State and Federal Officials Study Chinese Drywall
As Florida and other states sought to rebuild after the 2004 and 2005 hurricanes, building materials were at a premium. Unfortunately, homeowners are now finding that certain drywall imported from China and used in building or repairing homes is toxic and is believed to be causing a variety of problem ranging from corrosion of pipes to inhibiting resales.
The scope of the contaminated Chinese drywall problem has prompted responses from various levels of government. Senator Bill Nelson recently sent letters to the ten largest insurers in Florida, as well as one additional insurer believed to be nonrenewing policies on homes that contain contaminated Chinese drywall. Senator Nelson asked the insurers to explain their position on both claims and coverage relating to contaminated Chinese drywall.
Sean Shaw, Florida’s Insurance Consumer Advocate, followed with a letter sent to Florida’s six largest insurers. The Consumer Advocate’s letter likewise asked about the insurers’ practices relating to Chinese drywall. He further inquired whether the insurers intend to nonrenew policies on homes that contain Chinese drywall and whether the insurers have any position regarding the effect of contaminated Chinese drywall on property or health concerns.
Obviously, any insurance claim would need to be evaluated in light of its specific facts. However, as a general matter, most standard homeowners insurance policies exclude damage to property caused by the discharge, dispersal or release of pollutants unless caused by a specific named peril. Pollutants for purposes of a standard homeowners policy are defined broadly to include vapors, fumes, acids, alkalis and other chemicals.
The standard homeowners insurance policy also does not cover property damage caused by faulty, inadequate or defective repair, construction, renovation or remodeling, nor does it cover faulty or defective materials used on construction or repair. In sum, the standard homeowners policy is not designed to provide coverage for the quality of work or materials used in constructing or repairing the home. The policy therefore typically will not cover tearing out and replacing drywall solely on the basis that the drywall is found to be contaminated Chinese drywall.
Although generally not covered under homeowners policies, governmental solutions to this issue might be made available. A representative of the United States Department of Housing and Urban Development recently toured Florida and visited homes with contaminated Chinese drywall. The HUD official is quoted as saying that once the government “knows the science” behind the Chinese drywall problem, it will be able to offer grant money to homeowners. Programs involving grants and/or low-interest loans reportedly are under consideration.
The press to “know the science” behind the contaminated Chinese drywall issue left some observers disappointed in the report released by the United States Consumer Product and Safety Commission at the end of October (executive summary attached). The CPSC found elevated levels of certain chemicals in the contaminated Chinese drywall, but stopped short of saying that the chemicals would cause damage to property or health concerns as has been reported. The report essentially deferred any findings until at least the end of November, when additional results are scheduled to be released. The CPSC also has an ongoing study designed to evaluate the longer term corrosive effects of contaminated Chinese drywall, but that study is not scheduled to be completed until June 2010.
In the meantime, Florida officials and private parties seem to be making greater headway in addressing the source of the contamination. At an early November conference, these parties discussed that the source of the problem may be elemental sulfur in the drywall, which reacts with carbon monoxide present in the ambient air. Despite the CPSC’s deferral of any findings relating to the cause-and-effect relationship for corrosion of pipes, wires and other metals found in homes, the Florida officials and private contractors believe the relationship exists.
In Florida, state officials may consider addressing the concern prospectively by modifying the Florida Building Code. The state also is reviewing issues such as how to dispose of the contaminated drywall, while another state agency is evaluating the resources that may be available on the state level to provide grants to homeowners.
The personal residential insurance market has only a small role in the contaminated Chinese drywall issue because the homeowners policy is not designed to cover poor construction or defective materials. However, the issue has broader public policy implications that will continued to be studied at the state and federal levels.