The growing drywall crisis in the United States has significantly damaged homes and individual homeowners as well as companies' reputations, and with a mountain of pending litigation soon may be perceived as spiraling out of control. To assist organizations and individuals concerned and coping with this issue, our tainted drywall resource center contains a growing list of relevant information and related Marsh services.

Two converging events helped to create this crisis: the first, the nationwide housing boom which began in 2001 and continued well into 2007; and, the second, the very active hurricane seasons of 2004 and 2005, which saw seven major hurricanes make landfall in Florida and the Gulf Coast States resulting in destruction of thousands of homes and severe property damage. These two events combined to create an unanticipated demand for building materials, specifically drywall, that exceeded domestic supply.

From 2004 to 2008, the United States imported 4.34 billion square feet of drywall, of which 316 million square feet came from China. While a direct correlation between the quantity of drywall imported from China and the number of housing units where it may have been installed is extremely difficult to determine, the general consensus is that somewhere between 45,000 and 100,000 homes may have been affected.

An increasing number of tainted drywall complaints to state and federal agencies, as well as litigation by homeowners, have implicated drywall imported from China. Homeowners complain that the tainted drywall creates a potpourri of odors from "burnt matches" to "rotten egg-like" and that gases produced by the drywall corrode air conditioning and refrigeration coils, expedite deterioration of electrical wiring, and create an environment where extended exposure impacts the quality of life and raises concerns for potential adverse health effects. Early cost estimates suggest that repair and remediation of affected homes could exceed several billion dollars.

Plaintiffs' attorneys from across several states have filed individual lawsuits in state and federal courts and several multistate class action lawsuits. The lawsuits complain that the drywall imported from China contains abnormally high levels of sulfur and other organic and inorganic compounds and emits sulfide gases. The lawsuits name several Chinese drywall manufacturers as well as distributors, installers, and homebuilders. In June 2009, the federal cases were consolidated under a Multidistrict litigation (MDL) order and transferred to the Eastern District of Louisiana.

Both Houses of Congress and state legislatures have become involved in the issue. A variety of federal and state agencies are conducting investigations and coordinating activities. The U.S. Consumer Product Safety Commission has issued preliminary investigative reports on the cause and effect of the tainted drywall problem and continues to investigate the problem with a goal of developing standard testing and remediation protocols.

In addition, in July 2009, the IRS announced that homeowners may qualify for a casualty loss on their tax returns and property appraisers in some states are providing property tax relief. Both the U.S. Senate and House of Representatives have passed resolutions calling on lenders not to foreclose against owners of affected homes. Other efforts to pressure lenders to offer relief on mortgage payments, and for FEMA and the Small Business Administration to offer relief to homeowners, are still uncertain.

Insurance Coverage Issues
Due to the complexity of the insurance coverage issues, manufacturers, developers, contractors, and other parties faced with drywall-related claims may find difficulty in obtaining the full coverage that they expect. Without the insurance expertise and resources needed to obtain a complete understanding of the various policies under which a company may be insured, or the numerous coverage issues and their impact on coverage rights, many with applicable coverage may not receive the full, if any, benefit.

Many courts place the burden of proving the existence, terms, and conditions of relevant policies on the policyholder. Therefore, it is imperative for companies facing exposure to tainted drywall claims to quickly locate and analyze all potentially applicable insurance policies and determine the extent to which coverage is applicable. This includes policies issued to parties involved in the overall construction, which may provide coverage as an additional insured. As the case for coverage is prepared, companies must identify precedents that could impact recovery, anticipate insurers’ responses, and develop appropriate recovery strategies.

Marsh Services to Manage and Mitigate Tainted Drywall Issues
Resolving tainted drywall claims and related risk issues may cost affected companies millions of dollars. Drywall litigation will likely not only be an issue of claims defense or insurance recovery but also could affect a company’s day-to-day operations and reputation.

Leveraging benchmarking tools, technology, and industry expertise, Marsh's Construction and Risk Consulting practices can help with every aspect of managing the tainted drywall crisis. Marsh can provide a range of integrated services or services on an as-needed basis, depending on the extent of the claims being faced. Our experts can assist with regulatory issues, insurance recovery, dispute resolution, claims management, supplier verification and viability, as well as crisis management.

Marsh can support organizations facing trained drywall issues with:

• Regulatory compliance and product recall services
• Insurance policy reviews and identification of relevant coverage
• Crisis management services
• Measurement of economic claims and losses
• Scoping of necessary remediation and repairs
• Supply chain vulnerability and viability analyses

Given the pace at which tainted drywall lawsuits and regulatory action are progressing, affected organizations should seek to consider how this issue will impact their business as soon as possible.

We will continue to regularly update information about tainted drywall with input from subject matter experts across Marsh.

If you have any questions or concerns about this issue, please contact us at .

Contacts

Katherine A. Cahill
Global Product Risk Practice Leader, Marsh Risk Consulting
212-345-3036

Mark E. Reagan
Construction Practice Leader
Morristown, NJ
973-401-5335

Related Information

Web Site: Technical Symposium on Corrosive Drywall

Article: Industry Readies for Potential Tainted Drywall Fallout

Governmental, Industry, Association, and Other Relevant Tainted Drywall Links

Listen to a July 7, 2009 BestDay Insurance podcast featuring Marsh's Katherine Cahill on the drywall issue.

Learn about the tainted drywall issue and the solutions Marsh provides.

Read the press release about the establishment of Marsh's Tainted Drywall Response Team.

Read an article in the The Update about the Marsh team's visit to Capitol Hill to discuss drywall issues.

Conference on November 11, 2009: Chinese Drywall Litigation & Insurance Coverage Update (live webcast available)

Conference on June 26, 2010: Construction Financial Management Association Annual Conference