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A Florida court ruling could further relieve home builders of some liability in the ongoing dispute over the use of Chinese drywall, potentially limiting how much they have to pay homeowners complaining the defective product has driven down home values and caused health problems.
In the decision, issued March 18 and made public Wednesday, Judge Glenn Kelley of the 15th Judicial Circuit in Palm Beach County, Fla., said that builders and installers can only be held liable for "negligence" in these cases if they had actual or implied notice of a defect in the Chinese manufactured drywall at the time of construction. Plaintiffs cannot argue that builders should have known about the defect or tested the product.
While the decision applies to just one county, the builders hope it will be adopted by other state and federal courts hearing the same issues.
The ruling follows a similar decision from the same judge last November. That ruling decided that, because home builders didn't manufacture the problematic drywall and weren't within the chain of distribution, they couldn't be held "strictly liable" for the alleged defects.
"This ruling is another important step toward clarifying the extent of exposure homebuilders face with regards to Chinese drywall," said Stacy Bercun Bohm, a partner with law firm Akerman Senterfitt, which represents several builders dealing with the faulty drywall issue. "There is little evidence that many builders or installers had any knowledge--actual or implied--about problems with Chinese manufactured drywall until they were notified of such issues by the plaintiffs themselves--years after construction was completed."
Judge Kelley declined to comment. It is unclear if an appeal is planned.
The underlying case, which was brought by Florida homeowner Marlene Bennett against Florida-based Centerline Homes Inc. and later consolidated to include similar complaints, aimed to pin more responsibility on the builders for installing the faulty materials, and sought multiple damages including economic losses for declines in home values and personal losses based on the alleged nuisance caused by fumes emitted from the drywall.
Centerline Homes didn't return a request for comment.
During the housing boom, drywall, which is gypsum pressed between paper and used in walls and ceilings, was imported from China to fill a domestic shortage. A growing number of homeowners--there have been more than 3,810 reports in 42 states and other areas--complain that it generates sulfurous odors and corrosion that tarnishes metals and causes appliances such as air conditioners to fail. The government recommends consumers remove any possibly faulty drywall.
Although no study has yet linked the drywall to specific health problems, homeowners have complained of respiratory issues and headaches. An April 2010 report from the Consumer Product Safety Commission identified five brands of Chinese-made "problem drywall" and said that some Chinese-made samples emitted hydrogen sulfide at a rate 100 times greater than non-Chinese drywall boards.
Earlier this month, the CPSC said faulty drywall did not pose a safety hazard to home electrical systems and affected homeowners no longer had to remove electrical wiring.
For several years, builders have feared expensive lawsuits and court settlements over a product largely purchased and installed by subcontractors. Some have even paid to fix the homes themselves.
Lennar Corp.(LEN), one of the biggest builders in Florida, set aside $80.7 million to cover drywall claims from nearly 900 homeowners. While it has received some payments from insurers and other parties, it seeks additional reimbursements from subcontractors and insurers, according to a securities filing.
While several court settlements and decisions have been reached, the role and responsibilities of home-building companies related to drywall remain unclear. Last year, Knauf Plasterboard Tianjin drywall, one of the biggest suppliers of the problematic wallboard, along with suppliers and commercial liability insurers, agreed to remove and replace the company's drywall, as well as all electrical wiring, gas tubing and appliances, at 300 homes in four states.
-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; email@example.com