By now, most of us have heard something about Chinese drywall. It's one of those buzz topics repeatedly swirling in the news. If you 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 that manufactured in China and then shipped here. This drywall was first brought to the United States around 2004 and continued to be used in construction until 2009. These dates vary, and some have reported that the drywall was imported as early as 2001. The drywall was introduced as a less expensive and more easily available alternative to the gypsum board or sheetrock already being used. Some estimates indicate that as many as 100,000 homes in 37 states may be affected. According to the Consumer Product Safety Commission (CPSC), 7 million sheets of Chinese drywall were imported, presumably enough to have been incorporated in the construction of tens of thousands of homes.

The Origin of Toxicity

There are many theories as to why the drywall is toxic and why it was ever allowed to enter the country (and somehow pass our own safety tests) in the first place. Some studies show that the problem could stem from using mined gypsum during the manufacturing process instead of synthetic gypsum, while other studies allege that it contains bacteria possibly from the water source used. There are also those that point to the analytical testing, which might have produced inconsistent results because of the random sampling taken. Whatever the reason, the drywall is causing considerable damage to the homes and buildings in which it is present.

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

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

"Our investigations now show a clear path forward," advised Inez M. Tenenbaum, CPSC chairman. "We have shared with affected families that hydrogen sulfide is causing the corrosion. Based on the scientific work to date, removing the problem drywall is the best solution currently available to homeowners. Our scientific investigation now provides a strong foundation for Congress as they consider their policy options and explore relief for affected homeowners."

This interim remediation protocol has been released before all ongoing scientific studies are completed so that homeowners can begin remediating their houses. CPSC will continue to release its studies as they are completed. It's possible that we could be subjected to a similar scenario when products brought into this country are toxic and may cause damages that are not only costly but also potentially detrimental to our health. The disturbing question is who will pay for all of these costly damages?

There are six Chinese drywall manufacturers responsible for the alleged tainted products. Five of the companies are owned by the Chinese government and have not responded to the U.S. litigation process. 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 of Baker & McKenzie. I spoke with Mr. Hayden after the Hernandez trial, which is considered to be the "bellwether" case, but prior to Judge Fallon's ruling. Judge Fallon stated that "the time for a decision is now; the effects of the drywall are going to get worse the longer it stays in homes."

Mr. Hayden says this is about damages and does not agree with the extensive amount of replacement being called for in homes. He also does not think that damages should include others not specifically of the structure. Mr. Hayden believes that Knauf Plasterboard manufactured only about 20 percent of the tainted products. The company is still in business and is still making drywall. Since speaking with Mr. Hayden, Judge Fallon ruled that the Hernandez family were entitled to $164,000 plus attorney fees, which equals to $81.00 a square foot. This amount was substantially more than Mr. Hayden had anticipated.

New Orleans Federal Judge Eldon Fallon awarded seven Virginia families $2.6 million in damages. The case was tried by default against the defendants. The defendant Taishan neither responded nor appeared for the trial. While this is a very significant verdict, it remains to be seen how the plaintiffs will go about recovering the money.

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

Previously, homeowners' insurance companies have denied the damage claims caused by Chinese drywall. In general, the denial of these claims has been based on the standard pollution exclusion in homeowners' policies. It is only recently that a New Orleans Parish Judge ruled the "pollution or contamination" exclusion does not apply to Chinese drywall because it was intended to apply to "environmental damage" instead of damage from substandard building materials. Judge Medley also ruled that the exclusion for "latent defects" was meant to protect insurers from wear and tear or gradual deterioration and thus not what is occurring with the Chinese drywall. He also ruled that the "faulty, inadequate or defective planning" exclusion does not apply because the drywall still functions as drywall.

The claims made to the builders and construction companies and presented to their own insurers are being denied. Many of the companies involved are now bankrupt or could face bankruptcy in the face of having to pay the seemingly insurmountable damage claims. At a time when our builders and construction companies are already facing tough economic times, this has only compounded their financial 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 protect policyholders from nonrenewal, cancellation, or increasing premiums because of the presence of Chinese drywall in their homes. In Louisiana, bills are being introduced as protective measures, and in Florida there are measures to protect policyholders, as well as seek some type of mortgage relief. Florida Governor Charlie Crist even reached out to FEMA for assistance. I spoke with Mississippi Insurance Commissioner Mike Chaney, who advised that they are currently out of session. However, he did advise that they are taking measures to issue a bulletin or regulations that would prevent insurers from nonrenewal or cancelling existing policies because of Chinese drywall. Chaney stated that he was dedicated to doing what he could to assist with the problem in his state.

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

Special Reports /

Chinese Drywall...Where Are We Now?

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