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Posts tagged Products Liability.

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.

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.

Back on April 14th I blogged about the creation and anticipated operation of the Virginia Defective Drywall Correction and Restoration Assistance Fund (the "DDCRAF") via two new provisions to the Code of Virginia patroned by Delegate Oder this session.  If you read that posting you'll recall that the purpose of the DDCRAF is to create a perpetual, non-reverting fund to facilitate the remediation of property impacted by the use of "Defective Drywall" in residential construction, and I promised to find out whether funding was lined up for the DDCRAF yet.  Delegate Oder's office has been very responsive and helpful in explaining how they envision funding to come through for the DDCRAF.

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.

torn umbrellaAs reported yesterday by Virginia Lawyer's Weekly, a Virginia federal judge has ruled that a builder who remediated 70 homes constructed with Chinese drywall was not entitled to insurance recovery of the remediation costs.  This case is a painful reminder of how even positive, proactive business decisions can translate to tremendous liability risks, particular where interpretation of contracts and insurance occurs under Virginia law.

Modular home beforeModular home construction presents significant potential improvements to home construction: significantly reduced construction time; less material waste; and reduced expense.  If not handled appropriately in terms of contracts and risk, modular homes can translate to a gigantic headache for both the designers, contractors, and the owner.

Last Thursday, Lisa Rein of the Washington Post wrote an article on mansions turning to modular construction to reduce time and costs.  The article caught my eye - while I have noticed this trend over the last 5 years or so, it was the first time I saw local mainstream press pick up on this.  My friend Jamie Baker Roskie at the always interesting Land Use Prof Blog picked up on the article and connected the thread towards local codes discouraging use of shipping containers as building materials.

As we watch Chinese drywall litigation erupt nationally, we see the rapid fallout: insurance companies denying coverage; suppliers going bankrupt; homeowners filing suit against all the parties in the food chain.  We have seen this story before.  In Virginia, the applicable could translate to some very harsh results even if owner plaintiffs can prove the drywall was defective and caused damages.

Why is that?  We have learned that Virginia requires a contract to recover "economic losses".  We have also discussed that this requirement extends to products liability cases for recovery of "consequential damages" despite a statute in the Uniform Commercial Code that appears to eliminate lack of privity as a defense.  We now need to see how these definitions play out in actual context.

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.