Posts Tagged ‘Class Actions’

Chinese Drywall Crisis Presents Builders, Construction Lawyers and Homeowners With Difficult Choices (Construction Lawyers)

On April 30, 2009 Author By Scott Wolfe Jr        

Previously, we examined difficult choices and considerations facing builders who have installed or supplied Chinese Drywall.

Builders, however, are not the only folks at a legal crossroads with respect to the imported drywall crisis.   Construction attorneys – and plaintiff attorneys – too must make important decisions that will alter the course of litigation for their clients.

For those attorneys representing homeowners, the litigation choices they make will not only affect the merits of their client’s case, but also their lifestyle.

If an attorney chooses to file simply a class action, for example, the client’s home may go unattended to for years, requiring the client to find living quarters elsewhere at great expense and inconvenience.

For attorneys representing builders, they too have decisions with consequences beyond the litigation itself.

Correcting imported drywall problems could cost a builder thousands, if not over a hundred thousand dollars.   Builders without deep pockets, and with more than one Chinese Drywall claim, could be facing huge liability.   How should an attorney advise a builder to mitigate its losses? To balance the cost of litigation with the cost of repairing drywall problems?

The questions are aplenty. Here are a few frequently discussed issues facing construction attorneys.

The Role of Class Actions

Plaintiff attorneys across the country are signing up Chinese Drywall victims in droves.    The problem: class action suits are largely against foreign manufactures or huge drywall importers.   It looks like class action attorneys are doing little, if anything, to explore other remedies for homeowners.

There are real problems with this, and the problem is only exasperated by the “class action culture” that may result in homeowners signing papers with a class action attorney, and forgetting about the problem.

Here are a few:

  1. Homeowners want the drywall out of their homes.   The class action remedy, however, will likely take years to organize and resolve itself, and then it’s not certain how homeowners will be compensated. See Donald Brenner’s argument on Construction Litigation Law Blog: Class Action Suits May Not Help Homeowners for Years If Ever.
  2. There are problems with collecting judgments against foreign companies, like those named in the class actions.   See Dan Harris’ commentary on his China Law Blog titled “Show Me The Money;”
  3. Time Ticks against homeowners on all of their other claims (warranty, contract, tort, insurance, etc.).   By signing up with a class action attorney, these other claims may be ignored, and their statute of limitations will approach quickly.

Warranties and The Role of Builders

It doesn’t seem fair that builders would be liable for drywall installed in perfectly good condition, without any way of knowing of the defects.

However, those representing homeowners ought to seriously consider an action against builders, since builders have contractual and warranty obligations to the homeowner, and a clear duty of care.

Those representing homeowners, consider the action taken by North Carolina attorneys in bringing the Flannigan v. Stafford Custom Homes, Inc. matter. While other parties will likely get involved with this action (suppliers, insurers, etc.), the plaintiffs in that case leave those issues to the builder….which brings me to those representing builders…

Those representing builders ought to consider the role of insurance, and potentially bringing an action against its suppliers, installers and the drywall importers and manufactures.   Be cautious of the Pollution Exclusion clause in CGL policies, but review the actions taken by Lennar Co. in the face of Chinese Drywall claims as an example of how to proceed aggressively for a builder client.

Mitigating Damages

As construction attorneys know, everyone has a duty to mitigate.   Since Chinese Drywall damages appear to be of the type that will get progressively worse with time (i.e. continued decay), the role of the mitigation duty is pronounced.

The duty is a difficult one under these circumstances because of the potential cost of remedying Chinese Drywall damages and defects.

Whether the homeowner is suing its homeowners insurance or the builder….or the builder is suing its CGL for coverage…talk of the mitigation duty is likely to surface.

Should builders be notifying homeowners of potential contamination?

Should homeowners and builders be tearing out drywall and other contaminants to avoid further decay?

What is the consequence of not doing these things, or simply not being able to afford to do them? Less insurance coverage? More exposure for the builder/homeowner?

Advising your client with respect to its duty to mitigate in the face of a Chinese Drywall claim may be significant advice…but it will certainly be costly.

Posted in:     Chinese Drywall  /  Tags: ,   /   6 Comments

Chinese Drywall Crisis Presents Builders, Construction Lawyers and Homeowners With Difficult Choices (Builders)

On April 28, 2009 Author By Scott Wolfe Jr        

In Florida, Louisiana and other Southern states, the Chinese Drywall situation is causing concern in the construction industry and among homeowners.

A few months ago, we began posting about the Chinese Drywall problem and how it may affect builders on the Construction Law Monitor (tag: Chinese Drywall). As the situation grew in scope, however, we decided to launch an entire blog on the subject: The Chinese Drywall Blog.

While most news reports about the imported drywall problem has focused on filed class actions in Louisiana and Florida, the problem is a bit more complex.   Notably, because the Chinese Drywall claims present an interesting distinction to other class actions.

The difference presents builders, construction attorneys and homeowners with complex and difficult decisions about who will be ultimately liable for the damages, and how to pursue liability.

Over the next few days, we’ll examine the decisions facing Builders, Homeowners and Construction Attorneys.   Today, we’re looking at the decisions facing Builders.

The Builder

Builders who have installed or supplied Chinese Drywall to a home or business face possible breach of contract and warranty claims, and even claims based on negligence or tort.

When examining whether its GL policy will indemnify it from imported drywall caused damages, builders worry about the applicability of policy pollution exclusions.

With these issues in mind, the builder is now faced with the following questions:

  • Making Insurance Claims: If the builder knows that it has installed Chinese Drywall, is it required to put its insurer on notice of the potential liability?   Many have suggested that they are required to do this, regardless of whether a claim has been made against the builder.   And even if they are not required by the terms of an insurance policy, perhaps they should.Many insurance policies have strict requirements that an insured notify the company of any claims or potential claims within a short timeframe.   Builders who choose not to do this, decide to roll the dice, or simply forget about the obligation, may later have their claim denied on this basis.
  • Remedying the problem. Are builders responsible to replace the defective drywall, and compensate homeowners for damages?Unfortunately, under contractual and warranty theories, the answer is likely YES.    And as builders may imagine, remedying a Chinese Drywall problem is substantially more involved than remedying something like a broken faucet.

    Contaminated drywall is causing problems to the drywall itself, building contents, electrical wiring, HVAC systems and even the building elements.   A “call-back” could require a builder to virtually rebuild a property.

    With the requirement to remedy the problem persisting…what does a builder do?

  • Builder Options: Builders faced with Chinese Drywall claims can (a) file insurance claims against their insurer; (b) file suit against their suppliers and installers; and (c) file suit against drywall manufacturers.Lennar Co. – a nationwide homebuilder – is perhaps the most prominent builder caught installing Chinese Drywall.   They have done all of the above with respect to Chinese Drywall claims received, and have even  offered to replace any defective drywall and compensate customers for time away from home.

    The next and final question for builders is…what if they can’t and don’t repair the problem immediately? Will this affect their position?

  • The Duty to Mitigate.   Builders, like everyone else, have the duty to mitigate their losses.  The question is, therefore, how does this duty apply to Chinese Drywall claims?Well, let’s look from two perspectives.

    First, Chinese Drywall damages could (and likely will) get progressively worse if left unattended to. Therefore, if a builder receives a ‘call-back’ or complaint related to Chinese Drywall, will his insurer hold it liable if the builder fails to take steps to prevent the problem from getting worse (i.e. tear out the drywall)?

    Second, what if the builder doesn’t get a complaint…but knows it installed Chinese Drywall in a home. Since the drywall may cause health problems, is the builder liable for not mitigating losses if it fails to inform the homeowner that their home may be contaminated? What if the drywall does cause serious health effects with prolonged exposure and the builder keeps quiet?

Next post:  Choices for Construction Lawyers.

Posted in:     Chinese Drywall  /  Tags: ,   /   2 Comments

Sick Homes? Chinese Drywall Problems Affect Louisiana and Washington

On March 12, 2009 Author By Scott Wolfe Jr        

There is a problem with defective Chinese drywall that was imported into the United States between 2004 and 2006, and while the problem was initially thought to mostly affect homes built in Florida, further investigation reveals that the scope is wider.

Much wider.

The Scope

Washington D.C.-based America’s Watchdog, a consumer advocacy group, has conducted an investigation of its own and has found defective drywall in fifteen different states – including Louisiana and Washington.

Shipping records reportedly show that 550 million pounds of Chinese drywall has been imported since 2006, which is enough to build 60,000 average-size homes.

Most of the drywall was used between 2004 and 2007, which as most people in Louisiana know, is precisely when homes were being rebuilt in post-Katrina New Orleans.

In fact, the Construction Litigation Law Blog reports that the reason for the importing of Chinese drywall may be related to “shortage of construction materials in the Gulf Coast” following Hurricane Katrina.”

The Problem

So, what exactly is “defective drywall?”

According to the sources like the Herald Tribune and America’s Watchdog, it’s “toxic” drywall, or drywall that is contaminated with certain chemicals.

The drywall emits a rotten egg or sulfur type smell, and can cause pretty severe damage to a home – including corrosion and blackening of pipes and ruining air conditioning coils.

Aside from the effects on inhabits health, remedying the problem may require the replacement of the drywall itself, studs, wiring, pipes and more….clearly, an expensive endeavor.

With drywall manufactured in Chinese, delivered to the United States, imported through our ports, transported through the country, sold wholesale by domestic manufacturers, purchased by supply houses, and used by contractors….the problematic question is obvious…

Who pays for the damages?

How It Can Affect Your Company

The class action lawsuits have already started to appear, and plaintiff attorneys are trying to connect the dots in determining who can and should pay for the damages.

Unfortunately, if your company was anywhere along the chain of installing drywall between 2001 and 2008, and that drywall happened to be “Chinese drywall,” you could be named as a defendant in a very expensive and lengthy litigation.

Some builders who have been identified as using Chinese Drywall include Taylor Morrison, WCI Communities, Meritage Homes, Ryland Homes, Standard Pacific Homes and Aubuchon Homes.  Knauf Tianjin Plasterboard Co., Ltd is one of the problematic manufactures of Chinese Drywall identified thus far.

If your company is not named in the action and is not related to the problems, some have suggested a “silver lining” for the depressed construction industry to do repair work on the affected homes.

A lot of information has yet to reveal itself, and the issue is still in its infancy.    So, stay tuned.

See also, Wall Street Journal Article, “Chinese Drywall Cited in Building Woes“

Posted in:     Chinese Drywall  /  Tags: , ,   /   4 Comments
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