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.

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?

Across the county, each state has some type of statute or jurisprudential rule stating that every party to a dispute is burdened with the duty to “mitigate its losses.”   In addition to the legal requirements, this duty shows up contractually as well, and most famously in insurance contracts.

Here is what the Louisiana Civil Code says about mitigation in article 2002:

An obligee must make reasonable efforts to mitigate the damage caused by the obligor’s failure to perform.  When an obligee fails to make these efforts, the obligor may demand that the damages be accordingly reduced.

Earlier this week, we discussed whether builders were getting a “free pass” on the Chinese Drywall defect claims since most affected homeowners have thus far sought remedies through class-action litigation.   In essence, we were alluding to a question clearly posed by Donald Brenner at the Construction Litigation Law Blog:  How does a class action suit help me get the defective material out of my home?

Insofar as the Duty to Mitigate is concerned, how builders, suppliers and homeowners act now is important to how they will remedy this situation.

Sooner or later, insurance companies are going to get involved with these claims, and individual actions are going to be filed against builders and suppliers.   When this happens, there will be questions of whether each party has fulfilled their duty to mitigate.

Here are some example issues:

•  If the imported drywall causes health problems, and a builder / supplier knows it installed the drywall in certain homes.  Do they have a duty to notify the homeowner of the danger, to avoid the homeowner from getting sick or sicker?

•  If defective drywall has ruined approximately 10% of electrical wiring and 25% of the building studs as of today, who is liable for additional damage if the drywall stays in the home is allowed to continue damaging building elements?  In 2 years, if 75% of electrical wiring and 75% of building studs are ruined, is it the homeowners fault for not fixing the drywall problem when it arose?

•  Under the same scenario, will a homeowner be responsible for increased damage if they fail to report the problem to their builder to allow the builder to fix it at that time?

Contact A Construction Litigator

As Mr. Brenner discusses on the Construction Litigation Law Blog, class action suits may not help homeowners for years….or ever.   The simple phone call to a class-action attorney puts your name on their list, but those class action attorneys will not work to get your home repaired in the immediate future…and its likely that they will not help you take precautions as per your duty to mitigate.

Homeowners and condominium associations, contact your builder and exercise your rights under warranty and redhibitation laws while you still have time.

Builders and contractors, investigate your duties under warranty and defective construction laws, contact your insurer, and consider making claims against your suppliers and installers.

All in all, contact an experienced construction litigation attorney to get advice on how to deal with this volatile issue.

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…