In the past, we discussed whether Homeowners Insurance will be liable for Chinese Drywall damages in Louisiana.  While the jury is still out on this issue, we’ve posted on a number of occasions that the courts may very well find coverage for chinese drywall losses within homeowner insurance policies.

Now, many are reporting that a guest lecturer at the National Association of Public Insurance Adjusters just recently predicted that courts will find at least some coverage for Chinese Drywall damages (As per Merlin Law Group).   Earlier in the year, the folks at Merlin Law Group also posted that the FC&S Bulletin’s June 2009 edition also indicated that there would be coverage for Chinese Drywall losses under homeowner insurance policies.

So, while it’s far from certain that Chinese Drywall damages will be covered by standard homeowner insurance policies…it’s also far from certain that courts will disallow such coverage.   One thing is certain:  insurance companies have largely taken the position that the policies do not cover the damages, and are denying these claims across the board.

This begs the question:  what is the next step?

In Louisiana, most policy holders have just 1 year to file suit for insurance benefits.  The time period begins from when the policy holder knew or should have known of the occurrence or loss.

News of Chinese Drywall problems broke across Louisiana between January and March 2009.   Arguably, those with Chinese Drywall “should have known” of the problem starting at this time.   To be safe, homeowners with Chinese Drywall are facing a very important deadline as the new year approaches.

With so many questions about who is liable for this Chinese Drywall mess, it would be quite devestating for homeowners who may have a viable claim against their homeowners insurance, to lose that claim because they failed to take the necessary action before the alloted time expired.

News around the country is that the insurance industry may be liable for these Chinese Drywall losses.   If you have Chinese Drywall losses, you should consider filing suit to enforce your claim for coverage….or risk losing the opportunity.

Chinese Drywall talk is riddled with hearsay.

Is it or is it not bad for your health?   Must the drywall be replaced completely, or can a filtration system solve the problem?   Will the corrosive elements cross-contaminate into other components of the home, or is it isolated in the drywall only?

These questions certainly have practical implications.   After all, the answers to some of these questions will dictate how the drywall is actually repaired.

However, the questions also have implications in the legal arena.

Most notably in Louisiana, the severity of the damages related to corrosive drywall will be a large factor in deciding the question of whether the builder is or is not liable to homeowners for the installed drywall.

In previous posts here at the Chinese Drywall Blog, we discussed the Louisiana New Home Warranty Act and whether it will or will not create liability for builders who installed Chinese Drywall.   Because of the Act’s wording, it may simply come down to how severe the Chinese Drywall damages are.

Under the NHWA, builders are liable to homeowners for any “major strucutral defect” for a period of 5 years.   The question becomes, therefore, are the Chinese Drywall damages major structural defects?

If the damages can be remediated with a simple filtration system, you can count on the builders using this as evidence that the defect was not a major structural defect.  If they are successful, the 1 or 2 year warranty period, as opposed to the 5 year warranty period, would apply, and many of the currently filed claims would be considered as tardy.

If the damages cannot be easily remediated, however, and require the replacement of all sheetrock, and even the replacement of some elements of the framing…the homeowners will argue that this more closely resembles a major structural defect.   Accordingly, the 5 year warranty period would apply.

More specific information about whether the Chinese Drywall damages will be covered under the New Home Warranty Act is found on our blog here.

While knowing the severity of the damages is important to estimate the damage itself, and to understand how to fix the damages….the severity and scope of damages plays an even more important role in the litigation against builders who installed contaminated drywall.   It may be a very important question to answer when deciding whether the 5 year NHWA period applies.

Many folks with Chinese Drywall (clients and non-clients) have contacted our offices with this inquiry.   The logic makes sense:  If the mortgage on a property is x, and the value of the property has since dropped below x because of Chinese Drywall, is there some room for “a break” from the mortgage company?

Legally?   Not Really – At Least Not Yet

For the time being, the legal answer is “not really.”

Unfortunately, when you signed your mortgage agreement, you agreed to pay the amount of the note regardless of the property’s condition.   Therefore, the fact that the property condition is worsening because of Chinese Drywall does not act to modify any obligations under the mortgage note itself.

Now, this is usually not a problem because mortgage companies require the property to be insured.    In the case of Chinese Drywall, as we’ve previously discussed, the applicability of insurance to the loss is a bit complex.

There is some chatter on Capital Hill on this very issue, and a bill has recently passed the U.S. House of Representatives by a margin of 419-1 that would “encourage” banks and mortgage companies to provide homeowners with Chinese Drywall temporary forbearance on their mortgage payments.

What does this mean?

It means that the federal government would likely give the banking companies some incentive ($$$) to allow its mortgage holders with Chinese Drywall (you) to temporary not make mortgage payments.   If the bill passes, homeowners with Chinese Drywall may have some legal recourse to request mortgage forebearance, and avoid foreclosure on their home while actions to recover for the Chinese Drywall losses progress.

Practically Speaking…There May Be Room For Negotiation

While homeowners may not have the legal right to receive “a break” from their mortgage company, the financial realities of Chinese Drywall may open the window for some practical remedies.  Namely, to request a forbearance.

What is a forbearance? Wikipedia defines it as follows:

In the context of a mortgage process, forbearance is a special agreement between the lender and the borrower to delay a foreclosure. The literal meaning of forbearance is “holding back.”

Loan borrowers sometimes have problems making payments. This may cause the lender to start the foreclosure process. To avoid foreclosure, the lender and the borrower can make an agreement called “forbearance”. According to this agreement, the lender delays his right to exercise foreclosure if the borrower can catch up to his payment schedule in a certain time. This period and the payment plan depend on the details of the agreement that are accepted by both parties.

Forbearance is usually for temporary financial problems. If the borrower has more serious problems, for example if it is a variable-rate mortgage and the interest rate becomes unaffordable for the borrower, then forbearance is usually not a solution.

While you are not entitled to a forbearance without the U.S. legislation getting further along (and perhaps even being made stronger)…the realities you face as a homeowner are not lost upon mortgage companies.  After all, if the property is worth less than the mortgage, they really don’t have much motivation to foreclose on the property.

Contact your mortgage company and request a forbearance.  They will likely send you a forbearance application, and depending on the severity of your drywall problems, they may grant the forbearance.  Remember, however, that forbearance agreements are temporary, and interest usually continues to accrue during forbearance periods.

Since our last post here at the Chinese Drywall Blog was on September 2, 2009, you might be wondering if we disappeared?

We certainly don’t like to have so much time pass in-between posts, but sometimes, work and life gets in the way and it happens.   Sorry to all of our readers.    Over the past two months we’ve gotten very busy with Chinese Drywall claims, other work and even personal matters (my wife & I took a bit of trip for our anniversary at the end of Sept.).

The good news is that we’re back in the saddle and you can expect to the regular updates and discussion on Chinese Drywall law to continue.      A lot has happened…and continues to happen.

Not all victims of Chinese Drywall are homeowners.   Oftentimes, a tenant is living at a property with Chinese Drywall, or a property owner is a landlord to an apartment or home with Chinese Drywall.

Take, for example, a news story from the Baton Rouge’s Advocate about a tenant who was forced to move out of their rented home because of Chinese Drywall.   Or, a news story about a Florida landlord to an apartment complex housing low-income elderly people, who were evicted en mass because the complex had imported drywall.

These scenarios present interesting legal questions:

• Can a tenant break a lease because of Chinese Drywall?
• Can a landlord evict a tenant because of Chinese Drywall?
• Is Chinese Drywall a “breach” of the lease?
• Should landlords evict / move tenants when properties have Chinese Drywall to avoid responsibility for future health effects?

While the answer to this question will greatly depend upon the terms and provisions with the lease agreement, here is what that Louisiana Civil Code may have to say about the matter.

The Landlord’s Warranties

The landlord makes a number of warranties to its tenants through the Louisiana Civil Code, and it can be argued that the existence of Chinese Drywall at the leased premises is a breach of these warranties.

La. C.C. art 2696, for example, provides that the “lessor warrants…that the thing is suitable for the purpose for which it was leased and…is free of vices or defects.”   This warranty extends to vices “that arise after the delivery of the thing.”    The following code article (2697) indicates that the warranty encompasses vices or defects not known to the lessor.

The landlord may be liable to the tenant for any damages that result from the landlord’s breach in warranty.   These damages may include the cost for alternative accommodations, moving expenses, and sustained personal injury or health damages.

For landlords who are leasing properties with Chinese Drywall, it is important to consider the statutory warranties made to tenants.  The existence of Chinese Drywall may be a breach of their warranties, and if so, landlords are likely liable to tenants for any ensuing damages.

Statutory Termination of the Lease

In addition to the landlord’s warranties, another area of Landlord/Tenant law implicated by Chinese Drywall regards the statutory termination of leases.

La. C.C. art 2714 provides that if a thing is lost or totally destroyed, without the fault of either party, the lease terminates and neither party owes damages to the other.  In the case of partial destruction or “substantial impair[ment], that is not the fault of the lessor, the tenant may dissolve the lease or reduce their rent.   If the lessor is at fault, the tenant may also seek damages.

What’s The Rub?

Chinese Drywall presents some interesting issues for Louisiana Landlord / Tenant law.   Is the existence of Chinese Drywall a vice or defect that breaches the landlord’s warranty, or a partial destruction or “substantial impairment” to the property?    Are landlords entitled to damages, or just dissolution of the lease?    Should the landlord relocate tenants to mitigate its damages?

As is the case with most Chinese Drywall scenarios, as to landlord/tenant laws, there are more questions than answered here.    Landlords and Tenants with Chinese Drywall should seek the counsel and advice of an attorney.

Should Louisiana homeowners be filing homeowner insurance claims for their Chinese Drywall damages?   The answer is complicated, but ultimately, our answer is yes.

Will There Be Coverage?

Over the past few months, we’ve discussed whether insurance companies will cover losses related to Chinese Drywall (See Insurance Coverage category).

Our predication was that claims would be denied based on Pollution Exclusions, and from what we’ve seen so far, insurance companies across the country are beginning to churn out these types of denial letters.

While the talk amongst insurers and adjusters is that these damages are not covered, an insurance company declaring something to be true does not make it so.   The applicability of the “pollution exclusion” will ultimately depend on a number of factors, some known and others currently unknown: (1) the language of the exclusion; (2) The scientific explanation behind the damages; and (3) Your home’s jurisdiction.

What The Blogosphere Says

A quick read of our blog, and you’ll know what we’re saying about homeowners insurance claims:  that insurers may very well be liable for these losses.   But what are some others in the country saying?

An August 2009 article from Inside Counsel has a long discussion (and quotes us!) about suits against homeowner insurers, and notes that the “pollution exclusion” may not be as clear as the insurance companies would like to believe.    The debate is lively in Florida according to the Herald Tribune.  Merlin Law Group’s Property Insurance Coverage Law Blog has a great post about both sides of the argument.

We suggested in the past that Louisiana homeowners may have a better case than homeowners in other states, because of Louisiana’s narrow interpretation of the pollution exclusions applicability.

What To Do…What To Do

This much is clear:  If you don’t file your insurance claim now (or soon), the time available to you to file the claim will pass.   How depressing it would be for homeowners who sat on their hands for this debate to reach a judge 12 or 14 months from now, and the decision to favor homeowners!

This can happen.

Many of the claims available to homeowners, builders, suppliers, subcontractors and other parties to this Chinese Drywall mess are based on a lot of legal mysteries.   How will the New Home Warranty Act be interpreted?   Will insurance policies exclude or cover losses?   Are actions against the suppliers already prescribed?

Who knows – in 12 months, we may know that builders are absolutely not liable in Louisiana, but insurers are, or vice versa.   Homeowners should file insurance claims against their casualty policies, and should file suit against the insurer after the claim is denied, because there very well may be coverage.   And with insurers denying all Chiense Drywall claims, pursuit of the claim through litigation is the only way to get paid.

Will My Premiums Increase?

This is something homeowners should discuss with their insurance agent.   However, it is very possible that premiums may be increased if you assert a claim for insurance coverage.   If the claim is paid, the payment will likely be used in calculating any rate increases.

If the Chinese Drywall loss was just a small $5k or $10k claim, there might be good reason to not file the claim.  However, some Chinese Drywall claims have $50k-100k or more in damages.  Depending on your financial stability, the risk of losing this amount may be greater than the risk of a future premium increase.

We Sue Insurers

Wolfe Law Group has filed suits against homeowners insurance companies related to Chinese Drywall damages, and we’d be happy to discuss filing suit against your insurer, too.    Learn more about our firm by reviewing this promotional brochure.

Late in July, “ClaimsJournal.com” published an online article titled:  “Chinese Drywall:  Builders and Subs Face Huge Uninsured Losses.“   The article’s author takes its reader through a number of hot-button issues related to the insurance coverage available to homeowners and builders for Chinese Drywall damages.

Calling the per house damages “astronomical,” the article warns that many builder and homeowner polices may exclude damages based on the pollution exclusion or the “your work” exclusion.

In the past, we’ve discussed insurance coverage issues and the pollution exclusion here at the Chinese Drywall Blog.

From our experience in dealing with homeowner and builder claims, it seems the insurance industry is positioning itself to deny coverage for contaminated drywall exposure.   But more troubling than this is that many homeowners and builders are taking this position as a matter-of-fact.

While there are certainly legal challenges to recover against insurance companies for these losses, the insurance companies face legal challenges in excluding coverage.   Homeowners and builders have two things on their side:  (a) The insurance company has the burden of proving the applicability of its exclusion; and (b) Any ambiguities will be interpreted against the insurance company.

Homeowners and Builders should not consider the exclusion of coverage as a foregone conclusion, and should place their insurer on notice of the claim.   While litigation may result in coverage applying to this loss, without a timely claim and a lawsuit to enforce the same, builders and homeowners will lose their rights.

In Louisiana, with a one-year prescriptive period ticking very quickly against drywall claims, the insurance company’s best argument against coverage is soon-to-come.

Are you learning about Chinese Drywall for the first time? Are you looking for representation in a Chinese Drywall dispute?

Check out Wolfe Law Group’s newly published Chinese Drywall brochure and learn how to get started on your drywall lawsuit.

Recently in Chinese Drywall legal news is Judge Eldon Fallon’s goal to try the first Chinese Drywall case by the end of 2009.   While I applaud Judge Fallon for his ambition, and do believe that the issues are time-sensitive and should be litigated quickly and aggressively, I think the promise is an empty one.

Trying a Chinese Drywall class action case in 6 months is frankly impossible, and homeowners should not let this news get their hopes up.

A class action specialist in Florida, Ervin Gonzalez, was quoted in an article about Judge Fallon’s intentions saying the following:

Fast-tracking is an understatement. It’s a rocket docket. And he means business.   He wants the first case tried by the end of the year, and he wants an inspection of every home. He wants to be able to get to the bottom of the problem.

Here’s the obvious problem:  He can’t get to the bottom of the problem in the next 5 or 6 months.

The problem is complicated, and the science is in its infancy.   Leading scientist are unsure of whether the problem can be remediated, or whether full replacement of sheetrock is required.   Leading scientist are also unsure about what is actually causing the problem, and whether even replacement of the contaminated sheetrock will be enough to solve the problems.

This is not to mention some serious legal hurdles:  (1) Discovery; (2) Getting all the Defendants on the same page; (3) Identifying all the Defendants; (4) Dragging foreign manufacturers into Judge Fallon’s court.

Judge Fallon’s recent statement is sensational news, but it is false hope for the homeowners, builders and suppliers who are struggling to resolve their Chinese Drywall problems.   The only thing that has happened in his court is the allocation of attorneys fees and attorney leadership – which has nothing to do with the substantive matters.

Deadlines to file suit against builders, subcontractors and insurers are ticking away.  Homeowners, Builders and Subcontractors are all affected by these deadlines, and it’s important that they all make their claims as immediately as possible to avoid the expiration of these claims.

There are problems with class action litigation as it relates to Chinese Drywall damages.  Judge Fallon’s impossible 6-month deadline only underlines those problems.

On July 31, 2009, Wolfe Law Group’s Scott Wolfe and Doug Reiser will co-present at Half Moon Seminar’s Chinese Drywall Conference in New Orleans, Louisiana.   The program is titled “Chinese Drywall Problems and Litigation.“  Attorneys, contractors, engineers and architects can all obtain CLE credit for attending the program [register here].

Wolfe & Reiser will co-present during the program’s middle segment, “Exploring the Current Status of Chinese Drywall Claims and Litigation.”

Be sure to attend the program on July 31st in New Orleans.   To get ready, or in case you can’t make it, below is the slide presentation we’ll use during the presentation.