Last week, the Wall Street Journal reported that powerhouse builder Lennar Corp. has identified 400 homes in Florida with Chinese Drywall, and has set aside $39.8 million to repair the homes.

This is an enormous amount of money, and it should be a wake-up call to builders and homeowners who have yet to clash over the Chinese Drywall saga.

Would Lennar Co. really spend $39.8 million to repair a problem that wasn’t its fault?  Or of which it didn’t have liability?

The answer is obvious, and here is the wake-up call.   To homeowners:  Seek remedy from your builders.   To builders:  Prepare to be sued.

Indeed, time is continuing to tick without an onslaught of suits between builders and homeowners, but one has to believe that this is only a matter of time.  Time, however, is on neither party’s side.

Homeowners are facing steadfast deadlines in any warranty claims made, or claims in redhibiation.   If they wish to seek damages from any insurer (theirs or the home builders), they are likely facing quickly approaching deadlines.

Builders have deadlines themselves.   Once they are sued by homeowners, builders will necessarily turn to their insurance companies and suppliers for reimbursement or indemnity.   These suits also have impending statutes of limitations, and questions will loom as to whether the builder successfully mitigated its damages.

Lennar Corp. has been a leader among builders from the get-go on the Chinese Drywall problem.

As Chinese Drywall reports became widespread, Lennar Corp. had already begun examining the problem, replacing faulty drywall, relocating residents, and asserting claims against its subcontractors, suppliers and insurance policies.

Lennar Corp. has a lot of liability in this Chinese Drywall crisis, but in the end, they will likely have a lot of protection.   That is due to their foresight and good management of the situtation.

Can the same be said for your company?

As the Chinese Drywall crisis unfolded over the last few months, news reports were abound of class action litigation against large drywall manufacturers, but it appeared that builders were getting a “free pass” on liability.

Unfortunately, but inevitably, it appears the tide is changing.

Recently, the shoe dropped for Lennar Co., who was arguably the most predominate home building company facing Chinese Drywall claims.  While Lennar Co. made every attempt to thwart litigation, suit was formally filed against them just last week, and they are now preparing a defense and examining applicable exclusions in their insurance policies.

However, large building outfits like Lennar Co. or South Kendall Construction Corp. are no longer alone as builder-defendants in Chinese Drywall claims.

Here are some examples from across the affected areas.

Flannigan v. Stafford Custom Homes, Inc.

Last week, a news station in North Carolina reported that a couple with Chinese Drywall had filed suit against their local builder:  Stafford Custom Homes, Inc.

The plaintiff’s counsel in that case, Joel R. Rhine of Lea Rhine Rosbrugh & Chleborowicz was kind enough to share a copy of that complaint with the Chinese Drywall Blog, and its available to read here.

The complaint asserts the following claims against the homebuilder…and importantly, the homebuilder alone:

• Breach of Contract;
• Breach of Implied Warranties;
• Breach of Express Warranties;
• Negligence;
• Negligent Misrepresentation;
• Unfair and Deceptive Trade Practices

As mentioned, the suit against Stafford Custom Homes, Inc. is between the homeowner and the homebuilder only, and the plaintiffs did not bring suit against the subcontractor installer, the drywall supplier or the drywall manufacturer.

It will be interesting to watch this action progress, and especially to see how Stafford Custom Homes, Inc. defends itself in the case.   Likely, a claim will be made against Stafford’s General Liability insurance policy, and an argument will ensue about the applicability of the pollution exclusion clause.

Further, the builder will be well-served to take a page out of the Lennar Co. defense book, and file suit against its supplier, installer and the drywall manufacturer.

The case is in Wake Count, North Carolina, and is captioned Flannigan v. Stafford Custom Homes, Inc., General Court of Justice Superior Court Division, No. 09CV006759.

We’ll monitor this case as it moves forward.

Pronto v. Venture Supply, LLC, et al.

In Virginia, another couple has brought a claim against their contractor individually, as opposed to a class action, suit.  While the news report breaking the story doesn’t mention the contractors name, the couple also brought suit against Venture Supply, L.L.C., who is the purported supplier of the drywall.

Like Stafford Custom Homes, Venture Supply, L.L.C. is a self-proclaimed “locally owned” company.

The couple in this suit – Benjamin and Holly Pronto – are seeking more than $600,000 in damages associated with the Chinese Drywall contamination.

The estimate of damages by the Prontos is a haunting wake-up call to builders who have unknown exposure to Chinese Drywall claims.

Builders Mutual Insurance Company v. The Dragas Co.

This is another case out of Virgina, but unique in that here an insurance company has sued its insured.

The insured, The Dragas Co., is a Virginia builder who has installed Chinese Drywall in Virginia homes.

According to the report in The Virginian-Pilot, Dragas’ insurance company has denied coverage for Chinese Drywall damages, and has filed suit in federal court asking a federal judge to declare who is responsible for the drywall damages.  Download the Complaint here.

The Chinese Drywall phenomenon continues….and it seems that as each day passes, builders are drawn closer and closer to the crisis.

Last week, we asked whether builders were getting a “free pass” on the Chinese Drywall issue.

However, just a few days later Lennar Co. was named as a party to a class action suit, and this week a local North Carolina construction outfit – Stafford Custom Homes, Inc. – was sued for installing Chinese Drywall.

So how are builders handling Chinese Drywall claims and complaints?

This morning, the Herald Tribune has posted an interesting article on this topic.  Comparing Lennar Co.’s Chinese Drywall methodology with other national builders, the article says this:

Within just a few square miles sit four developments with clusters of affected homes, built by at least three different builders: Lennar Corp., Taylor Morrison and WCI Communities.

The East Manatee homeowners who have been touched by tainted wallboard — tied to corrosion of metals and the subject of an investigation by state and federal health officials to determine whether it poses health risks — find themselves caught up in a situation largely beyond their control.

For many, their experiences have been shaped by the behavior of their builders — whose responses have run the gamut from tearing out the bad drywall in Lennar’s case to taking no action at all.

Read full article.

More important than the question of how builders are handling claims, however, may be the question of how they should be handling claims.

The shoe has dropped for one builder who has been working hard to avoid entanglement in the Chinese Drywall defective drywall class actions.    According to reports all over the web, Lennar Co. has been officially named in a Florida class action suit over defective drywall.

The significance of Lennar Co.’s involvement with the class action is fairly great, as it begs the question of what exactly distinguishes it from smaller builders who may have also installed Chinese Drywall in homes.   Will these smaller builders soon be named in class actions as well?

It also begs the question of whether class action suits are the answer to homeowner’s woes in the Chinese Drywall crisis.   The question has been hinted here, and written about by Donald Brenner at the Construction Litigation Law Blog.

With regard to the class action suit, Lennar Co. said it had “already established reserves for the estimated cost of replacing the drywall” it has confirmed to be defective Chinese product “to the extent such costs are not covered by insurance.”

As the risk and exposure of builders opens up, the role of a company’s GL insurance will be examined.   More on this later…

Chinese Drywall  is all the rage in construction news across Florida, Louisiana and the Gulf South.   While some reports have discussed builder liability, the majority of news coverage relates to the potential health effects of the imported drywall and the class actions being filed by plaintiffs attorneys across the country.

All of this news and activity leaves two things curiously out of the conversation:

1)  How are homeowners going to get this drywall out of their homes; and

2)  Should builders be called upon to replace the defective materials and damages?

Class Actions Aren’t Getting the Drywall Out

Right now, class action attorneys across the Gulf South are collecting names for mega-product liability lawsuits that could last for years.  In the interim, however, the class action suits aren’t likely to get the Chinese Drywall out of homes.

So, what are homeowners doing about getting the drywall wall out of their property?   What can they do?

Well, unfortunately, the answer to this question leads to the next section of this post, and precisely the reason we’re asking whether builders are getting a ‘free pass’ on Chinese Drywall claims.

It seems that realistically, the only way a homeowner is going to get rid of defective drywall is to either (a) replace it themselves; or (b) contract their builder and make a warranty claim.

The class-actions are focusing on product liability claims against the mega-manufacturers, and therefore, are not assisting their clients with option (b).   Since they are tied up in class action litigation, this could leave homeowners literally stuck with the less desirable option (a).

Where Builders Fit In

Builders, local suppliers and other involved parties – while victims themselves – appear to be largely slipping through the cracks in this Chinese Drywall crisis.

Granted, some large builder outfits like Lennar Co. have been involved with litigation, and have even taken the initiative to repair defective drywall.   In large part, however, perhaps due to the direction of press on imported drywall, it seems that affected homeowners are contacting class action attorneys and not their contractors.

Should builders be at the center of Chinese Drywall complaints?   And notwithstanding this question, should homeowners be at least contacting their builders to take advantage of their warranties, their builders’ insurance policies and more?

More to come…

Lennar Co. used Chinese Drywall in the construction of some of its Florida homes. Now that the drywall is earmarked contaminated, and causing problems across the country, the nationwide builder has dealt with the problem with a one-two punch.

First, it is working to rebuild the affected homes. That’s right, rebuild them.  According to press releases, Lennar Company is removing and replacing contaminated drywall, and even paying the relocation expenses for customers while they are out of the home.

Second, to protect itself from future legal liability and to recover the expenses of its first move (above), it has filed suit against its suppliers and installers for the damages caused to them.

This proactive approach is perhaps one of the most aggressive responses to the Chinese Drywall situation from builders or suppliers.   And, arguably, it may be the best approach a company with Chinese Drywall exposure can take.

Lennar’s approach seemingly has the following positive affects for its company:

1. By repairing the contaminated homes, Lennar has fulfilled any of its warranty obligations;
2. The pro-active approach resulted in positive press for the company’;
3. By filing a lawsuit against its suppliers and installers, Lennar preserved its legal rights against those parties (read the 105 page complaint here);
4. Lennar has proof that it mitigated its damages after exposure to contamination liability.  The mitigation efforts will pay off in Lennar’s claims against its insurers, suppliers and installers.
5. Lennar has homeowners whose homes are repaired sign waivers to limit the company’s future exposure.

Of course, Lennar’s efforts are not without its critics.

InjuryBoard.com reported that some homeowners regret signing Lennar’s waiver because they were not completely compensated for damages.   Further, in response to Lennar’s suit against Knauf, the supplier released a statement complaining that it only supplied approximately 20% of the drywall at controversy – yet is the only company sued.

The Chinese Drywall situation is clearly a bad situation…and any company involved must simply perform damage control.   Lennar Company is one of the first to aggressively protect themselves – legally, publicly, and practically.   It serves as a very fair example of how some companies involved with the contamination may approach the controversy.

As part of Lennar’s PR campaign, they recently spoke out about their response to finding Chinese Drywall contamination.  The video is reproduced below.

As feared, recent reports confirm that Chinese Drywall was imported and installed throughout homes in Louisiana.  According to WWLTV.com, as much as 60 millions pounds of contaminated drywall may have been unloaded at Louisiana docks – which, unfortunately, is enough to build 7,000 homes.

As the region grows concerned about how the situation may displace and effect homeowners and property owners, there are other victims:  The contractors and suppliers.

Ultimately, its local contractors and suppliers who unloaded the Chinese Drywall and installed them into homes and businesses across the state.   As complaints and lawsuits surface, these local business could be facing long, expensive legal battles.

The Chinese Drywall situation is mature news in Florida, and so Louisiana victims (homeowners and contractors alike) can look to the experience in that state for an understanding of what’s to come.

The Naple Daily News reported just a few weeks ago that there is no quick fix for Chinese Drywall problems, and addressed how the situation is affecting builders and suppliers:

Mark Boyle and Geoffrey Gentile of Boyle & Gentile advised builders in the audience of steps to take should customers contact them with a claim of Chinese drywall.

They should put their insurance companies, all of them dating back several years, on notice so they can be involved in the process, Boyle said.

Gentile added that builders should get their documents together, such as contracts, master agreements with subcontractors, insurance policies, warranties and builders risk policies to understand their involvement.

They also can review warranty calls to see if any homes they built have had recurring problems indicative of Chinese drywall, including air conditioning unit failures.

“Everyone thinks about fault,” Boyle said. “No contractor in this community knew or had any reason to believe there was anything wrong with this drywall.”

But the law isn’t just about fault, he said. If your product is defective, you’re responsible.

The advice is good.

For construction companies and suppliers who has encountered Chinese Drywall, it’s only a matter of time before a complaint affects your business.

The expense for your company will be two-fold:

1. You may have the expense of fulfilling your warranty to the homeowner, which could mean extensive property repairs; and
2. You may have legal expenses associated with the property owner’s health concerns, loss of use of the property, and more.

What do you do?

As mentioned in the Naples Daily News article, businesses should quickly report the exposure to their insurance carriers (all of them), work with the property owner to “mitigate its damages,” have the property inspected and tested to confirm the suspicion, and retain counsel to discuss its rights.

Wolfe Law Group has recently launched a new practice area related specifically to Chinese Drywall defense, where the firm can help advise contractors, subcontractors and suppliers on how to best protect themselves in light of the Chinese Drywall contamination problem, and if necessary, defend them in suit.

In some instances, it may be prudent for your company to file suits against your suppliers and installers.   Lennar Co. did exactly this in Florida as reported by Builder Online when they sued 8 drywall suppliers and 12 installers, charging them with breach of contract and breach of express and implied warranties.

The long and short of the matter is this:  Chinese Drywall is here in Louisiana to stay, and if your business was involved with the supply or installation of the materials, you’ll likely encounter related legal and economic challenges.

Businesses should be aware of the problem and prepare to limit its exposure as best as possible.