SDV Insights

On March 1, 2015, CBS News aired an investigative report on “60 Minutes” regarding formaldehyde exposure levels in Lumber Liquidators Chinese-made laminate flooring. The investigation revealed that all of the tested boxes of Lumber Liquidators’ laminate flooring failed to meet California emissions standards. Exposure levels from the tested flooring were at an average of 6-7 times the standard, with some boxes nearing 20 times the permitted level. Lumber Liquidators is not alone; Bloomberg reports that Lowe’s has stopped sales of a similar Chinese-made laminate flooring, which also exceeded emissions standards.

According to the NY Post, Lumber Liquidators is now embroiled in hundreds of lawsuits and is involved in litigation with its insurers for refusing to provide coverage. The company filed a lawsuit in state court in Dane County, Wisconsin, on April 27, 2015. In its suit, Lumber Liquidators charges breach of contract and bad faith against nine defendant insurance companies.

With the substantial number of lawsuits filed against Lumber Liquidators, more are likely to follow against similarly situated entities. This controversy could soon emulate the Chinese drywall litigation of the mid-2000s, which involved sulfur-emitting drywall imported from China. Due to the similarities between the two controversies, many of the same coverage issues are likely to resurface (pun intended). Policyholders can expect CGL insurers to aggressively argue that any damage or loss caused by the flooring falls under the policy exclusions. Relevant exclusions include the pollution or contamination exclusions and faulty workmanship. As the Chinese drywall litigation also showed, these types of disputes are heavily fact intensive and can have varying results. Policyholders with potential flooring exposure should actively be revisiting their corporate insurance program and relevant contractual indemnity obligations to identify and strategize risk transfer.