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Toxic Drywall Claims Could Be Next Large Wave Of Construction Litigation


     By Fulcrum Inquiry Damages, Appraisal, Accounting & Economics Expert Witnesses

PhoneCall David Nolte at (213) 787-4100


Expert Witness: Fulcrum Inquiry
The newest phase of “sick house” litigation appears to be here. Drywall imported from China is releasing sulfur compounds that provide a rotten egg smell, and causes corrosion to copper used in plumbing and air conditioning tubing, electrical wiring, bathroom and kitchen faucets, appliances, and other metal products. Health hazards are also being alleged. We provide background and analysis.
The newest phase of “sick house” litigation appears to be here. Drywall imported from China is releasing sulfur compounds that provide a rotten egg smell, and causes corrosion to copper used in plumbing and air conditioning tubing, electrical wiring, bathroom and kitchen faucets, appliances, and other metal products. Health hazards are also being alleged, including irritated eyes, nose bleeds, coughing, sneezing, difficulty breathing, and symptoms similar to bronchitis and asthma.

Drywall, also known as wallboard or plasterboard, generally comes in 4 foot by 8 foot flat boards. It is used to create interior walls. Drywall is typically made from gypsum, a chalk-like mineral, which is sandwiched between thick cardboard on the two outer surfaces. During the 2004-2007 housing boom and rebuilding efforts following Hurricanes Rita, Katrina and Wilma, there were North American raw material shortages of drywall. These shortages were addressed with imports from China, where drywall was abundant and cheap. According to shipping records reviewed by the Associated Press, imports of Chinese drywall exceeded 500 million pounds during a four-year period. This is enough to build 100, 000 average-size homes. Since some of this drywall product was used for renovations, the number of homes affected is believed to far exceed 100,000.

Innocence of the problem is not normally a defense to breach of contract or warranty claims, leaving numerous home sellers, contractors, and distributors potentially liable. Insurance carriers may try to rely on broadly written pollution exclusions in their policies to deny coverage to their insureds for these issues.

Testing by government officials continues, but the leading candidate for the problem is fly ash residue, a waste material captured from the chimneys of coal-fired power plants. At the federal level, the Consumer Product Safety Commission (CPSC), the Environmental Protection Agency (EPA), and the Department of Health and Human Services (HHS) are investigating this matter. Senators Landrieu, and Bill Nelson, D-Fla., last month filed legislation that would (i) provide an interim ban on imports until the federal government can review (and probably modify) federal drywall safety standards, and (ii) direct the CPSC to work with federal testing labs and the EPA to determine the level of hazard posed by certain chemicals in the existing drywall. Congressman Robert Wexler (D-FL) introduced an identical bill in the House of Representatives, which has been co-sponsored by Representatives from multiple states.

This is likely a national problem that is well beyond Florida’s borders

So far, most of the drywall complaints have come from southern states, where a warm, humid climate encourages the emission of sulfur fumes. Tests conducted by the Florida health department found that samples of Chinese drywall contained (i) higher levels of sulfuric and organic compounds than an American-made sample, (ii) higher levels of hydrogen sulfide, carbonyl sulfide, and carbon disulfide than the American drywall, and (ii) traces of strontium sulfide, while the American sample had no such chemical. All of these compounds are potentially toxic, and carbon disulfide in liquid form is extremely flammable. The U.S. Center for Disease Control says prolonged exposure to the compounds found in the Chinese drywall, especially high levels of carbon disulfide, can affect the nervous system, and can cause breathing problems, chest pains, and even death.

According to the CPSC, most of the complaints have come from Florida, which received 60 percent of the imported Chinese drywall since 2006. Outside of the Florida ports, other major ports receiving this imported material include Long Beach, Oakland, and Seattle on the U.S. west coast.
Consumers from Louisiana, Virginia, Wisconsin, Ohio, Alabama, Mississippi, California, Washington, Wyoming, Arizona, Tennessee and Washington D.C. have filed complaints with the CPSC. Drywall problems have also been reported in several other states, including Maryland, Georgia, North and South Carolina, Texas, New Jersey, Colorado, Nevada, and New Mexico.

America's Watchdog, a private, for profit entity that acts as a consultant to law firms in class-action suits claims to have located Chinese drywall in California, Arizona, Ohio, Texas, Louisiana, Nevada,
North Carolina, South Carolina, Georgia, Mississippi, and Virginia. In the Western region, this
group says it has discovered Chinese drywall in homes built between 2003 and 2007 throughout
Arizona and California, specifically in Phoenix, Tucson, Riverside County, Fresno, Stockton, Sacramento, and extreme northern California. However the claims in the west have not yet been as numerous as in Florida, primarily because theses sulfur-based chemical reactions are accelerated with higher moisture levels. According to the Homeowners Consumer Center:

"We always expected to find very heavy concentrations of the Chinese drywall in California, Arizona, Las Vegas, the Pacific Northwest and the Mountain West, because most of the product was shipped through the ports of Long Beach, Oakland, and/or Seattle/Tacoma."

Developers identified as possible users of this drywall include Lennar, Aubuchon, Centerline, Engel, Meritage, Ryland, Standard Pacific, Taylor Morrison, and Tousa and WCI Communities.

U.S. drywall manufacturers will also face scrutiny

Although the Chinese are currently receiving all the blame for the defective drywall, U.S.-manufactured drywall might have similar issues. In the U.S. more than 60 million tons of fly ash are generated from power plants each year. Approximately two-thirds of this fly ash is disposed in landfills, but the other one-third is used as recycled or “green” products. About 20% of recycled fly ash is used as a concrete ingredient, with the remaining 80% or approximate 16 million tons annually used as filler for U.S. manufactured drywall.

According to Ecology Action, a nonprofit environmental consultancy that delivers education services, technical assistance, and program implementation for environmental quality initiatives:

“Drywall is a benign substance (basically paper-covered calcium sulfate,) but it has significant environmental impacts because it is used on a vast scale; domestic construction uses 30 billion square feet per year. The primary environmental impacts of gypsum are habitat disruption from mining, energy use and associated emissions in processing and shipment, and solid waste from its disposal. Using 'synthetic' or recycled gypsum board significantly reduces several of these impacts. Synthetic gypsum, which accounts for 20% of U.S. raw gypsum use, is made from the by-product of manufacturing and energy-generating processes, primarily from desulfurization of coal power plant exhaust gases. More than 80% of coal fly ash sold in the U.S. is used in gypsum board.

The process of “scrubbing” the smokestack emissions creates calcium sulfate, or gypsum, which can then be used to make drywall. In the U.S., according to the U.S. Gypsum Association, American manufacturers gather the gypsum from the smokestack process after the scrubbing, which produces a cleaner product, and is believed to be safe. But in China, the suspicion is fly ash may have been obtained earlier in the process, thus creating a product with additional chemical components.

Financial and quantitative considerations

Damage calculations for these alleged injuries are not conceptually different than what occurs in mold cases, environmental contamination cases, or other personal injury cases. However, diminished earning capacity calculations are obviously more challenging when involving a minor plaintiff who has not had an established earnings record. Insufficient study has occurred to understand whether there is a demonstratable long-term injury that persists beyond when the toxic substance(s) are removed. The existence or lack of long-term damage is the key variable which will cause damages to be large or modest.

In many construction defect cases, destructive testing for the defect is limited because of the desire to minimize disruption to the residence. In these cases, it is not always feasible to obtain a random and sufficiently large sample upon which conclusions can be based. These restrictions should not exist in the drywall cases because samples can be obtained with relatively slight disruption to the residence. Accordingly, we anticipate greater use of statistically-based samples to determine the extent of alleged problems.

ABOUT THE AUTHOR: David Nolte
Mr. Nolte has 30 years experience in financial and economic consulting. He has served as an expert witness in over 100 trials. He has also regularly served as an arbitrator. Mr. Nolte has achieved the following credentials: CPA, MBA, CMA and ASA.

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While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.
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