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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.

Wolfe Law Group’s own Scott Wolfe, Jr. provides the leading quote in a recent article from HousingZone.com:   Homeowners Increasing Suing Local Builders.   Scott gave this quote to the publication:

The best and quickest way to get the drywall out is to go after the builder, who ultimately has to live up to his warranty.   If the consumer tinkers with class-action lawsuits that can drag out for months, their warranties start to expire, and their chances of getting something from the builder are slimmer.

If we’ve said it once on this blog, we’ve said it a thousand times (here, here, here, here and here).

While class action suits have their purpose, it presents real challenges to homeowners who are interested in getting the Chinese Drywall out of their property.

The class action suits have their warts, and homeowners may find a better remedy by filing a direct action against their builders, suppliers and insurers.

With every day that passes, however, deadlines are drawing closer.    The one year deadline for insurance claims and torts.  The 3-4 year deadline with claims in redhibition.   And the 1, 2 or 5 year deadlines associated with construction warranty claims.

The worst news about the deadlines being that many, if not most of the statutory periods begin when the drywall was delivered or installed…and not when the homeowner learned of the problem.

All was quiet with regard to individual lawsuits against builders and suppliers, but recent news reports indicate that the remedy is gaining some steam.

The article from HousingZone.com is not alone.  The Times Picayune recently reported that homeowners are more frequently suing builders, and Baton Rouge’s Advocate had the same analysis.

Could an avalanche of Homeowner v. Builder suits be on the horizon?

If you’re interested in learning more about bringing a suit against your builder, or your construction company is interested in bringing suit its suppliers and insurers, contact Wolfe Law Group today.

On the Chinese Drywall Blog, we’ve frequently  forecasted that homeowners will begin bringing suit directly against their builders for Chinese Drywall recovery.

This morning, the New Orleans Times Picayune reported that this is beginning to happen.

The article, titled Homeowners saddled with tainted Chinese Drywall are increasingly suing local builders for damages, suggests that “Louisiana home builders have increasingly become targets of litigation.”   And the article profiles a Covington, Louisiana homeowner, Eric Carter, who sued his homebuilder Sunrise Homes.

Over the next few days here on the Chinese Drywall Blog, we will specifically analyze builder liability for Chinese Drywall claims, reviewing the relevant aspects of the New Home Warranty Act and other general builder warranties.

Remember also that Wolfe Law Group’s Scott Wolfe and Doug Reiser will be presenting at a Chinese Drywall seminar in New Orleans, LA on July 31, 2009.  The seminar is for attorneys, builders, engineers, homeowners and anyone else affected or interested in the crisis.   Read more about the seminar, and how to attend, here.

In the meantime, here are a few posts from our blog reviewing builders’ exposure to imported drywall claims, and explaining the differences between class action litigation and ordinary litigation:

• Builders Starting To Tango with Chinese Drywall Claims
• Builders World Apart on Chinese Drywall
• 3 Reasons Why Class Actions are Bad for Homeowners
• Are Builders Getting a Free Pass on Chinese Drywall Claims?  Should They?

Wolfe Law Group’s general construction law blog, the Construction Law Monitor, published three articles over the past two weeks that analyzed the choices faced by builders, homeowners and construction attorneys involved with Chinese Drywall claims.

The three-part series of articles provides these parties with a useful discussion of the decisions that must be confronted as each deal with damages sustained by the installation and supply of tainted drywall.

The article series can be found under the Chinese Drywall Tag on the blog.   Or by clicking on one of the following links, whereby each article is briefly discussed.

Builders
This article discusses issues related to making insurance claims, remedying the drywall problem within homes, the duty to mitigate damages and options available to the builder in litigation.

Construction Attorneys
This article discusses the role of class action suits in the imported drywall crisis, warranties and the role of builders in the suits, and how the duty to mitigate damages affects all parties.

Homeowners
This article discusses the choices facing homeowners who have tainted drywall in their homes.   It examines the pros and cons of class action suits, individual litigation, and making insurance claims….as well as the ultimate unfortunate job that homeowner might be forced to take:  fixing the drywall out of their own pocket (at least for now).

This blog is published by Wolfe Law Group, a construction law practice with offices in Seattle, WA and New Orleans, LA.

Thus far, the blog has focused a great deal on Louisiana news and law related to Chinese Drywall – and the reason is simple:  The amount of imported Chinese Drywall in Louisiana is second only to Florida.

Further, Chinese Drywall was by and large imported into Gulf Coast states like Florida, Louisiana, Mississippi, Georgia and Texas.

While the state of Washington is clearly worlds apart from the Gulf Coast region…it’s not out of the woods insofar as Chinese Drywall in concerned.  In fact, its among the 12 U.S. states who have imported at least 1 million pounds of tainted drywall from China since January 1, 2006.

A helpful graphic based on data published by the Herald Tribune shows that Washington has imported 2,437,491 pounds of Chinese Drywall since January 1 2006, which is enough to build approximately 270 homes.

As lawsuits gather stem in Florida and Louisiana, and across the Gulf Coast, Washington contractors and suppliers ought to remain viligent and cautious of Chinese Drywall claims.

Have questions about what to do if you installed or supplied tainted drywall?  We wrote an Avvo Legal Guide on the topic here…and you can always contact Wolfe Law Group.

On the Chinese Drywall Blog, we’ve talked about class action suits, individual suits against builders and suppliers, suits by builders against its suppliers, and other similar actions.

However, in Florida, one couple seeks to hold another party liable for their Chinese Drywall damages:  their own homeowners insurer.

The claim makes a great deal of sense, and it adds to the mystery of who will eventually be responsible for the Chinese Drywall damages.

The suit was brought in a Florida U.S. District Court, and is captioned Baker v. American Home Assurance Company, Inc., Middle District of Florida, No. 09-cv-188-FtM-99DNF.  (read here)

According to the complaint, the homeowners made a claim in December 2008 related to damages caused by Chinese Drywall.  The complaint describes the cause of the damage as coming from “drywall…emitting gases which have damaged the Subject Property and the contents therein.”

After inspection and testing, the insurer denied the claim for “contamination.”     The Baker complaint argues that the damages were not caused by “contaminants” as defined by the policy.

The policy at the center of the Baker action defines “contaminates” as follows:

An impurity resulting from the mixture of or contact with a foreign substance.

According to the complaint, there was not ‘mixture or contact with a foreign substantance,’ and therefore, the pollution exclusion would not apply.

The Baker exclusion is far less detailed then some of the other pollution exclusions found in Commercial General Liability policies…and therefore, may be interpreted differently.

If pollution exclusions in homeowners policies are generally less complex than GCL policies, it may be prudent for homeowners to make timely claims against their homeowner policies if they are faced with Chinese Drywall damages.

It’s too early to predict exactly who will be responsible for damages associated with Chinese Drywall, especially since so many parties are involved.   To rely simply on one remedy (i.e. a class action) is probably an irresponsible choice for homeowners faced with significant damages.

We’re likely to see a flood of suits in the coming months against builders, home insurers, suppliers and other responsible parties.   Home insurance policies will likely file subrogation claims against builders, suppliers and other parties as well.

We’ll monitor the Baker suit as it proceeds.  Stay tuned.

On April 22, 2009, the U.S. Fifth Circuit released an opinion in Nautilus Insurance Company v. Country Oaks Apartments, Ltd. that may bear some significant on the question of whether contractor GL insurance policies will cover Chinese Drywall claims.

Explaining The Suit

The suit required the appeals court to address the scope of the absolution pollution exclusion under Texas law.

The facts of the case are disturbing:  Suit was filed against a Commercial General Liability carrier for an apartment complex, where the Plaintiff lived.   During the policy period, works accidentally blocked the vent to the furnace in several apartments, exposing the plaintiff to carbon monoxide that would have otherwise been released outside.   The exposure affected the plaintiff’s pregnancy, and her child was born with difficulties.

The insurance company refused to pay the claim, contenting that the damage was caused by pollution and excluded under the policy’s absolute pollution exclusion.

That policy’s exclusion clause read as follows:

f. Pollution
(1) “Bodily injury” or “property damage” which would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of “pollutants” at any time.

The term “pollutant” was described as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed.”

Under Texas law, the US 5^th Circuit held that the pollution exclusion did apply to this loss, and that there was no insurance coverage under the policy for plaintiff’s claim.   The court summarized its holding as follows:

In sum, the emission of carbon monoxide from a furnace into an apartment unambiguously satisfies the pollution exclusion’s requirement of a “discharge, dispersal, seepage, migration, release, or escape.” It is irrelevant that a reasonable insured might not expect this result, or that, given sufficient imagination, we can think of ways – not presented here – in which enforcement of this exclusion would lead to absurd results. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994) (on rehearing, vacating its prior opinion) (“[N]either conflicting expectations nor disputation is sufficient to create an ambiguity.”

How Country Oaks Decision Applies to Chinese Drywall Claims

Many commentators (see here, here, and here) monitoring the Chinese Drywall situation predict that insurance claims related to the loss will be denied by insurers based on the absolute pollution exclusion.

From a review of the Country Oaks case just released by the 5^th Circuit, if property damage and bodily injury is caused by a “pollutant” from the Chinese Drywall…it seems likely that homeowners, builders and insurers will be in for a spicy legal argument over whether the exclusion does or does not apply.

However, how the Country Oak decision and reasoning applies to Chinese Drywall claims will depend largely on (a) Where the damage is incurred and claim is made; and (b) What exactly is causes the damages.

First, the Country Oak decision examines the absolute pollution exclusion under Texas law only (although it does comment on Mississippi law).   Under Texas interpretations of insurance contracts, the absolute pollution exclusion is given broad applicability, and therefore, the exclusion will more likely apply in Texas than in states with a stricter review of insurance exclusions and policies.

States, for example, like Louisiana.  As we reviewed just last week, Louisiana courts have taken a completely different approach from Texas to interpreting pollution exclusions.

According to Louisiana case law, since the pollution exclusion was drafted to apply to “environmental contaminants,” Louisiana courts have limited its applicability to such.   Read our in-depth analysis of Louisiana case law on pollution exclusions here.

The second factor that will determine the applicability of Country Oak is more scientific, relating to the actual cause of the damage.

Although most everyone involved with this crisis can recognize the symptoms of Chinese Drywall…we don’t yet have a definite cause.   Once science catches up in this area, the cause of the damages will be important in determining whether the pollution exclusion applies.     The more like a “pollutant” the cause – the more likely insurers will cite pollution exclusions.