The Construction Industry and the Alleged Defective Chinese Drywall Issue

Jeffrey Rubinton, Esq., Kathleen M. Bonczyk, Esq., and Joa
May 4, 2009 — 1,292 views  

During the construction boom experienced in the early part of this millennium, shortages in materials used to construct property caused certain organizations in the building and construction industry to import drywall manufactured in the Far East.  Recently, allegations of defects in drywall used in this construction have caused fall-out in the state of Florida.

In the recent past, the Florida Health Department has received complaints from homeowners regarding homes built with drywall which was manufactured in China.  In late January 2009, the Florida Department of Health State Toxicologist and Indoor Air Programs Coordinator performed a test of bulk samples of drywall taken from 12 homes throughout south Florida.  A laboratory analysis of these materials found the presence of strontium sulfide and elemental sulfur in drywall which had originated from China.  Additionally, tests confirmed that this particular type of drywall generated hydrogen sulfide, carbonyl sulfide, and carbon disulfide when exposed to heat or high relative humidity, and that all of these compounds were capable of causing corrosion and could possibly present a health hazard.

 According to Florida’s Governor Charlie Crist, the issue of alleged defective building materials and the fall-out pursuant to same constitutes a matter which is not confined to the Sunshine State. 

In Governor Crist’s letter of April 3, 2009 to Lisa Jackson, Administrator of the Environmental Protection Agency (EPA) in Washington, D.C., and Richard E. Besser, M.D., Acting Director for the Centers for Disease Control and Prevention (CDC) in Atlanta, he stated that recent reports from Louisiana, Virginia, and North Carolina have shown that this issue constitutes a multi-state dilemma which is causally related with the importation of a foreign-produced product.  Thus, while this matter has to date essentially impacted Florida, it is  purportedly effecting homeowners in other states that have utilized certain building materials produced outside of the United States.

Florida’s governor has reached out to the EPA and CDC for assistance to develop and implement chemical testing strategies in affected homes.  In his letter, Governor Crist states that resources contained in the Environmental Response Teams and Industrial Hygienists from the Agency for Toxic Substances and Disease Registry capable of evaluating the health hazards possibly associated with corrosive gases emitted from Chinese-manufactured drywall will enable a timely assessment of exposure as well as implications to public health.

Additionally, the University of Florida’s Rinker School of Building Construction has launched a preliminary study to evaluate problems posed by high-sulfur drywall.  This study will analyze the sources of the mineral gypsum, the main ingredient in drywall, and how high-sulfur gypsum may create sulfur gases that smell of rotten eggs and corroded metal. 

Litigation resulting from this matter has begun to hit the courts, including two class action lawsuits which were filed in federal court in March 2009. 

One case, styled as Lawrence Riesz and Jennifer Schnee, Individually and on behalf of all others Similarly Situated vs. Knauf Plasterboard, Tianjim Co., Knauf GIPS KG, Rothchilt International Ltd., and WCI Communities, Inc., involves homeowners in Broward County, Florida and seeks damages in excess of $5,000,000, as well as pre-judgment and post-judgment interest, and reimbursement of attorneys’ fees and costs.  That Class Action Complaint was brought on behalf of Plaintiffs and other similarly situated who own residences throughout Florida which were constructed with defective gypsum drywall manufactured, processed, distributed, purchased, imported, supplied, delivered inspected and/or sold by the Defendants.  The Riesz pleading further alleges that the Defendant, Knauf GIPS KG, is a global construction-material company whose subsidiaries include Knauf Tianjim, a China-based organization, who imported the drywall beginning in 2004 as a result of domestic drywall shortage stemming from not only the housing boom but also increased demand for these materials pursuant to the hurricanes which impacted Florida, including Hurricane Katrina.  The Plaintiffs also state that the Defendant WCI, a homebuilding company, offered traditional and tower home choices with prices ranging from the high-$100,000s to more than $1,000,000.00. 

According to the Riesz Complaint, beginning in 2006, several home builders, including the Defendant WCI, as well as Lennar Homes, LLC, began noticing an unusual number of complaints relative to heating, ventilating, and air conditioning systems from customers, and that investigation into these complaints revealed that the drywall was “latently defective.”  The Complaint also alleges that the drywall in question contains harmful toxins, and the emission of sulfide gases from said drywall results in odors resembling rotten eggs.  The Plaintiffs, further, assert that the drywall renders the homes in question “essentially uninhabitable.”

The Riesz action brings various counts against the Defendants, including Products Liability and Violations of Florida’s Deceptive and Unfair Trade Practices Act, Fla. Statute Section 501.201, et seq., against all Defendants, and Breach of Express Warranty and Breach of Implied Warranty against WCI.

A second class-action Complaint also filed in federal court in March 2009, styled as Karin Vickers, Felix Martinez, Jenny Martinez, Jason Santiago, Gene Raphael, Walter Niemczura and Jim Tarzy, individually and on behalf of all others similarly situated vs. Knauf Gips KG, et al., involves a group of owners and residents of residential homes in Florida.  Although the Vickers case was filed in the Miami district, certain of the named Plaintiffs reside and/or own residences in Lee County, Florida while others reside in Dade County, Florida.  The Vickers action names Defendants involved in the homebuilding and construction industry, including Tousa Homes, Inc., f/k/a Engle Homes, South Kendall Construction Corp., and Knauf Plasterboard (Tianjin) Co.  That cause of action alleges that the drywall used in the homes of Plaintiffs and Plaintiff Class Members is “inherently defective” as it emits various sulfide gases and/or other chemicals through “off-gasing” which creates noxious “rotten egg-like” odors, and also causes corrosion of air-conditioner and refrigerator coils, microwaves, faucets, and other property. 

The Vickers Complaint brings 12 causes of action against the Defendants, including claims for Breach of Contract against the Builder Defendants and Negligence against the Builder/Developer Defendants.  Like the Riesz action, the Vickers lawsuit also alleges violations of Florida’s Deceptive and Unfair Trade Practices Act. 

Moreover, the Vickers pleading brings a count for Equitable and Injunctive Relief and Medical Monitoring against all Defendants, where the Plaintiffs assert that they have been exposed to greater than normal background levels of sulfides and other hazardous chemicals resulting from exposures to the defective drywall.   In that count, the Plaintiffs seek injunctive and equitable relief and demand that the court order the Defendants to remedy, repair and/or replace the drywall in their home, cease and desist from misrepresenting to the Class and general public that there is no defect in or danger associated with the drywall, institute at their own cost, a public awareness campaign to alert the Class and general public of the defect and dangers associated with the drywall, and create, fund and support a medical monitoring program consistent with the requirements of Florida law.  The Vickers Plaintiffs demand other remedies, including compensatory damages, post-judgment interest, an award of attorneys’ fees to class counsel, and an award of taxable costs.

In addition to suing entities involved in the building and construction industry, it is possible that homeowners may make claims against their property insurance carriers involving alleged defective Chinese drywall. 

The starting point for analyzing whether such a loss would be covered under the homeowners policy in question would be the language of the policy.  An insurance policy is a contract between the insurer and the insured, and as such, the contractual language of the policy governs as to whether coverage would be found or not found for such a loss.  In first-party breach of contract actions brought by a Plaintiff/Insured against a Defendant/Insurance Carrier, the court’s analysis begins with a review of the plain language of the insurance contract, as bargained for by the parties. 

As a general principle, however, many policies exclude coverage for losses associated with faulty, inadequate or defective design, specifications, workmanship, construction, and materials used in construction.  An allegation similar to that alleged in the Riesz and Vickers class-actions of “latent defects” which would cause the alleged drywall to be defective would likely render such claims as being excluded from coverage under the typical homeowners policy in situations where the contractual language of the subject policy states that the insurer does not insure for losses causes either directly or indirectly by faulty, inadequate, or defective workmanship. 

In the class-action lawsuits, the Plaintiffs allege the drywall was a defective material and it contains a “latent defect” which causes it to release gaseous contaminants into the residence. Damages of this sort will likely not be covered and will be specifically excluded under the typical homeowners' insurance policy.

It appears that the tip of the proverbial iceberg may have been touched with respect to litigation involving alleged defective construction materials.  While it appears that this issue has had the greatest impact on Florida, as Governor Crist’s letter to the heads of the EPA and CDC suggest, in time, this issue may impact other states as well.

Any organization in the building or construction industry that has received either a pre-suit demand letter or has been served with a Summons and Complaint should immediately seek legal advice from counsel who specializes in this area.  Time is absolutely of the essence in situations where the organization has been named as a defendant in a lawsuit, as failure to file a responsive pleading will likely result in the entry of a default against the company.

For further information, contact Jeffrey A. Rubinton, Esq., Kathleen M. Bonczyk, Esq., or Joanna E. Frankel, Esq., of Rubinton & Laufer, LLC. Rubinton & Laufer, LLC.  (Offices in Florida, New Jersey and New York.)  Principal contact location: Bank of America Building
2901 Stirling Road, Suite 305, Davie, Florida 33312, 954.966.9908; www.rl-associates.com.

BIBLIOGRAPHY

04/03/09 letter from Governor Charlie Crist to the Honorable Lisa Jackson, Administrator, Environmental Protection Agency and the Honorable Richard E. Besser, M.D., Acting Director, Centers for Disease Control and Prevention.  The Capitol.  Tallahassee, Florida.

Loney, Jim.  Florida Homeowners’ Lawsuit Alleges Defective Chinese Drywall.  Insurance Journal.  Mar. 4, 2009.

Lawrence Riesz, et al. v. Knauf Plasterboard, Tianjin Co., et al., Case No. 09-CV-60371-UNGARO-SIMONTON.  United States District Court, Southern District of Florida.  Class Action Complaint.

Karin Vickers, et al. v. Knauf GIPS KG, et al., Case No. 09-20510-CIV-GOLD/McALILEY.  United States District Court, Southern District of Florida.  Complaint – Class Action.

Koikos v. Travelers Ins. Co., 849 So.2d 263 (Fla. 2003).

Prudential Prop. & Cas. Ins. Co. v. Swindal, 622 So.2d 467, 470 (Fla. 1993).

State Farm Fire and Casualty v. Castillo, 829 So.2d 242 (Fla. 3d DCA 2002).

Hodges v. National Union Indemnity Co., 249 So.2d 679 (Fla. 1971).

Jeffrey Rubinton, Esq., Kathleen M. Bonczyk, Esq., and Joa

Rubinton & Laufer, LLC