NEW ORLEANS—A Louisiana court has ruled that an insurer may not use several exclusions to deny homeowner claims resulting from tainted Chinese drywall.

The New Orleans Parish Civil District Court ruled recently that Audubon Insurance Co.’s pollution exclusion in its homeowners policy could not be used as an “affirmative defense” to deny coverage of a Chinese drywall claim.

In his ruling, Judge Lloyd J. Medley wrote that Audubon’s gradual or sudden loss exclusion and its faulty, inadequate or defective planning exclusion also could not be used as defenses to deny coverage.

The case, Simon Finger and Rebecca Finger vs. Audubon Insurance Co., arose when the Fingers filed a July 2009 claim with Baton Rouge, La.-based Audubon, a subsidiary of American International Group Inc., under an all-risks policy. Audubon denied the claim last July, citing its pollution and contamination; gradual or sudden loss; and faulty, inadequate or defective exclusions as reasons for denial, according to court documents.

In his ruling, Judge Medley said a policyholder with all-risk coverage “has a ‘very light’ burden and must show only damage” occurred. He added that the burden of proof is on the insurer to define what claims are denied, adding that “exclusions must be interpreted as narrowly as possible to provide maximum coverage for the insured.”

The court said as a general rule, insurance policies should be interpreted to effect, not deny, coverage. During depositions, Audubon argued that the policy “speaks for itself.”

In addition, the pollution exclusion “was never intended to apply to residential homeowners claims for damages caused by substandard building materials,” the judge ruled. Faulty drywall that emitted various gases into the home “is not sufficient enough to qualify as a ‘pollutant’ under the pollution exclusion,” he said.

As for the gradual or sudden loss exclusion, the judge said he followed previous Louisiana court rulings that found “the purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen,” thus affording coverage to the policyholder.

Audubon argued that the exclusion applied to corrosion, as it’s been reported that sulfuric gases the drywall emits corrodes wiring and metals within the homes. Judge Medley said that the corrosion is a result of the drywall and not due to corrosion over time.

Judge Medley also ruled that the Chinese drywall is not defective as Audubon’s exclusion interprets it, meaning that the policy’s exclusion for faulty, inadequate or defective planning also does not apply.

Under the “plain language of the Audubon policy, the Chinese drywall ‘defect’ is not one that renders the drywall unable to perform the purpose of drywall,” Judge Medley wrote in his opinion.

Audubon is expected to appeal the ruling.

About 500 million pounds of tainted drywall was imported into the United States between 2004 and 2007. The drywall was traced to Chinese subsidiaries of German manufacturer Knauf Plasterboard Tianjin Co. Ltd.

Currently, there are more than 2,000 complaints filed nationwide regarding the faulty drywall, including a multidistrict litigation trial taking place in New Orleans.