By now, most of us have heard something about Chinese drywall.It's one of those buzz topics repeatedly swirling in the news. Ifyou live in an area with homes containing the defective product --or if you are unfortunate enough to be living in one of these homes-- then you are already pretty knowledgeable about the issue.

As evident by the name, Chinese drywall refers to thatmanufactured in China and then shipped here. This drywall was firstbrought to the United States around 2004 and continued to be usedin construction until 2009. These dates vary, and some havereported that the drywall was imported as early as 2001. Thedrywall was introduced as a less expensive and more easilyavailable alternative to the gypsum board or sheetrock alreadybeing used. Some estimates indicate that as many as 100,000 homesin 37 states may be affected. According to the Consumer ProductSafety Commission (CPSC), 7 million sheets of Chinese drywall wereimported, presumably enough to have been incorporated in theconstruction of tens of thousands of homes.

The Origin of Toxicity

There are many theories as to why the drywall is toxic and whyit was ever allowed to enter the country (and somehow pass our ownsafety tests) in the first place. Some studies show that theproblem could stem from using mined gypsum during the manufacturingprocess instead of synthetic gypsum, while other studies allegethat it contains bacteria possibly from the water source used.There are also those that point to the analytical testing, whichmight have produced inconsistent results because of the randomsampling taken. Whatever the reason, the drywall is causingconsiderable damage to the homes and buildings in which it ispresent.

The Centers for Disease Control and Prevention (CDC) and theAgency for Toxic Substances and Disease Registry (ATSDR) have beenworking since the spring of 2009 to support the CPSC in learningmore about Chinese drywall and its potential health risks.Residents from 37 states have lodged about 3,250 complaints withthe CPSC alleging adverse health symptoms related to the corrosionof metal components in their homes from Chinese drywall.

The CPSC issued an update on April 27, 2010, stating that theinvestigation is ongoing to continue to validate home remediationand explore long-term corrosion effects. To date, the CPSC hasspent more than $5 million to investigate the chemical nature andthe chain of commerce of problem drywall.

"Our investigations now show a clear path forward," advised InezM. Tenenbaum, CPSC chairman. "We have shared with affected familiesthat hydrogen sulfide is causing the corrosion. Based on thescientific work to date, removing the problem drywall is the bestsolution currently available to homeowners. Our scientificinvestigation now provides a strong foundation for Congress as theyconsider their policy options and explore relief for affectedhomeowners."

This interim remediation protocol has been released before allongoing scientific studies are completed so that homeowners canbegin remediating their houses. CPSC will continue to release itsstudies as they are completed. It's possible that we could besubjected to a similar scenario when products brought into thiscountry are toxic and may cause damages that are not only costlybut also potentially detrimental to our health. The disturbingquestion is who will pay for all of these costly damages?

There are six Chinese drywall manufacturers responsible for thealleged tainted products. Five of the companies are owned by theChinese government and have not responded to the U.S. litigationprocess. One such company is Knauf Plasterboard Tianjin Col Ltd.(KPT), a German manufacturer with Chinese drywall subsidiaries.Representing Knauf is Donald Hayden of the Miami, Fla. firm ofBaker & McKenzie. I spoke with Mr. Hayden after the Hernandeztrial, which is considered to be the "bellwether" case, but priorto Judge Fallon's ruling. Judge Fallon stated that "the time for adecision is now; the effects of the drywall are going to get worsethe longer it stays in homes."

Mr. Hayden says this is about damages and does not agree withthe extensive amount of replacement being called for in homes. Healso does not think that damages should include others notspecifically of the structure. Mr. Hayden believes that KnaufPlasterboard manufactured only about 20 percent of the taintedproducts. The company is still in business and is still makingdrywall. Since speaking with Mr. Hayden, Judge Fallon ruled thatthe Hernandez family were entitled to $164,000 plus attorney fees,which equals to $81.00 a square foot. This amount was substantiallymore than Mr. Hayden had anticipated.

New Orleans Federal Judge Eldon Fallon awarded seven Virginiafamilies $2.6 million in damages. The case was tried by defaultagainst the defendants. The defendant Taishan neither responded norappeared for the trial. While this is a very significant verdict,it remains to be seen how the plaintiffs will go about recoveringthe money.

Even more disturbing is the fact that those responsible formanufacturing the defective product are not answering to ourcourts. U.S. Congressman Charlie Melancon (D-LA) is co-sponsor oflegislation that would hold foreign manufacturers accountable forselling defective and dangerous products like Chinese drywall inthe U.S. The Foreign Manufactures' Legal Accountability Act(H.R. 4678) would help protect American consumers fromdefective products manufactured in other countries. It wouldrequire that other countries importing products to the U.S.register an agent who would then be required to answer on theirbehalf in a court of law.

Previously, homeowners' insurance companies have denied thedamage claims caused by Chinese drywall. In general, the denial ofthese claims has been based on the standard pollution exclusion inhomeowners' policies. It is only recently that a New Orleans ParishJudge ruled the "pollution or contamination" exclusion does notapply to Chinese drywall because it was intended to apply to"environmental damage" instead of damage from substandard buildingmaterials. Judge Medley also ruled that the exclusion for "latentdefects" was meant to protect insurers from wear and tear orgradual deterioration and thus not what is occurring with theChinese drywall. He also ruled that the "faulty, inadequate ordefective planning" exclusion does not apply because the drywallstill functions as drywall.

The claims made to the builders and construction companies andpresented to their own insurers are being denied. Many of thecompanies involved are now bankrupt or could face bankruptcy in theface of having to pay the seemingly insurmountable damage claims.At a time when our builders and construction companies are alreadyfacing tough economic times, this has only compounded theirfinancial burdens.

For homeowners, this nightmare is far from over. Now it is"hurry up and wait" to find out when they may be paid and by whom.Several states are taking actions to do what they can to protectpolicyholders from nonrenewal, cancellation, or increasing premiumsbecause of the presence of Chinese drywall in their homes. InLouisiana, bills are being introduced as protective measures, andin Florida there are measures to protect policyholders, as well asseek some type of mortgage relief. Florida Governor Charlie Cristeven reached out to FEMA for assistance. I spoke with MississippiInsurance Commissioner Mike Chaney, who advised that they arecurrently out of session. However, he did advise that they aretaking measures to issue a bulletin or regulations that wouldprevent insurers from nonrenewal or cancelling existing policiesbecause of Chinese drywall. Chaney stated that he was dedicated todoing what he could to assist with the problem in his state.

This is (and will continue to be) a lengthy process as thesecases move forward. We need to take a look at the issues involvedfrom all possible perspectives. "It is one thing to theoreticallyanalyze a case but there's nothing like putting it before a court,"Judge Fallon told the court. "I think after you do that, both sidesneed to take a look at this matter and see whether you've learnedenough from this experience to take a global look at theproblem."