Chinese Drywall Study Finds No Solid Link To Health Damage, Fed Agency Says

Studies are ongoing as the government tries to get to the bottom of a problem that has–according to Michael McGeehin, director, Division of Environmental Hazards & Health Effects, National Center for Environmental Health, Centers for Disease Control and Prevention–caused dry cough, eye irritation, sore throat and asthma exacerbation. He called the issue a "very perplexing problem."

While federal agency representatives said "all options are on the table" with respect to a response, they noted that actions such as a recall could require legal action, and the government wants to make sure it has proper scientific justification for such a measure.

Studies will continue and more results are expected next month.

From an insurance standpoint, a representative from Citizens Property Insurance Corporation, the state-created insurer of last resort in Florida, said 24 claims related to Chinese drywall have been individually inspected, and none have resulted in payment.

John Kuczwanski, public information manager for Citizens, said an exclusion for builder's defects and a pollution exclusion are standard for most homeowners policies. The report from the government stating nothing conclusive at this point further substantiates denials for Chinese drywall claims, he added.

Michael Barry, spokesperson for the Insurance Information Institute, confirmed that for homeowners, the policies generally exclude losses that would be associated with Chinese drywall. He said it is considered defective work or inadequate construction materials.

Homeowners could go back to the builder for recourse, and the builder would likely turn to the manufacturer, he said.

Lennar Corporation, a home building company headquartered in Miami, stated in its most recent 10-Q SEC filing, "As of Aug. 31, 2009, the Company identified approximately 500 homes delivered in Florida primarily during its 2006 and 2007 fiscal years that are confirmed to have defective Chinese drywall and resulting damage."

The company said it has accrued $54.5 million of warranty reserves, which include amounts related to homes identified as having defective Chinese drywall as well as an estimate for homes not yet inspected that may contain Chinese drywall.

Indicating that commercial insurers could see claims related to Chinese drywall, Lennar said in the filing, "The Company has a $33.6 million receivable for covered damages under its insurance coverage relative to the cost it expects to incur in remedying the homes confirmed and estimated to have defective Chinese drywall and resulting damage."

Lennar listed its insurers as one party from which it will seek reimbursement.

David Golden, director of commercial lines for the Property Casualty Insurers Association of America, speaking to the scope of this issue for insurers and answering the dreaded question of whether it could be the "next asbestos," said Chinese drywall is a "limited universe."

He explained, "You're talking primarily about three years of construction, heavily concentrated in fairly few states." He cited Florida, Louisiana and to a lesser extent Virginia as the areas that are seeing the highest concentration.

Mr. Golden also pointed to a "small reference" that CPSC made about identifying hundreds of thousands of sheets of drywall in storage. If many sheets are still in storage, he said, it could reduce the number of affected homes, as estimates are based on the number of sheets believed to have been imported and used.

"It's not the next asbestos," Mr. Golden said. "The next asbestos is always asbestos."

Looking to possible future exposures, while the federal agency representatives said during their press conference that there has not been a ban on the import of Chinese drywall, it is not being used in current construction projects.

Mr. Golden explained that the original motivation for using Chinese drywall was due to a shortage of domestic drywall because of a building boom and reconstruction efforts in the wake of active hurricane seasons in 2004 and 2005. "All of a sudden you had an actual shortage of drywall," he said.

It then became economically feasible to import drywall all the way from China, he said. Today, he noted, "you have a building industry that is markedly reduced in terms of the number of buildings going up, and also we haven't had the storm damage the last year or so. There is no shortage of drywall."

Ultimately, for insurers, it will take time to get all of the facts and get answers, Mr. Golden said. "The commercial insurers, at least liability insurers, are going to have to deal with these claims as they come up," he said, noting that it is still very early in the litigation cycle for Chinese drywall issues. "It will be a number of years" before litigation around the issue sorts itself out, he said.

For homeowners, it is also a waiting game. "You're suddenly dealing with what amounts to a mystery," Mr. Golden said. There are reports of odors and adverse physical symptoms, he said, and there seems to be a correlation to Chinese drywall. But he noted there are no answers yet, and people should not jump to conclusions.

He said at some point during the summer, published reports came out that there were a couple of fires in homes with Chinese drywall, and news accounts made it seem as if the Chinese drywall caused the fires. But further investigation revealed the causes of the fires had nothing to do with the drywall.

The scientific research to determine if it is a problem with the drywall itself, or the drywall in combination with other factors, will take some time, Mr. Golden said.