Chinese Drywall Litigation Heats Up

Miami, FLHaving recently lost a Chinese drywall lawsuit, Banner Supply Company is now facing a class action lawsuit, which will attempt to include all Florida homeowners who bought drywall from the distributor. The class action alleges that Banner knew the drywall was defective in 2006 and was negligent in not warning consumers.

Meanwhile, homeowners with defective drywall are also concerned that their home insurance policy may not cover Chinese drywall. LawyersandSettlements recently reported on the decision by Judge Robert Doumar, in the federal court in Norfolk, VA (Travco Insurance Co. v. Ward).

However, there may be good news for homeowners.

Louisiana Governor Bobby Jindal signed legislation barring insurers from ending homeowners' insurance coverage if a policyholder files a claim based on tainted Chinese drywall. In late 2009, Louisiana Insurance Commissioner Jim Donelon said if the policyholder has been with the insurer for more than three years, the state's insurers will not be able to cancel policies related to tainted drywall manufactured overseas. The state's last resort insurer, Louisiana Citizens Property Insurance Corp., now has a "bare bones" policy to meet the requirements of lenders when a homeowner needs to vacate a house.

On the federal level, experts predict that a bill known as the Foreign Manufacturer Legal Accountability Act will likely be passed in the next month or so. Developed in response to the public outcry that resulted when consumers found out that the Chinese manufacturers could not be held accountable under US law for the defective products, the law would allow Americans to sue foreign consumer-product makers in US courts.

The Act will require foreign manufacturers of "covered products" to designate a registered US agent to receive service of process on behalf of the company. This basically means that foreign manufacturers can be sued in the United States for any civil action related to those covered products. The law would also prohibit any person from importing covered products from manufacturers who do not have registered agents in the US.

Possibly more good news for homeowners: lawyers are currently trying to set some rules in Chinese drywall settlements. According to court papers filed in New Orleans, Knauf Plasterboard Tianjin Co. Ltd. (KPT) and builders could unfairly use settlements to get homeowners to unwittingly waive their legal rights or to agree to inadequate remediation. The lawyers want US District Judge Eldon Fallon, who has ruled in favor of homeowners in two early test cases, to require greater disclosure by KPT and builders—including settlement details and prior court decisions—in any communications with homeowners.

Judge Fallon ordered KPT and another manufacturer to remediate those homes by gutting and rebuilding their interiors. But attorneys contend that disclosure is needed because the settlement attempts are intended to bypass the judge's rulings and undermine the judge's rulings as the basis for a national remediation standard. Manufacturers are appealing, but KPT is beginning to seeking settlements with builders who used its drywall.