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Chinese Drywall and the Survival of the Fittest Insurance Company

10/19/2015 | Construction Blog, Real Estate Blog

Pennsylvania may not have felt the truly disastrous effects of the Chinese drywall debacle as badly as other states. Our state had reported just more than a dozen incidents as of March 2014, while more than 2,000 Florida property owners had reported issues with the product by then. Still, we noted an appellate decision — in Florida — that illustrates a point about insurance and construction material defects that could easily hold true in any zip code.

First, a little background. In the wake of the 2005 hurricane season, property owners set about rebuilding. With building materials in high demand, hundreds of millions of sheets of drywall manufactured by a handful of companies in China found their way into the supply chain. In short order, homeowners and tenants began to notice the smell of sulfur in their newly remodeled or freshly constructed building. People developed health problems, and they noticed, too, that electrical wiring and air conditioning coils were corroding.

All clues led back to the drywall. Higher than normal concentrations of sulfur had caused the odor, and the fumes had corroded certain metals. Insurance claims and litigation ensued — so much, in fact, that information¬†popped up all over the Internet, including on the Centers for Disease Control and Prevention and the Consumer Product Safety Commission websites.

Reports and complaints actually date back to 2001, but the majority were received between 2004 and 2006. The most recent came in 2009. The litigation has dragged on for years. The companies involved have been found in contempt of court numerous times for failing to appear at hearings, failing to abide by court-imposed filing deadlines — you name it, these cases have stalled because of it, even when attorneys general were the plaintiffs.

For property owners, then, the only sure source of relief was insurance . Homeowners policies cover things like construction defects and building materials defects, right?

Well, yes and no.

We’ll explain in our next post.

Source: Westlaw Daily Insurance Briefing, “Chinese drywall an ‘excluded peril’ under all-risk policy, Florida panel says (Fla.App. 2 Dist.),” Sept. 29, 2015