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INSURERS MUST DEFEND CLAIMS OF LEAD DUST FROM MINIBLINDS

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NEWARK, N.J. -- In a ruling with huge lead liability implications for the insurers of window blind manufacturers and distributors, a federal judge has ruled "it is reasonable to infer" that product safety lawsuits against one manufacturer include property damage claims.

Because of that inference, the judge on Sept. 2 denied a summary judgment motion by the manufacturer's general liability insurers that sought to relieve them from defending the company against the lawsuits and from indemnifying the company for any damages a court may impose against it.

The insurers argued that the underlying lawsuits sought only a recall of the manufacturer's miniblinds and recoveries of the purchase price. The cost of both are excluded from the manufacturer's coverage.

In class-action and individual lawsuits filed against window blind manufacturers and distributors, consumers claim that lead dust forms on the miniblinds, creating a health hazard. The suits name as defendants, among others, manufacturer Jencraft Corp. and retail and discount store giants Sears, Roebuck & Co. and Wal-Mart Stores Inc.

The decision is the first of its kind in litigation that miniblind manufacturers and distributors are waging against their general liability insurers to establish that the insurers have a duty to defend their policyholders against the product safety lawsuits, according to policyholder attorney Jay Spievack. Mr. Spievack, a partner at Kronish, Lieb, Weiner & Hellman L.L.P. in New York, represents Totowa, N.J.-based Jencraft in the coverage dispute in New Jersey federal district court in Newark.

Absent a settlement, Jencraft's coverage dispute now likely will head to trial, because parties in a case typically cannot appeal a judge's ruling on a summary judgment motion until the entire case has been wrapped up at the trial level.

But, Mr. Spievack said:"From my perspective, there is no legal defense to coverage any more."

Defense attorney Lon Berk, who represents the two Jencraft insurers that have not settled the dispute, disagrees.

"The decision is procedural only, and the court has made no finding that there is any coverage obligation," said Mr. Berk, a partner with Wiley, Rein & Fielding in Washington. "These suits against Jencraft seek costs associated with product recall -- not property damage. The case law is clear beyond dispute that there is no coverage for such claims. We're confident that this well-established principle will be enforced."

Mr. Berk represents Maryland Casualty Co. and Northern Insurance Co. of New York, both of which are Baltimore-based subsidiaries of Zurich Insurance Group-United States of Schaumburg, Ill.

The insurers wrote tens of millions of dollars of primary and excess general liability coverage for Jencraft from 1977 through 1990, according to Mr. Spievack.

Product safety litigation against miniblind manufacturers and distributors intensified after the U.S. Consumer Product Safety Commission released a report on miniblinds in 1996. The CPSC reported that miniblinds that contain lead-based paint are dangerous because the lead dust that forms on the blinds over time can migrate.

In their defense of the consumer complaints, miniblind manufacturers contend that, among other things, miniblinds do not cause a hazardous lead exposure and that other household products likely are the source of the exposure.

Jencraft already has incurred millions of dollars in defense costs in those actions, and the manufacturer's defense costs likely will mount for awhile, Mr. Spievack said.

Jencraft has paid some of those defense costs. American Alliance Insurance Co., a general liability insurer Jencraft previously settled with, also has paid some defense costs.

In the coverage dispute, the Zurich companies argued that the consumer lawsuits do not trigger Jencraft's general liability insurance. The insurers argued that the lawsuits do not allege property damage other than to the mini-blinds and do not seek recovery for bodily injuries. The consumers seek only a product recall and reimbursements of the purchase price for the miniblinds, but the policies' business risk exclusions bar coverage for the cost of both, the insurers argued.

U.S. District Judge William H. Walls disagreed with the insurers over the property damage issue. "Though clearly not the focus of any of the underlying class actions, it is reasonable to infer the specter of a property damage claim in those suits," Judge Walls wrote.

The judge noted that some of the consumer lawsuits complained that lead dust from the miniblinds migrated into the air and onto other surfaces in a room or onto cleaning implements. One consumer lawsuit alleges that homeowners will have to use special vacuuming equipment, at a cost of $2,000 per household, to remove lead contamination from their homes, the judge noted.

While some consumer lawsuits do not specifically seek recovery for the cost of the decontamination, "all arise from the same factual complex," Judge Walls wrote. In addition, all of the suits seek restitution and relief the court deems appropriate, he noted.

"That these homes will require special cleanup procedures to abate the alleged health hazards indicates 'physical injury' to property that could trigger coverage under the policies," Judge Walls wrote.

The judge noted that other New Jersey courts have ruled in liability lawsuits over the removal of lead paint and asbestos from various buildings that property damage has been measured by the cost of restoring property to its original condition or by any reduction in property value.

As a result, Judge Walls ruled, the insurers' business risk exclusions "are immaterial because none speaks to the issue of the alleged contamination."

Because the judge struck down the insurers' exclusions, the ruling is not merely "procedural," as the insurers' attorney maintained, said Mr. Spievack, Jencraft's attorney.

Judge Walls did not address whether the underlying consumer lawsuits sought recovery for bodily injuries, because the insurers already are obliged to defend Jencraft under his decision.

A Sears spokeswoman said she was unaware of the decision.

Wal-Mart did not return phone calls.

Defense attorney Michele Corash estimated that about a half-dozen lawsuits have been filed nationwide over the miniblind lead dust issue.

Ms. Corash, a partner with Morrison & Foerster L.L.P. in San Francisco, represented miniblind manufacturers and distributors in product safety lawsuits that the state attorney general and consumers filed in California. The attorney general's suit was settled. Afterward, a judge dismissed the other case, Ms. Corash said.

"One would think the results so far are discouraging to potential plaintiffs," she said.

American Alliance Insurance Co. et al. vs. Jencraft Corp., U.S. District Court for the District of New Jersey; No. 96-4346.