Virginia Lawyers Weekly

Plywood back in the 1990s. Artificial stucco earlier this decade. And now smelly Chinese drywall is the latest faulty building material to prompt angry and worried homeowners to sue builders, contractors…anyone they can.

Litigation over allegedly contaminated Chinese-made drywall is hitting the courthouses of Hampton Roads, the first ripples of what may be a wave of claims. Attorneys say the field is “uncharted territory,” with unanswered questions about the extent of the problem, the source of defective wallboard and whether insurance companies will have to cover the damages.

A Virginia Beach couple is suing the builder of their home, claiming defective wallboard injured their children and damaged mechanical equipment in the home.

One lawyer is investigating a possible class action suit, saying there are hundreds of homes in Hampton Roads that are affected. Norfolk attorney Richard J. Serpe has launched a Web site at www.thechinesedrywalllawyer.com.

Anticipating “imminent” lawsuits, the insurance company for one major homebuilder in Virginia Beach has asked a judge to declare that its policy does not cover tainted drywall claims.

The problem apparently began with a shortage of U.S.-made drywall during the housing boom in 2004-2007. Builders imported millions of pounds of drywall from China, some of it with contaminated gypsum, according to lawsuits filed in Florida, where drywall litigation already is flourishing.
Engineering reports showed some Chinese drywall panels emitted sulphuric gasses that corrode copper coils and wiring. In some cases, the homes smell like rotten eggs due to the sulphur fumes. People have reported ailments including bloody noses and allergy symptoms.

Serpe said he’s learned that some of the tainted drywall may have been produced by a company owned by the Chinese government. “Information is unfolding and developing on a daily basis,” he said. “There are a lot of hard questions that need to be answered.”

Virginia Beach lawyer William A. Lascara was one of the first to the courthouse with a suit by homeowners. Lascara sued on behalf of podiatrist Benjamin Proto and his wife, Holly. The suit names the Protos’ homebuilder, a materials supplier, an installer and the couple’s homeowner’s insurance company, MetLife.

The suit in Virginia Beach Circuit Court seeks $600,000 and an order for medical monitoring. It also alleges MetLife wrongfully denied coverage under the couple’s homeowner’s policy.

The Protos are worried about their two children, ages 3 years and 8 months, according to Lascara. He says the children have been treated for respiratory problems.

Moreover, Lascara said, the family home is at risk. “It is a significant investment this young family has made,” Lascara said. “Not only is he looking at protection of his family, he’s got a substantial amount of his future invested in that home.”

Lascara acknowledges he is a pioneer in bringing what appears to be the first Chinese drywall damages claim in Virginia. “We talked with all of the players – the contractors, their subs, their insurance companies,” he said. “We’re kind of at the beginning of this. This is uncharted territory for a lot of them. That is causing it to move more slowly than we would like it to.”

The insurance issue is a major question mark for the drywall claims, because – like the homeowners facing denial under their home insurance policies – the defendants are getting denials of their liability coverage due to the so-called “pollution exclusion.”

The insurance companies argue gas leaking from wallboard is pollution and point to their insurance contracts that expressly exclude coverage for pollution damage.

One home builder’s insurance company already has put that issue before U.S. District Judge Rebecca Beach Smith in a declaratory judgment action. Builders Mutual Insurance Co. asks the judge to declare it does not owe coverage to Dragas Management Corp., a homebuilder facing numerous drywall claims.

According to the suit, Dragas has been “negotiating and resolving property damage claims in connection with Chinese Drywall.” One such claim has been settled, according to the suit.

“In addition, lawsuits against Dragas arising out of the use of Chinese Drywall in Dragas-built homes appear imminent,” the suit states.

Dragas appears to be taking a proactive approach to the issue, inspecting homes and making offers for repairs to buyers whose homes are affected. Lascara said he helped one of those Dragas homebuyers.

“Dragas came in and said, ‘We’ve identified a problem – the Chinese drywall is in your home. Here’s what we’re willing to do.’ They listed a scope of work. I went through that agreement with my client and tried to improve it a bit,” Lascara said.

Lascara explained that, under the Dragas agreement, the homeowner gives up any property damage claim against Dragas in exchange for the promise to pay for repairs.

“When you have a builder stepping up, and there’s a question whether that builder has insurance, it makes a lot of sense to say, ‘Yeah, I’ll let you fix my house,’” Lascara said.

McLean attorney Danny Howell, who filed the Builders Mutual lawsuit against Dragas, made it clear that the insurance company has no quarrel with the way Dragas is working with its customers. “The declaratory judgment suit in no way faults anything Dragas has done in response to the situation,” Howell said.

Building materials dealer Venture Supply Inc., which was named in the Protos’ lawsuit, has issued a notice to its customers, explaining that it imported drywall from a Chinese manufacturer around March 2006 because of a shortage of domestic wallboard.

Venture’s attorney, Mark C. Nanavati of Midlothian, said the company has hired engineers to “assist it with an appropriate response.” Nanavati also noted that Venture has received a reservation of rights notice from its insurer.

“We really are in the preliminary phases of this. I think everybody’s in the same boat to some extent – we’re trying to get a handle on whether it’s the same issue as in Florida and how do we respond,” Nanavati said.

A hearing on a motion to consolidate all federal drywall lawsuits in one court for coordinated pretrial litigation is scheduled for May 27 in Washington. The notice for the hearing before the U.S. Judicial Panel on Multidistrict Litigation lists 10 federal lawsuits nationwide, most in Florida.

The contaminated wallboard situation poses the prospect of big damages awards on both the property damage and personal injury fronts. Home repairs require nearly gutting the structure in some cases, removing not just all the interior walls and ceilings, but all the wiring and mechanical equipment.

Then there’s the human factor. “There’s a great deal of fear when you’ve been exposed to an environment that corrodes copper and tarnishes silver,” Lascara said.

“Families are going crazy,” said Serpe. “They’re worried. Many families have moved out. They can’t pay the mortgage; now they’re facing foreclosure or personal bankruptcy because of the situation.”

To make matters worse, there may be those who would take advantage of people’s apprehension. In Florida, the state attorney general has issued a warning about scam artists preying on the fearful by selling bogus tests and phony cures.

The warning advises homeowners to beware of people selling expensive “test kits” or home inspections by unqualified “experts” to check for contaminated drywall. The statement also explains that sprays, applications, and ozone generators will not cure any drywall problems and might make a bad situation worse.

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