Chinese Drywall Update
As Troutman Sanders reported in March, the emerging problems associated with allegedly defective Chinese drywall have sparked a number of significant lawsuits across the country. These lawsuits generally allege that drywall imported from China during the construction boom following Hurricane Katrina contains abnormally high sulfur levels, resulting in a “rotten egg” smell. The lawsuits further allege that the sulfuric gasses emitted from the Chinese drywall cause corrosion, which has damaged air conditioning systems, appliances, internal wiring, and other electrical systems in the buildings in which the Chinese drywall was installed. Plaintiffs also claim that exposure to the drywall has caused a variety of health problems, including respiratory problems, irritation to the eyes and sinuses, fatigue, and neurological harm.
The impact of the allegedly defective drywall has been most acutely felt in Florida. On April 23, 2009, the United States Judicial Panel on Multidistrict Litigation announced that it would hold a hearing on May 27, 2009 to consider whether to consolidate ten federal lawsuits involving Chinese drywall filed thus far in the United States District Court for the Southern District of Florida. Of the ten pending federal suits at that time, eight were filed in Florida and one each was filed in Louisiana and Ohio. An additional putative class action has since been filed in Virginia.
Other reports indicate that litigation involving Chinese drywall could quickly expand both in the number of claims and their geographic scope. According to the U.S. Consumer Product Safety Commission (CPSC), residents in 13 states and the District of Columbia have reported health problems or property damage they suspect to be linked to Chinese drywall installed in their homes. While Florida residents have lodged the majority of the reports, the CPSC has also received reports from Arizona, Alabama, California, Louisiana, Mississippi, Missouri, Ohio, Tennessee, Virginia, Washington, Wisconsin, and Wyoming, as well as the District of Columbia. Litigation already is pending in a number of these jurisdictions.
Concerns about Chinese drywall have also elicited a response from federal legislators and state government officials. On March 30, 2009, United States Senators Bill Nelson, D-Fla., and Mary L. Landrieu, D-La., introduced the Drywall Safety Act of 2009. Rep. Robert Wexler, D-Fla., introduced a companion bill, H.R. 1977, in the House of Representatives. This proposed legislation would institute an interim ban on the importation of drywall with a high concentration of organic compounds. Significantly, the legislation would also require the CPSC to conduct a study of the chemical composition of drywall imported from China between 2004 and 2007. The study would focus on whether the chemical composition of the drywall or the gasses emitted from the drywall caused damages to residents’ health, the environment, or to property such as electrical fixtures. Similarly, Florida Governor Charlie Crist recently called upon both the CPSC and the Environmental Protection Agency to conduct inspections aimed at determining whether gasses emitted from Chinese drywall constitute a health hazard. If carried out, existing and potential plaintiffs may try to use such studies to support litigation involving the effects of Chinese drywall.
As expected, the emergence of Chinese drywall litigation has already led to corresponding disputes over insurance coverage. For example, Builders Mutual Insurance Company recently filed a complaint in the United States District Court for the Eastern District of Virginia, styled Builders Mutual Insurance Co. v. Dragas Management Corp., et al., case number 2:09-cv-185, seeking a declaratory judgment that certain policies it issued provide no coverage for claims brought by homeowners alleging damages caused by the installation of Chinese drywall in their homes. The complaint raises issues such as the application of policy exclusions, allocation, and number of occurrences. Similar litigation is pending in other courts.
Troutman Sanders will continue to vigilantly monitor these emerging legal developments. If you would like additional information, or if we may be of assistance, please do not hesitate to contact us.