AIG and Other Insurers are Up Against the (Dry) Wall

The two-minute warning has sounded for insurance companies facing potential lawsuits in the infamous "Chinese drywall" cases, with the first one scheduled for trial March 15 in a New Orleans federal court.

Florida's Bradenton Herald says the first blow is likely to hit Nationwide Mutual. In several circuitous twists, Florida homeowners sued the builder who in turn sued the drywall installer who then sued insurer Scottsdale, which provided liability coverage. Scottsdale is owned by Nationwide, which declined comment.

Perhaps wisely so, because this suit is only one of more than 275 that have been consolidated into the federal case. And some policyholders are asking for big bucks, up to $2.5 million in the case of some Virginia homeowners.

Thus far the Chinese firms responsible for the drywall have stonewalled, not attending the hearings or pulling out when they didn't like the judge's rulings. Although this kind of behavior tends to make judges angry, the courts will be hard pressed to get at the Chinese. U.S. insurers are easier targets.

As BNET Finance previously reported, attorney Charles Miller of the Insurance Law Center has already warned insurers of their potential liability, which could exceed $15 billion. Among those who've insured builders, in addition to Nationwide, are Florida's Citizens Property and the hapless AIG.

And this might only be the beginning. In addition to the more than 2,800 complaints about the noxious drywall being filed in 39 states and territories, there are now allegations that at least eight deaths occurred due to breathing sulfur-tainted air.

The Consumer Product Safety Commission has investigated but found no link between drywall and the eight fatalities. But some Southern senators, including Democrat Bill Nelson of Florida and Republican David Vitter of Louisiana aren't convinced. Vitter sent a letter last week asking the Centers for Disease Control and Prevention to "take another look."