Dansaltman

Building firms are beginning to feel the pressure of homeowners making claims against them for the toxic Chinese drywall situation.  As is perfectly right, the first organization a homeowner turns to when they discover they have Chinese drywall is the builder who either built the house or did the renovation.

Homeowner insurance offers no protection in this instance because of the now infamous “pollution exclusion”  which allows insurers to shirk all responsibility for the claim.  Homeowners have no choice but to refer to the construction company to make good.  The exclusion is a pretty innocuous paragraph that in any other situation wouldn’t make the slightest difference to a homeowner.  It states “Pollutants are defined as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

In the case of this toxic drywall the words acid and fumes are the important ones here as they are right in the middle of the exclusion.  But, for most homeowner insurance there is an exception to this exclusion which relates to products or completed work of an insured.  So this means if a homeowner had bought the house after the work had been done to it, or is the second owner from new they may still have a claim.

This may be a consolation for a few homeowners, but it still leaves the majority out in the cold.

Many builders are also finding their own insurers are also denying any claims on the same exclusion or a Total Pollution Exclusion included in their general liability insurance.  This clause allows the insurer to deny any claims that relate to Chinese drywall.  There are several suits filed with insurers who have denied claims due to this exclusion, so case law may have something to say about it.  With the first cases being heard in early 2010, there will be no quick answers here.

These builders are going to have to fund the repairs to homes out of their own profits or pockets which is going to ruin many of them.  Not all construction companies are of the size or scope to be able to handle multiple claims for remediation, and even some of the larger ones are going to struggle.  Some Florida construction firms have said they believe they have up to four hundred homes to remedy.  This kind of cost is going to run into the millions.

While individual suits will be heard in local courts, anyone that joined the various class-actions, builders or homeowners will now have their case heard under a Federal class action being heard in New Orleans.  The various suits were consolidated into one Federal case in order to efficiently try them in the most cost effective madder possible.  The hearing date has yet to be announced but is believed to be sometime next year.

The legal battles will be ongoing long after most of the homes have been remedied.  There will inevitably be those that depend on the suit in order to be able to afford to have their home repaired, of to afford to be able to repair them.

Committee on Energy and Commerce Chairman John Dingell (D-MI) and Subcommittee on Oversight and Investigations Chairman Bart Stupak (D-MI) presented a report on the safety of Chinese imported food, entitled "Food From China: Can We Import Safely?" The report was the result of a two-week China trip in August by staffers that involved extensive interviews with Chinese officials as well as multinational business executives and reporters from major media outlets that work in China and Hong Kong.

The delegation also tried to report on Chinese toy imports in response to the recent wave of toy recalls involving Chinese-made toys. Attempts to inspect plants and speak with workers were denied by Mattel and one of their Hong Kong-based contractors, Early Light.

Dingell summed up the report in a press release from the Committee on Energy and Commerce: "These findings are first-hand confirmation that food from China presents a clear and present danger to Americans under the current conditions of import. The report makes it clear that significant responsibility rests with unscrupulous importers in this country and a regulatory system that has broken under the weight of the ever increasing imports." He went on to say that the Committee intends to provide the FDA with better resources to deal with "this public health threat."

Stupak went so far as to criticize the Administration and the FDA who "have refused to admit our food import inspection system is broken and incapable of protecting American consumers from potentially deadly imports." He continued by pointing out that Japan tests and sample 15 times the number of shipments that the US currently does. Stupak said that the US should be able to do at least that increased number of inspections.

The report mentions that problems in the quality of Chinese foodstuffs is due to many reasons, but most importantly, that the Chinese farms are no longer collectives, but instead very small family farms. With the threat of economic ruin riding on a single crop or a single season, Chinese farmers are more inclined to use pesticides and other harmful chemicals to ensure as a large as crop as possible. Furthermore, the report cites issues with imports circumventing inspection by coming into ports that do not have FDA testing facilties.

Dingell and Stupak have recently introduced legislation to the House that would significantly improve the United State's system for ensuring the safety of imported food and drugs. The Food and Drug Safety Act of 2007 would increase funds generated from importation that would in turn be used to hire additional personnel to inspect both here at the borders and abroad at FDA labs. Funds would also be used to research new testing and sampling techniques.

Stupak also announced that the Subcommittee on Oversight and Investigations would continue this series of hearings on the issue of import safety. Hearings on domestic food and safety have been going on since April and the spinach scare. The Subcommittee will hear testimony from officials from the FDA and the Food Safety and Inspection Service of the US Department of Agriculture.

Source: Committee on Energy and Commerce

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