Drywall Tsunami

Mid-Atlantic contractors could be exposed to liabilities related to potentially toxic drywall manufacturered in China.

By Timothy R. Hughes

The construction industry has seen waves of product liability issues over the last thirty years that have left significant wreckage in their wake. In the last twenty years, these cases have included claimed defects in plumbing fixtures, fire retardant plywood, and exterior insulation finish systems. The latest product liability tsunami relates to drywall that was manufactured in China and used from roughly 2002 through 2007. These cases pose a significant, and perhaps even mortal, risk to companies exposed to significant liability.

The Nature of the Problem Complaints first surfaced in earnest in Florida. Various Florida residents complained of odor in their homes, significant levels of corrosion in metal components and various respiratory related health complaints. Lennar Corp., one of the nation’s largest home builders, began testing air quality in some of its homes and moved some homeowners out to permit drywall replacement. Various private testing companies began inspecting homes.

In January 2009, the Florida Department of Health initiated its own battery of tests. Florida Department of Health found no data indicating there was an immediate health threat from the drywall emissions. Nevertheless, a large number of class action litigation websites have rapidly erupted. Many of these sources claim not just potential connections between the drywall and corrosion of metallic home components, but also the risk of serious personal injuries.

Political Reaction The recent political reaction has been intense. Senators Nelson and Landrieu have called for a product recall and temporary ban on importation of drywall from China. During the first weeks of April, various Florida politicians spoke out against Chinese drywall, including Governor Crist’s letter to the Environmental Protection Agency and the Centers for Disease Control and Prevention requesting assistance in developing testing strategies for homes experiencing severe copper corrosion. Governor Crist indicated in his letter that Florida testing confirmed the findings of private consultants including the presence of strontium sulfide and elemental sulfur in Chinese drywall. His letter stated the testing confirmed that drywall from problem homes generated hydrogen sulfide, carbonyl sulfide, and carbon disulfide when exposed to high humidity or heat. Finally, the letter states that all of these compounds are capable of causing the type of corrosion found in the subject homes and “could cause a health hazard”. Louisiana Governor Jindal echoed Governor Crist’s request to the EPA and CDC.

The Problem Spreads While the drywall initially appeared to be primarily a Florida issue, recent reports appear to demonstrate a broader impact. The Homeowners Consumer Center reports discovery of “significant quantities” of Chinese drywall in Florida, Mississippi, Alabama, Louisiana, Maryland, Virginia, Arizona, and Texas. At least one construction supplier in Norfolk, Va., has indicated they imported 2,000 pallets of Chinese drywall between March 2006 and December 2008. Reports consistently indicate that sufficient material was shipped to the United States to build 100,000 homes and this number is preliminary.

There are reports during March and April of similar complaints in the Tidewater region of Virginia. One Virginia developer, the Dragas Companies, was quoted at Pilotonline.com that it had determined that the imported drywall was installed in two of its developments and “appears to emit elevated levels of sulfur compounds that may corrode air conditioning coils, and may damage other mechanical and electrical systems over time.” News reports indicated that Dragas is paying to fix the homes and helping relocate residents during the repairs.

The Virginia Department of Health recently issued a statement on frequently asked questions regarding Chinese drywall and related issues. Posted on a VDH webpage, the statement provides that preliminary data, “indicates that some Chinese drywall emits gases that contain sulfur and other chemicals. The gases that are emitted can smell like ‘rotten eggs’ and may irritate the respiratory system. However, current health data do not suggest any immediate or chronic health problems associated with Chinese drywall.” The Virginia Department of Health concedes that some of the gases potentially emitted from the Chinese drywall can cause corrosion of metals.

Parties and Risk Management Given the ubiquitous use of drywall, the range of impacted parties is unusually wide. Claims could involve commercial, governmental, and residential projects. Parties in litigation could certainly include owners, developers, contractors, subcontractors, suppliers, manufacturers, and design professionals. Replacement costs alone could involve extensive damages and those damages would increase exponentially in the event plaintiffs demonstrate health related issues.

Proactive and early analysis and risk management are critical. You should immediately investigate whether your projects included these materials. It is also a good idea to get counsel involved early to help analyze potential exposure and resolution options, gather and maintain project documentation, review potential coverage issues, and evaluate potential remedies against other parties.

Tim Hughes is Of Counsel to the law firm of Bean, Kinney & Korman in Arlington, Virginia. He can be reached at thughes@beankinney.com. This article is not intended to provide specific legal advice but, instead, as a general commentary regarding legal matters.