By JOEL BERG, a freelance journalist and college professor
The first jury award in a case involving defective Chinese-made drywall has observers asking a familiar question: Where will the money come from?
On June 18, a Miami jury awarded damages of nearly $2.5 million to homeowners Armin and Lisa Seifart. The couple argued that they had to tear down and rebuild their home due to problems caused by Chinese drywall, which is alleged to release toxic gases that corrode plumbing and wiring and cause health problems.
The material has sparked thousands of lawsuits in state and federal courts, especially in the Southeast. The region's housing boom and post-hurricane rebuilding sparked a domestic drywall shortage in the mid 2000s, and Chinese imports filled the gap.
The verdict's size could prompt insurers to fight harder against having to cover Chinese drywall claims, said Bob Horkovich, a shareholder in the New York City office of Anderson Kill & Olick and co-chair of the firm's insurance recovery group.
"It means that there is serious liability to the builders and the suppliers," said Horkovich, who is working to win payment from insurers in the case of homebuilder WCI Communities. After filing for bankruptcy, WCI established a special trust to help more than 700 homeowners harmed by Chinese drywall. The trust is fighting to secure payments from insurers.
In general, insurers have been citing pollution exclusions in homeowners' and general liability insurance policies to deny coverage for problems arising from Chinese drywall.
Some jurisdictions, including Florida, have tended to agree with insurers. Others, namely Louisiana, have not, Horkovich said.
"Louisiana has been very pro-policyholder," he said.
Overall, it's unclear how the pollution-exclusion issue will play out, said Collin J. Hite, a partner and co-leader of the insurance coverage practice at McGuireWoods, a law firm in Richmond, Va.
"I have a client right now that's in the same situation as all these other builders and developers, and I don't think there's probably any carrier out there that hasn't issued immediate reservation of rights letters with every possible way to get out of coverage," Hite said. "Is it an uphill battle? Yes. Is it insurmountable? No."
Even if insurers have to cover damages, policyholders are likely to hit their limits fairly quickly, said Randy Maniloff, a partner at White and Williams in Philadelphia. He represents insurance companies in coverage disputes.
The typical distributor carries limits of $1 million or $2 million, Maniloff said. Plaintiffs will have to look for deeper pockets.
"They're certainly not leaving any stones unturned in terms of finding additional defendants," Maniloff said. "The question is finding defendants with assets and insurance. Verdicts don't mean a lot if there's no money there."
The Miami jury held defendant Banner Supply Co. liable for negligence, private nuisance and unfair practices under state law. The biggest portion of the award, $1.7 million, covered "loss of enjoyment." Remediation costs were pegged at roughly $494,000, with temporary housing and moving expenses coming in at nearly $170,000.
Banner was deemed responsible for 55 percent of the damages, while the manufacturer, Knauf Plasterboard Tianjin Co., was found liable for 35 percent. Two other entities, La Suprema Enterprise and Rothchilt International Ltd., split the remaining 10 percent of liability.
June 28, 2010
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