With more than 3000 homes involved in some form of litigation over Chinese Drywall, engineers of all sorts are being called upon to investigate the infected properties and report on its conclusions.

The Chinese Drywall problem, however, presents a lot of practical and scientific challenges. As engineers scratch the surface of these claims, they find more and more questions about the drywall and its damages.

Scott Wolfe has presented to the Louisiana Engineering Society and the American Society of Civil Engineers on precisely these questions, and specifically to answer this question: What Are You Looking For?

Scott’s presentation breaks down the search into three categories:

(1) Is it There? This is the most basic question posed to engineers; simply determining whether the home does or does not have contaminated drywall.

(2) How Deep Are The Damages? This question inquires as to just how deep into the home the damages go. Does it affect the wiring? Does it affect the building studs? Not only does this have relevance to the next category of inquiry, but is also has relevance to determine who is liable for the losses. A prime example of how this affects liability concerns builders and the New Home Warranty Act. If the damages go so deep as to create a structural defect, the NHWA will have broader applicability.

(3) What Type of Damages and How To Remediate. The final question requires determination of how to fix the problems, and to identify what type of damages the problem caused.

Here is the Keynote presentation used during these talks, brought to you by SlideShare:

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.

In previous posts, we have discussed the New Home Warranty Act and how it relates to Chinese Drywall damages. However, this Act only applies to new homes.

As to the thousands of post-Katrina renovations and re-models that did not involve a new structure, homeowners must find remedies against their builders elsewhere.

Generally Speaking…Contractors Are Responsible for Defects in Materials and Workmanship

In construction contracts, Louisiana law implies that the contractor will construct the work in a good and workmanlike manner, the work will be suitable for its intended purpose, and the work will be free from defects in workmanship or materials. Peterson Contractors, Inc. v. Herd Producing Company, Inc., 811 So.2d 130 (2 Cir. 2002).

An owner seeking to recover from a contractor bears the burden of proving: 1) both the existence and nature of the defects; 2) that the defects were due to faulty materials or workmanship; and 3) the cost of repairing the defects. Guy T. Williams Realty, Inc. v. Shamrock Construction Company, 564 So.2d 689 (La. 5 Cir. 1990).

Therefore, under Louisiana law, the general rule is that a contractor is responsible for defects in workmanship and/or materials.

Articles 2762 and 2969

Aside from the general concept that contractor’s are responsible for the quality of its workmanship and materials, the Louisiana legislature has given us two articles that set forth a contractor’s liability for its work.

Article 2762: Liability of contractor for damages due to badness of workmanship

If a building, which an architect or other workman has undertaken to make by the job, should fall to ruin either in whole or in part, on account of the badness of the workmanship, the architect or undertaker shall bear the loss if the building falls to ruin in the course of ten years, if it be a stone or brick building, and of five years if it be built in wood or with frames filled with bricks.

Article 2769: Contractor’s liability for non-compliance with contract

If an undertaker fails to do the work he has contracted to do, or if he does not execute it in the manner and at the time he has agreed to do it, he shall be liable in damages for the losses that may ensue from his non-compliance with his contract.

Applying The Rules to Chinese Drywall

Application of these rules and articles to Chinese Drywall is not too difficult.

Although we’re not yet certain as to what exactly is causing the damages associated with Chinese Drywall, it is apparent that Chinese Drywall is a defective material, and that it is causing the ruin of property.

Accordingly, homeowners should be capable of seeking remedy against builders for damages and ruin associated with Chinese Drywall, regardless of whether the drywall was supplied or installed by a subcontractor of the builder (art. 2768), and regardless of whether the builder knew or had reason to know of the defect.

Warranty Provisions in Contracts

While the New Home Warranty Act cannot be waived or limited, this is an exception to the general rule in Louisiana that allows limitations and waivers.

Art. 2503 allows parities to increase, exclude or limit warranties. In Degeneres v. Burgess, the Court stated that the right to limit or waive stautory warranties extends to articles 2762 and 2769.

Therefore, it’s important for homeowners to review the contracts with their builder to determine the exact warranty period and terms applicable to their contract.

Baton Rouge’s The Advocate ran a story on June 29th titled “Drywall problems leave many in lurch.”

The story discussed how so many homeowner victims of Chinese Drywall are left in the balance of class action legal battles, failed construction warranty claims and legislative stalemates.

One person interviewed, Darryl Ledet from Praireville, stated that his home was built with Chinese Drywall by Sunrise Homes, and that when he contacted the company about finding defective drywall, “the company sent a letter saying it was not responsible for further repairs because, under Louisiana law, product defects are covered under a one-year warranty.” Ledet’s warranty, the article states, had expired.

Did Ledet’s warranty expire in one-year? Is his cause of action against Sunrise Homes hopeless?

Louisiana New Home Warranty Act

Since Ledet’s homes appears to be a new home, the New Home Warranty Act would likely apply.

The Louisiana New Home Warranty Act provides the “exclusive remedies, warranties, and preemptive periods as between builder and owner…and no other provisions of law relative to warranties and redhibitory vices and defects shall apply.”

As such, if a home qualifies as a “new home” for the purposes of the act, and has Chinese Drywall, the homeowner’s remedy against the builder (and its insurer) will likely lie exclusively in the New Home Warranty Act.

According to La. R.S. 9:3144, every builder warrants the following to the owner, as it may apply to Chinese Drywall claims:

(1) That the home will be free from any defects due to defects in materials or workmanship not regulated by building standards for 1 year.

(2) That the home will be free from major structural defects due to other defects in materials or workmanship not regulated by building standards for 5 years.

1 Year or 5 Years?

One of the first questions to answer with respect to Chinese Drywall damages is whether the applicable warranty period would be 1 year or 5 years.

Since most Chinese Drywall was installed between 2002 and 2008, homeowners first discovering the damage now will have difficulty proceeding against their builder if the 1 year period applies. If the 5 year period applies, builder liability is more likely.

To determine whether the 1 year or 5 year period applies, we must under the meaning of the term “major structural defects.” The definitions portion of the act (9:3143) provides as follows:

Major structural defect’ means any actual physical damage to the following designated load-bearing portions of a home caused by failure of the load-bearing portions which affects their load-bearing functions to the extent the home becomes unsafe, unsanitary or is otherwise unlivable:

(a) Foundaiton systems and footings; (b) Beams; (c) Girders; (d) Lintels; (e) Columns; (f) Walls and partitions; (g) Floor systems; (h) Roof framing systems.

In hopes of having the 5 year warranty apply, one could argue that Chinese Drywall damage is a “major structural defect” as contemplated by the Act because it is actual physical damage to the walls, which affects their load-bearing function to the extent the home becomes unsanitary or otherwise unlivable.

Of course, there is some question as to whether damage to sheetrock is actually damage to a “load-bearing portion” of the home.

A similar question came before the Louisiana First Circuit just a few weeks ago in Hutcherson v. Harvey Smith Construction, Inc., 7 So.3d 775 (1 Cir. 2009).

In the Hutcherson, the home had faulty or failed roof flashing causing leaks. The contractor argued that this was not the failure of any load-bearing portion of the home, and the homeowner argued that the roof as a whole served a load-bearing function, thus qualifying any damage to it as a “major structural defect.”

The court agreed with the homeowner.

HSC’s own expert civil engineer, Dr. Jerry Lynn Householder, testified that roof decking in a house is part of the framing [Pg 7] system and serves a structural function. Dr. Householder further testified that the rotten decking was caused by improper roofing design which allowed water to pool and leak under the shingles. The Hutchersons’ expert roofing consultant, Patrick E. Heil, testified [*10] that the damage to the Hutchersons’ home was not the result of normal wear and tear on a roof, but rather was the consequence of a faulty roof design or the way the roof was built. The trial court concluded that this type of damage was clearly contemplated by the NHWA in LSA-R.S. 9:3143(5) in which actual physical damage to roof framing systems is specifically enumerated as a major structural defect.

Based on this ruling, homeowners may have an argument that the damage to sheetrock and other building elements by the Chinese Drywall constitutes a ‘major structural defect,’ and therefore, that the 5 year warranty period applies.

Is Chinese Drywall Damage Exempt?

Once a warranty period is established, work is not complete in determining whether the New Home Warranty Act provides homeowners a remedy against their builder. Another question is whether the damage is specifically exempt from warranty.

La. R.S. 9:3144(B) lists 19 exemptions from the act. Here are some exemptions that may apply to Chinese Drywall damage:

(B)(4)(f): Any damage to the extent that it is caused or made worse by Dampness, condensation, or other damage due to the failure of the owner to maintain adequate ventilation or drainage.

(B)(14): Bodily injury or damage to personal property.

(B)(19): Mold and mold damage.

Remember, NHWA May Not Apply

Now that we have discussed the New Home Warranty Act to some length, remember that the Act may not apply to every home and every builder/homeowner relationship.

In post-Katrina Louisiana, much work was being performed to renovate damaged homes, and a lot (if not most) of the Chinese Drywall was installed into these projects.

If the Chinese Drywall was installed into an existing facility, the New Home Warranty Act would not likely apply.

NHWA as a Theory of Recovery

The Chinese Drywall situation is complex, and homeowners will seek recovery from builders, suppliers and manufacturers under a number of legal theories.

Like many other states, Louisiana has a “New Home Warranty Act” which mandates that a contractor warranty its work to the homeowner for a certain period of time.

In Louisiana, if the home is a new construction, the act is clear that owners with defective construction can only recover from the builder under the act:

…provides the exclusive remedies, warranties, and peremptive periods as between builder and owner relative to home construction and no other provisions of law relative to warranties and redhibitory vices and defects shall apply.

Ramifications if Act is Exclusive Remedy

The ramifications of the act applying to Chinese Drywall are many:

1. The warranty period is “peremptive,” meaning that the warranty periods start at a certain time (delivery of the home) and end at a certain time, and is not suspended because the homeowner was without knowledge of the defect.

2. The owner is required to give the builder written notice, by registered or certified mail, of the defect and give the builder a reasonable opportunity to comply with the provisions of the Act.

3. The Act may completely exclude or significantly limit claims for health damages caused by the defects.

Issues in Determining whether NHWA applies

So, will the New Home Warranty Act apply to Chinese Drywall claims? Only time will tell.

The Act does exclude certain types of damages or “defects” from applicablity under the act, and Chinese Drywall may be excluded if it is considered (§9:3144(B)):

a) Dampness, condensation or other damage due to the failure of the owner to maintain adequate ventilation or drainage. This exception may apply if results from lab testing of the Chinese Drywall confirm that dampness or poor ventilation exasperate the problem with the imported drywall.

b) Any defect in, or any defect caused by, materials or work supplied by anyone other than the builder, or any employee, agent, or subcontractor of the builder. It will be interesting to see how this particular exclusion is interpreted as it applies to imported drywall.

c) Mold and mold damage. Of course, the Chinese Drywall contamination is not “mold,” but owners may attempt to argue that its effects fall under this exclusion of the Act.

Applicable builders will [and probably should] argue that the Act applies, and use the Act to limit its exposure. Louisiana judges will be called upon to determine whether any of the §9:3144(B) exclusions apply.