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Fallon Ruling and Governmental Action Show Promise in Chinese Drywall Lawsuits

The enormous need to rebuild houses after Hurricane Katrina and the end of the housing boom caused American homebuilders and companies to search for cheaper alternative materials to build houses with. The simplest and cheapest solution to this problem for these homeowners was to purchase imported drywall from China. That plan seemed great at the time, until homeowners complained about headaches and respiratory problems along with corroded electrical wiring, appliance outages, rotting walls and damage to personal belongings. An estimated 4,000 to 7,000 Louisiana households have been affected by this problem; however, only 800 Louisiana residents have reported these problems to the Louisiana Recovery Authority. Overall, 3,700 individuals across the nation have reported problems to the CPSC. Many residents are facing large medical and rebuilding fees and are not sure what to do.

Chinese drywall contains significantly higher levels of strontium and sulfur compared to most drywall manufactured in America. It was commonly used as a cheap substitute to American drywall for builders looking to cut costs and expenses. The corrosive problems that have been associated with Chinese drywall are fairly new. American researchers have been conducting several scientific studies for the past year to try and isolate the problem, and finally released the results of that study on April 2nd for Congressional officials and for civil litigation purposes. However, the problems for homeowners who have Chinese drywall in their house go much deeper than that. Those that have filed insurance claims have almost all been denied based on policy exclusions for latent defects or pollution in materials. Other homeowners who have chosen to go the legal route have been told that the 1996 tort reform legislation will likely prevent them from making a full financial recovery because the manufacturers of the defective goods are overseas.

Before 1996, a consumer in Louisiana could pursue a claim against a company and receive full compensation of damage from that company, even if the company was only liable for a small portion of the consumer’s injuries. Applying the old Louisiana law to the situation here, a homeowner who was affected by the Chinese drywall situation would sue the party that installed their drywall. That party, in turn, would then sue companies up the chain until the biggest pockets were reached.

Then, in 1996 the Louisiana Legislature passed one of the nation’s most aggressive tort reform acts in an attempt to improve Louisiana’s business climate as promised by newly elected Governor Mike Foster. The new system of tort reform was a very pro-defendant, pro-corporate change in the law and only forced defendants to pay damages for the portion of fault that was assigned to them. That is exactly where the problem lies with the current Chinese drywall fiasco.

Under the law today, if a homeowner decides to sue the builder of his/her house who used the defective material and a court determines that the manufacturers are responsible for 90 percent, the American companies are only liable to pay 10 percent of the damages award. The other 90 percent would have to come from the Chinese company. However, American courts do not have the jurisdiction to force those companies to attend trial or pay damages allotted to them. Thus, you may ask, what are homeowners in Louisiana and across the nation to do?

Some lawyers have decided to pursue claims against the homebuilders who have chosen to substitute American drywall for the cheaper substitute through the Louisiana New Home Warranty Act; others have decided to file suits against the suppliers who handled the drywall, hoping to get a high percentage of contributory damages awarded against the supplier and not the manufacturer.

The best chance for victims in Louisiana to be compensated may be under a state law that allows victims to take “direct action” against the insurers of these companies that harmed them. This appears to be the only legal way homeowners can force the insurers to take some responsibility, and might even cause these companies to seek damages up the line like the pre-1996 days. This tactic turned out great for New Orleans attorneys in 1997 when they pursued claims against insurers when the Chinese-owned Brightfield ship slammed into the Riverwalk.

Currently, Congress is considering a law that would require foreign companies to participate in litigation if they sell products in the United States. That law is pending still and is not something Louisiana residents can rely on for immediate assistance and relief. The fact that these manufacturers are outside the realm of U.S. product liability law poses a minor problem. However, attorneys for some homeowners in Louisiana and around the nation are finally breaking through and have found some success.

This past Friday, April 9th, U.S. District Court Judge Eldon Fallon of the Eastern District of Louisiana ordered a Chinese manufacturer to pay seven Virginia families a total of $2.6 million for damages to their homes attributed to drywall problems. This was the first judicial ruling on a Chinese drywall case and is very important for future litigation because the Judge ordered that homeowners be made completely whole for the damages resulting from the defective drywall. Judge Fallon specifically stated that this included repairs to wiring, heating and air conditioning, floors, closets, kitchen cabinets and other fixtures ruined by the drywall.

This decision is great news to thousands of homeowners around the country, as it offers them some peace of mind while they await help from the CPSC, Congress, and other creative solutions from their attorneys. Should you believe you have Chinese drywall in your home, contact an attorney immediately.