The storm of claims, litigation and fallout associated with Chinese drywall use in the United States continues to build momentum.

One major home builder has sought protection from the storm in bankruptcy court. Another has sought to stem the cost to its reputation by beginning the process of moving homeowners out of homes built with tainted Chinese drywall and gutting these homes to replace all the drywall.

Legislation to address the issue has been introduced in both houses of Congress, and one U.S. senator has requested that the Senate Commerce Committee hold a hearing to determine whether drywall manufactured in China and distributed here poses a threat to the health or safety of U.S. residents.

While homeowners, home builders, drywall contractors, manufacturers and their insurance carriers scramble for shelter from this storm, there is one certain aftermath to the use of the latest tainted Chinese product to reach the shores of the United States: A bevy of lawsuits will inundate the courts to sort out which parties will ultimately bear the costs associated with this defective building product.


While issues with imported drywall were first noticed a few years ago, it has taken three years for the problem to reach a critical point.

Typically, builders use domestically produced drywall that is made from the mineral gypsum. But in 2006, amid the housing boom and the scramble for construction materials along the Gulf Coast for post-Hurricane Katrina reconstruction, suppliers began importing drywall manufactured in China ("Chinese Drywall Cited in Building Woes," Wall Street Journal, Jan. 12, 2009, at A3).

Chinese drywall was mainly imported into the United States between 2004 and 2006, for use in 18 states: Arizona, Colorado, Florida, Georgia, Hawaii, Louisiana, Maryland, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, South Carolina, Texas, Virginia and Washington. However, Chinese drywall has also been found in homes built in Florida as early as 2000.

All in all, shipping records indicate that more than 500 million pounds of Chinese building materials, including a substantial amount of drywall, were imported into the United States in just a four-year period ("Chinese Drywall Poses Potential Risks," Associated Press, April 11, 2009).

It has been claimed that Chinese drywall, unlike domestic drywall, contains volatile sulfur compounds such as strontium sulfide. Some parties also claim that Chinese drywall contains fly ash, a coal by-product that may also contribute to odor ("Chinese Drywall," AP). When exposed to moisture, the Chinese drywall emits sulfur dioxide and other gases, resulting in noxious odors similar to the stench of rotting eggs. As a result, homes built in regions of the country with warm, humid climates have been the source of the most significant number of complaints and claims.


Affected homeowners allege that the drywall defect has resulted in both structural problems in their homes and physical ailments in their families. Several problems have been attributed to the gases emitted by the Chinese drywall: (1) sulfur smell; (2) corrosion of copper, leading to the failure of air-conditioning system coils and potentially causing Freon leakage into the surrounding household; (3) corrosion of brass and other metal fittings used in natural-gas furnaces and other household appliances; and (4) corrosion of copper wiring that makes up electrical systems, smoke alarms, carbon monoxide detectors and other electrical appliances. Homeowners and their families have complained of frequent headaches, recurrent respiratory problems and other unexplained physical ailments ("Chinese Drywall," AP).

To date, scientific tests have proved that links exist between the gases produced by the sulfurous compounds in Chinese drywall and the structural problems, such as corrosion of copper wiring and other metallic elements. However, no link has yet been established between the drywall and any of the physical ailments and illnesses alleged.

Chinese drywall problems are a major concern for home builders, and possibly their insurance carriers, because the problem is extremely costly to remediate. Currently, the only comprehensive remedy is to gut the entire house down to the studs and to remove and replace all of the drywall. Since the gases emitted by the drywall may also damage elements of the electrical systems and other metal components, all of the wiring, and some air-conditioning systems, also need gutting and replacing.

For Gulf Coast homeowners who finally finished rebuilding after Katrina, the prospect of now having to gut their houses to rebuild again is particularly difficult ("Chinese Drywall," AP). Complete repairs are estimated to cost as much as a third of a home's value.


While imported Chinese drywall has been used in new-home construction in many states, Florida, in some ways, has become ground zero for this issue. A glut of new-home building between 2000 and 2006, and rebuilding after several hurricanes, coupled with the domestic drywall shortage, led to significant use of Chinese drywall in Florida home construction and rebuilding ("Florida: Drywall Has Material That Can Emit Corrosive Gas," CNN, March 24, 2009). Add to that the moisture found in Florida's humid climate, and it is not surprising that the number of drywall complaints is growing exponentially.

In an initial step to address the growing problem, homeowners can officially file complaints with the Florida Department of Health if they suspect that they have a Chinese drywall problem. The FDOH is currently tracking more than 100 complaints related to multiple builders ("Florida," CNN). Its Division of Environmental Health has established a case definition for copper corrosion, available at doh.state.fl.us/environment/community/indoor-air/casedefinition.html. That definition applies only to homes constructed in 2000 or later, and involves five elements. While homes constructed between 2004 and the present must meet two or more of the elements, those constructed between 2000 and 2003 must meet three or more of the elements to be considered under the definition.

The five elements are: (1) presence of sulfur-like or other unusual odors; (2) confirmed presence of Chinese manufactured drywall in the home; (3) observed copper corrosion, indicated by black, sooty coating of uninsulated copper pipe leading to the air-handling unit present in the garage or mechanical closet of the home; (4) documented failure of the air-conditioner evaporator coil, located inside the air-handling unit; and (5) confirmation by an outside expert or professional of premature copper corrosion on uninsulated copper wires and/or air-conditioner evaporator coils.

In addition to providing the public with an outlet to report their complaints, the FDOH has also opened its own investigation into the problems caused by Chinese drywall. Part of this investigation has involved retaining outside experts to conduct scientific tests of the drywall. On March 20, the FDOH published an analysis performed by one of the experts, Unified Engineering Inc. (UEI). The tests were performed on samples of American, Chinese and unidentified drywall and a sample of corroded copper tubing. The samples used in the tests were collected by FDOH staff during their investigation of homeowner complaints regarding Chinese drywall. That Initial Material Analysis Report is available at doh.state.fl.us/environment/community/indoor-air/drywall.html.    


UEI used four separate drywall samples for the analysis - one sample from drywall manufactured in the United States and three from drywall manufactured in China - as well as one piece of corroded copper tubing. Several different tests were performed on the drywall and tubing samples with these objectives: (1) to determine the gypsum crystal structure of the drywall; (2) to determine the elemental composition of black deposits on copper tubing; (3) to analyze the physical structure and elemental composition of the drywall gypsum; (4) to determine the organic content of the drywall gypsum; (5) to detect the volatile content of the gypsum after moisture exposure; and (6) to test the pH of volatiles with moisture exposure.

While testing was limited due to the small number of samples used, the UEI's analysis report does offer seven conclusions: (1) the sample of U.S. manufactured drywall contained no strontium-rich inclusions, while the three drywall samples manufactured in China all contained strontium sulfide inclusions at trace levels; (2) the U.S. manufactured drywall sample contained only trace levels of organic materials, while the Chinese drywall samples all contained more than 5 percent organic content; (3) the U.S. sample had higher levels of quartz and anhydride than the other samples, but neither material contributes to odor; (4) three volatile sulfur compounds that could potentially contribute to a detectable odor - hydrogen sulfide, carbonyl sulfide and carbon disulfide - were detected in the Chinese drywall when exposed to conditions similar to a non-air-conditioned Florida environment; (5) the source of the sulfur has not yet been isolated and further analysis is required, since both the drywall's outer paper and its gypsum core released sulfur compounds during the volatiles test; (6) no extreme pH change was shown during a test of short duration (UEI recommended performing a test with a longer duration in the future); and (7) the copper tube was corroded, and it had a copper oxide/copper sulfide deposit. Vapors in the residential atmosphere that contained sulfur created this corrosive environment in the presence of moisture.

In conclusion, UEI found that the "odor that has been described by investigators and homeowners in Florida residences originated from the emission of volatile sulfur compounds. There is a distinct difference in drywall that was manufactured in the United States and those that were manufactured in China."


On April 3, Florida Gov. Charlie Crist sent a letter to the administrator of the federal Environmental Protection Agency and the acting director of the Center for Disease Control and Prevention requesting assistance "to develop and implement chemical testing strategies in homes that are experiencing severe copper corrosion associated with Chinese-made drywall."

In his letter, Crist set forth his view of the expense and future implications of the Chinese drywall problem across the United States: "Until mid-March 2009, the problems associated with Chinese drywall had only been documented in Florida to any appreciable degree. Recent reports from Louisiana, Virginia, and North Carolina have demonstrated this is a multi-state issue directly connected with the importation of a foreign-made product."

Health departments in Virginia, Louisiana, North Carolina and Washington followed Florida's example, investigating the Chinese drywall problem ("Chinese Drywall," AP). Florida may have been the state hit hardest by these impacts initially, but as more complaints surface, it is important to recognize that Chinese drywall defects have emerged as a national problem rather than isolated in one community or one region.


Homeowners in many large residential developments have banded together to file class-action lawsuits against the developers, home builders and manufacturers of the defective drywall. As with the majority of the claims in this area, to date, these lawsuits have primarily been filed in Florida courts. However, Chinese-drywall suits have also recently been filed in Louisiana, with class certification pending, and more are likely to follow throughout the country.

One of the first lawsuits filed in Florida was Harrell v. South Kendall Construction Corp. et al. (09-08401CA40, Circuit Court, 11th Judicial Circuit of Florida). The class-action suit was filed in the names of plaintiffs Jason and Melissa Harrell on behalf of themselves and other homeowners who own "essentially uninhabitable homes throughout the State of Florida with defective drywall made in China," according to a complaint filed Feb. 3. The Harrells allege that the drywall installed in their new home, and those of their neighbors, emits destructive and harmful toxins and, as such, has rendered the homes unsafe and uninhabitable. The suit specifically names as defendants South Kendall Construction Corp., which built their home; Palm Isle Holdings LLC, the company that sold the home; real estate broker Keys Gate Realty Inc.; Banner Supply Co., the drywall supplier; Knauf Plasterboard Tianjin Co. Ltd., the manufacturer of the Chinese drywall; and Rothchilt International Ltd., a manufacturer of Chinese drywall.

In January 2008, the Harrells purchased their residence in a single-family-home community for $360,000. When they closed on their house, they were provided with a new-home warranty. The warranty required South Kendall Construction to repair, without charge, any defect in workmanship or materials, including the walls. In June 2008, the Harrells moved into the house with their two young children. Shortly after moving into the house, they claim that they noticed foul odors in the house, their children allegedly began suffering from significant respiratory problems and Jason Harrell began to experience headaches. In addition to their health problems, the Harrells also claim that they have experienced issues with the home's air-conditioning system, internal wiring, appliances and other electrical systems, sometimes rendering them inoperable. The family repeatedly requested that South Kendall address and repair the problems, but they claim that the builder failed to correct the issues.

The complaint that was filed in the class-action suit alleges that the defective drywall used to construct the homes emits toxins, including carbon disulfide, carbonyl sulfide and hydrogen sulfide. The suit further alleges that South Kendall purchased the defective Chinese drywall from Banner Supply, a Miami-based company that supplies drywall for home construction; Banner Supply allegedly purchased the drywall from Rothchilt International.


While lawsuits by affected homeowners were to be expected, the very first litigation filed in the United States regarding problems with Chinese drywall was initiated by Lennar Corp., the second-largest home builder in the United States. Lennar's suit is directed against manufacturers of Chinese drywall. The company claims in a Feb. 3 press release that those manufacturers "made deficient and defective gypsum drywall, failed to establish proper quality control for detecting defects and failed to warn their customers that the drywall was defective."

In addition to drywall manufacturers, Lennar's suit also names drywall suppliers, distributors and installers and seeks unspecified damages for the harm to Lennar's reputation, as well as damages for the costs to investigate the problem, remove and replace defective the drywall and provide alternative housing to homeowners during the repairs.

After being alerted to the problem by claims of the failure of air-conditioning coils in its homes, Lennar hired Environ International Corp. to investigate. Environ found that the corrosion and blackening of the air-conditioning coils and some copper pipes in the homes was caused by sulfur gases being emitted from defective drywall. Environ also concluded that the sulfur gases emitted by the Chinese drywall did not pose a health risk to the homeowners.

Once Lennar had scientific data identifying the drywall as the source of the problem, it embarked on a campaign, according to its press release, to "engage all responsible parties, demanding that they not only assist Lennar in finding alternative solutions to remedy the problem, but also commit to doing precisely what Lennar has committed to doing for its homeowners - standing behind its product."

Recently, Lennar has begun moving Florida families from homes built with tainted Chinese drywall so that the builder can begin the process of gutting the homes and replacing all of the defective drywall. Each homeowner will be relocated for at least six months while the demolition/repair process takes place.

According to published reports, Lennar is requiring that homeowners waive their right to sue Lennar before it will pay for relocation and repairs, but allowing homeowners who accept the agreement to reserve their rights to sue the builder for health conditions related to the drywall ("Lennar Homes Moving Families Out of Chinese Drywall Homes," Newsinferno.com, April 29, 2009).


In response to Chinese drywall concerns, members of the congressional delegations of Florida and Louisiana have introduced legislation in the U.S. Senate and House of Representatives.

On March 30, Sen. Bill Nelson of Florida and Sen. Mary Landrieu of Louisiana introduced the Drywall Safety Act of 2009 (S. 739) in the Senate. The main purpose of the act is to require the Consumer Product Safety Commission (CPSC) to study drywall imported from China between 2004 and 2007. The act lays out testing guidelines for the CPSC and sets a timetable for it to act.

Most importantly, the act provides for an interim ban on drywall containing more than 5 percent organic compounds. Specifically, the CPSC will "designate drywall containing over 5 percent organic compounds by weight as a product with a product defect which constitutes a substantial product hazard." The ban would last until the CPSC published a determination that a "consumer product safety standard regulating the composition of materials used in drywall is not necessary to protect the health and safety of residential homeowners; or if the (CPSC) determines that such a consumer product safety standard is necessary, the date on which such a standard takes effect."

While the bill was referred to the Senate Committee on Commerce, Science, and Transportation for review, Nelson and Landrieu on March 30 introduced Senate Resolution 91, which reaches considerably further. The resolution calls upon the CPSC and the secretaries of the Treasury and Housing and Urban Development "to take action on issues relating to drywall imported from China" by (a) initiating a formal proceeding to investigate drywall imported from China during the period from 2004 through 2007; (b) prohibiting the further importation of drywall and associated building products from China; (c) ordering a recall of hazardous Chinese drywall; and (d) seeking civil penalties against the drywall manufacturers in China that produced or distributed hazardous drywall and their subsidiaries in the United States to cover the cost of the recall effort and other associated remediation efforts.

It also recommends that the secretaries of the Treasury and Housing and Urban Development both take action, using their civil-forfeiture authority and their authority to develop federal tax incentives to "help offset the expense of costly drywall repairs for struggling homeowners already suffering from depressed home values and negative economic conditions." The resolution was also referred to the Committee on Commerce for review.

On April 2, Rep. Robert Wexler of Florida introduced the Drywall Safety Act of 2009 (H.R. 1977), a bill identical to S. 739. In introducing his bill, Wexler characterized the Chinese drywall problem by stating "This is a traumatic problem of extraordinary proportions" ("Chinese Drywall," AP). Upon its introduction, H.R. 1977 was referred to the House Committee on Energy and Commerce for review.

Landrieu has also requested that the Senate Commerce Committee hold an immediate hearing to examine whether drywall manufactured in China and distributed throughout the U.S. poses a threat to the health or safety of consumers, and complained that the CPSC and other federal agencies have moved too slowly to investigate the claims related to imported drywall from China. The Environmental Protection Agency is also reportedly in the process of completing an initial investigation, and a preliminary report is expected shortly concerning possible health consequences related to consumer exposure to Chinese drywall ("Landrieu Calls for Senate Hearing on Chinese Drywall," The Times-Picayune, April 29, 2009).


In addition to the staggering remediation costs associated with removing the tainted drywall, the costs associated with the looming litigation to determine who will ultimately pay for remediation will be considerable. This litigation will include direct claims by homeowners and homeowner associations against developers and home builders, claims by home builders against drywall installation subcontractors, drywall distributors and drywall manufacturers and insurance-coverage litigation associated with all of these claims. Owners of property constructed with Chinese drywall are already making claims on their first-party property insurance policies, while developers, home builders, subcontractors, vendors and drywall manufacturers are placing all of their insurance providers on notice, including carriers that provided general liability, professional liability or additional insured coverage to them since 2001.

It is expected that substantial insurance-coverage litigation will follow as policy holders, insurance carriers and the courts work through numerous coverage issues, determining (1) the applicable coverage periods; (2) whether there has been an "occurrence" under the policies to trigger coverage; and (3) whether certain policy coverage exclusions, such as a pollution exclusion, will limit available coverage for these claims.

One type of policy exclusion that has already been discussed as central to future coverage litigation is the pollution exclusion. In some jurisdictions, this exclusion is interpreted to exclude coverage for claims related to pollution, and pollution must involve an environmental event caused by intentional, or at least reckless, conduct, such as dumping hazardous waste ("9 Couch on Insurance," 3d. § 127:3, rev. 2004). Other jurisdictions have applied a broad interpretation to the pollution exclusion to also exclude claims under an insurance policy that involve the negligent use or handling of toxic materials that may occur in the ordinary course of one's business. This can include negligent acts and unintended release of toxic substances. In jurisdictions that broadly interpret pollution exclusions, Chinese-drywall-related claims may be excluded from coverage.

The applicability of certain policy exclusions is just one of a number of insurance-coverage battlegrounds. Whether there has been an "occurrence" under an insurance policy is also expected to be highly contested in drywall-related insurance-coverage litigation. In some jurisdictions, a builder's own defective construction work (for example, in installing tainted drywall) is not deemed an "occurrence" under a builder's general liability insurance policy. These jurisdictions hold that general liability insurance does not serve the function of a surety bond for damages that arise from a builder's defective construction work.

Other jurisdictions consider defective work by a contractor to be accidental and, thus, an "occurrence" under a contractor's general liability insurance policy. Still other jurisdictions fall in between these two approaches, holding that while defective work itself is excluded - in these cases, the installed Chinese drywall - the damage caused to non-defective work, such as air-conditioning units, copper piping and electrical wire, by the defective work is covered. Under this approach, damage to copper wiring, air-conditioning systems and other components of a house would be covered ("Construction Defect Litigation: The Impact of the Lamar Homes and J.S.U.B. Decisions," Defense Research Institute, The Critical Path, September 2008).


The issue of tainted Chinese drywall will be the subject of news coverage, litigation and legislation throughout the next months and years. Much is already known, but several critical questions remain unanswered. Those issues include:

• Will the claims related to Chinese drywall principally remain a concern within the Southeastern United States, caused by a combination of the composition of the tainted drywall and the region's humid climate or, over time, will claims emerge throughout the United States in all areas where this drywall was used in residential construction?

• Will the damages caused by Chinese drywall be limited to property damage and remediation claims or will further investigation and scientific study establish a supportable link between health complaints and illness and the gases emitted by the drywall?

• Will all of the foreign manufacturers of the tainted drywall be identified, and will these foreign companies bear the expense for remediation of the tainted material and other claims?

• Will home builders, drywall contractors and distributors be forced to seek protection from these mounting drywall claims in bankruptcy court?

• Will the insurance industry ultimately bear the cost of the looming claims and litigation or will policy exclusions and coverage limitations leave homeowners and home builders looking for other avenues to pay remediation costs?

• Will legislation at the state and federal level provide a safety net for affected homeowners?

Christopher Belter is a senior trial partner and chair of the commercial and business litigation and construction practice groups at Goldberg Segalla LLP, and Joseph Hanna is a partner with the Buffalo-based firm. They can be reached at cbelter@goldbergsegalla.com and jhanna@goldbergsegalla.com.