coverage.

Many insurance companies are denying claims, saying that sulfur compounds emitted by the drywall are considered pollution.

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