The Chinese Drywall saga and how it relates to builders shook up a bit in Virginia this week when the Chesapeake Board of Building Code Appeals ordered a developer to remove Chinese Drywall from a hotel that was days from opening.

While not an order from a Virginia court, the board’s action demonstrates that builders and developers may actually be committing code violations and breaching their duties to the construction project by installing Chinese Drywall – whether they’re aware of it, or not.

Aside from what this order says about builder exposure, what is perhaps more interesting here is that Chinese Drywall is still being used on construction projects in the U.S., as this project was just nearing completion.

Developer Dilip Patel said the order will delay the hotel’s opening by at least six months.

Here are some of the legal questions this situation will present for the parties:

• Whether or not there is a liquidated damages clause, is this excusable delay? Or will Patel be liable for delay damages?
• Is this going to be a change order, or will the developer be forced to swallow the added expense?
• If the drywall was given the time to cause damage, it’s possible that Patel would have a claim against his insurer. But what now? No damage, no claim?

The Virginia board’s order is going to delay this project for six months and certainly cost more than one hundred thousand dollars.

It’s an outstanding order made upon the developer to remove materials that [individually] showed zero problems. Indeed, the science is not yet clear about whether the drywall itself is always cause for concern, or whether only a segment of the imported drywall is problematic. The science is further lacking in attributing the initiating cause for contamination to the drywall itself, or some sort of interaction with the drywall and its surrounding climate.

As far as the science was concerned, the board’s chairman, Stephens Johnson, stated that he didn’t “think [the developer] gave us enough data or information to override the codes or our concern for public health.”

We don’t have the board’s proceedings here at the Chinese Drywall Blog, and don’t know exactly what science and evidence was considered. Nevertheless, the order is a stirring demonstration of how builders and developers are exposed to liability in the Chinese Drywall crisis.

Perhaps another call to individual land owners to seek remedy from their home builders, and not class actions?

For builders, let’s hope not. For homeowners…we’ll see.

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.