Chinese Drywall
The majority of gypsum board, or drywall, used in the U.S. construction industry is manufactured in the United States. However, during a drywall shortage caused in part by the building boom and rebuilding from Hurricane Katrina, a number of builders turned to drywall imported from China. Some reports indicate that 550 million pounds – enough to build 60,000 average-sized homes – of Chinese drywall has been offloaded at U.S. ports since 2006. While much of this Chinese drywall appears to have been used in Florida, it has been discovered in some 13 states across the country including Virginia, the Carolinas, Mississippi and California.
While the cause has not yet been fully determined, this Chinese drywall allegedly emits gasses including carbon disulfide, carbonyl sulfide, hydrogen sulfide and diethyl sulfide, resulting in a “rotten egg” smell. Some allege that this is because the drywall was produced using fly ash from scrubbers on coal-fired power plants. The long-term health effects are as of yet unknown, but Chinese drywall is alleged to cause respiratory problems, sleeping problems, irritation of the eyes and sinuses, and allergies. Further, the gasses reportedly corrode metal and other substances including pipes, air ducts, wiring and air conditioning equipment resulting in repair costs that can run into the hundreds of thousands of dollars per home.
Over the last several weeks, several significant lawsuits involving Chinese drywall have been filed. Miami-based builder Lennar Corporation has filed suit against a number of manufacturers, suppliers and installers of the product alleging that they failed to establish proper quality controls and failed to provide adequate warnings. In addition, three putative class actions have been filed in federal courts in Florida on behalf of homeowners both within and outside Florida. Defendants in these actions include Knauf Plasterboard Tianjin (a manufacturer), Knauf Gips KG (its German multi-national parent company), Taishan Gypsum Co. (another manufacturer), Rothchilt International Ltd. (a trading company allegedly involved in exporting the drywall) and a number of distributors and builders. Knauf Plasterboard Tianjin has complained that it has been unfairly targeted because it is one of a few manufacturers that complied with Chinese law requiring that drywall manufacturers label their products. According to Knauf Plasterboard Tianjin, its products represent roughly 20% of the total market.
In addition to the pending litigation, the Environmental Protection Agency and the Consumer Products Safety Commission currently are investigating complaints about Chinese drywall and there are discussions of potential investigations by the Federal Trade Commission and the Office of the U.S. Trade Representative.
Additional claims arising out of the use of Chinese drywall are anticipated. Potential targets of such claims include additional manufacturers, their parents and affiliates, and almost anyone involved in the supply chain or the construction industry (shippers, importers, distributors, suppliers, retailers, builders, subcontractors, etc.).
These claims appear likely to raise a number of insurance coverage issues including: the impact of pollution and/or mold exclusions; determining who may be entitled to additional insured status under policies; the impact of products/completed operations provisions; allocation; the number of occurrences; the interplay of multiple lines of coverage; etc.
Troutman Sanders, with its ability to call on experts in the insurance coverage, product safety, environmental and construction fields is particularly well situated to assist you in addressing these issues and positioning your company to manage these claims. If you would like additional information about Chinese drywall or the existing claims, or if we may be of assistance, please do not hesitate to contact us.