Chinese Drywall - Insurance Coverage and Tax Deductions

Insurance Coverage and Tax Deductions

Controversy has arisen over whether the damage will be covered under the insurance policies for home insurance or general liability insurance. In March 2010, a New Orleans judge ruled that the damage was covered under a home insurance policy. It is unknown whether the general liability insurance will cover the claims. The standard policy contained an exception to an exclusion for pollution which allowed coverage if the pollution came from the products of the insured, but insurers had revised the policies to incorporate a "total pollution exclusion" which has no exception. Even without a total pollution exclusion, around 2005 insurers began inserting another provision to deny construction defect claims. Whether or not insurance coverage will be granted generally depends on state law and a state court's interpretation, but in this case may be determined for multiple states under the Louisiana multiple district litigation (MDL) overseen by a federal court.

On September 30, 2010, the Internal Revenue Service announced it would provide tax relief for homeowners affected by property damage caused by imported Chinese drywall. The IRS has categorized the copper corrosion from the sulfur gasses emitted by the imported drywall as “casualty loss”, and is in a similar category to property damage after a catastrophic event, such as a hurricane. However, homeowners can only claim a deduction after repairing the affected area(s), and much controversy has arisen because of the great out-of-pocket expense to affected homeowners.