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This blog focuses on real estate, land use and construction-related topics affecting Virginia and the Washington, D.C. metro area. With topics ranging from contract drafting and negotiation to local and regional land use project updates, the attorneys at Bean, Kinney & Korman provide timely insight and commentary on the issues affecting owners, builders, developers, contractors, subcontractors and other players in the industry. If you are interested in having us cover a specific topic, please let us know.

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Posts tagged Chinese Drywall.

WhatA Virginia federal court has ruled that by proactively replacing defective drywall rather than waiting to get sued and found liable, a contractor was left without liability insurance coverage. This decision should send shivers down the spine of not just contractors, but also owners and developers.

The builder, Dragas Management, built 70 houses in the Tidewater Virginia area with Chinese drywall. After it received multiple reports of health symptoms and property damages, Dragas filed claims on multiple liability and umbrella insurance policies. It also stated in writing to the carriers that it was planning on beginning a remediation protocol and forwarded the same to the carriers. Four home owners filed suit against Dragas and later voluntarily dismissed the cases based on the remediation protocol.

Frequent readers will know that we have talked about Chinese drywall litigation and issues quite a bit here.  One of the ugliest cases was a builder who proactively repaired drywall issues having its initial complaint against its insurers who did not provide a defense thrown out on motion to dismiss.  The court originally found that the complaint failed to state a claim because the builder had not been sued and in essence the builder voluntarily made repair efforts in violation of the insurance policies.

Happily for Dragas, the court gave it leave to amend and it did so, alleging more facts regarding the threats of claims by home owners.  Dragas' claim has now officially survived a motion to dismiss.  While this is far from a victory, it does provide a bit of comfort to builders that they are not simply stuck with no path forward for coverage unless sued. 

Common sense and good policy certainly suggest that builders should be encouraged to solve problems rather than let them fester and worsen in the hope that they eventually get sued and an insurance policy is triggered.  Virginia law, however, is driven by contract and statutory interpretation rather than equitable consideration of good policy by courts.  Insurance coverage on construction projects is highly complex and poorly understood.  Look forward to us engaging in further discussion of this important issue moving forward.

Newspaper and teaThere is big news in the world of Chinese drywall litigation.  First, various news sources including the Miami Herald reported a $2.5 million jury verdict on behalf of a homeowner couple against Banner Supply, the supplier of the drywall.  The verdict is reported to include not just loss of use of the home and repair costs, but also stigma damages for loss of value to the property.  The jury may have become inflamed by the supply company's actions after having been informed of complaints.  According to CBS4 in Miami:

According to documents entered into evidence, when Banner Supply notified its Chinese supplier about the complaints, the supplier replaced the distributor's inventory of Chinese-made drywall with American-made drywall. In return, Banner Supply allegedly signed a confidentiality agreement not to say anything about it to the government or its customers.

We've got two new provisions to the Code of Virginia as of this last legislative session which create a perpetual, non-reverting fund to facilitate the remediation of property impacted by the use of "Defective Drywall" in residential construction.  This fund will be administered by the Virginia Resources Authority and the Department of Housing and Community Development ("DHCD"). 

Hale Boggs Federal BuildingI spent this weekend thinking about the significant victory for Virginia home owners in the Chinese drywall litigation that was tried as part of the pending class action in New Orleans.  It may have mattered quite a bit that this ruling was issued in New Orleans as opposed to Virginia. 

I run the risk of delving into legal complexity, but it is necessary here to understand these issues.  We have talked about the economic loss rule several times here, in particular as it relates to products liability cases, and implications of classifying damages in such cases.  Those interested in design and construction issues in Virginia absolutely need to understand the economic loss rule.  The contours of this rule define who can whom and for what.  This rule is heavily briefed, argued, and litigated and can mean the difference between a big payday and a big goose egg.

Pile of moneyAs reported today by Virginia Lawyer's Weekly, seven Virginia families were awarded $2.6 million in damages by New Orleans federal Judge Eldon Fallon.  The whopping verdict allowed recovery of extensive damages, but denied recovery due to loss of value stigma damages to the homes in question.  In addition the opinion contains a number of interesting points and wrinkles that are worth highlighting.

The Island of Misfit ToysWe have seen waves of claimed problems with construction products over the last several decades: PVC plumbing fixtures and materials; fire retardant treated (FRT) plywood; exterior insulation and finish systems (EIFS).  We are on the front edge of another eruption with Chinese drywall, and indeed we have heard the first rumblings that the drywall problems may extended to materials manufactured in the United States.  It seems like the construction industry has become the Land of Misfit Toys from my favorite old school TV special, Rudolph the Red-Nosed Reindeer.  

 

Beat Up Chuck TaylorsLast week we discussed the first Chinese drywall case going to trial in January involves Virginia plaintiffs.  We have two interesting reports that may constitute both shoes dropping at once.

First, Engineering News Record reported on November 25, 2009 that a federal study, "found 'a strong association' between imported wallboard made in China and metal corrosion in U.S. homes in which the drywall has been installed." (subscription required).  These tests results appear consistent with prior testing finding the presence of corrosive chemicals in the Chinese drywall.  Other experts claim that the chemical levels are too low to cause injuries.  The Proskauer Rose firm has analyzed the federal testing results released by the U.S. Consumer Products Safety Commission (USCPSC) and found that, "Indoor testing ... detected little or no indications of various sulfur compounds[.]"(free sign-up required)

The first trial in the infamous Chinese drywall litigation will apparently involve seven Virginia homeowners.  The first case is currently set for a bench trial on January 25, 2010. 

We have written several times regarding the Chinese drywall litigation, including several months ago in Mid Atlantic Construction.  While Virginia plaintiffs will apparently occupy the first position on the trial docket, our area in Northern Virginia has thus far been very quiet to silent on this front.  The Tidewater area has been a little different as a supplier there sold a fairly significant quantity of the drywall that was used locally.