By Tom Hagy, HB Litigation Conferences
Based on attendance and buzz at recent legal education programs, mass tort, construction defect and, of course, insurance attorneys will be busy for some time litigating causation and culpability surrounding alleged claims of both property damage and personal injury from Chinese-made dry wall.
In one June 2 teleconference, sponsored by our company, HB Litigation Conferences, we presented five attorney speakers. The plaintiff attorneys were Ervin A. Gonzalez of Colson Hicks of Florida, Arnold Levin of Levin Fishbein in Philadelphia, and Richard S. Lewis of Hausfeld LLP in Washington, DC, who moderated as well. John F. Mullen Sr. and Robert Stickley of Nelson Levine in Pennsylvania offered defense insights.
(Note: The recording and materials from this and other Chinese Drywall programs are now available from HB. Visit our Mass Torts Store: click here. And we just announced it: we’re holding a half-day seminar in San Francisco on July 29, 2009: click here.)
Lewis kicked off the program by noting that 600 million pounds of Chinese-made drywall can be found in at least 60,000 homes in the U.S. today. Sixty percent of the product came through Florida. Damage-wise, he cited problems like corrosion and blackening of building materials, like copper surfaces on A/C coils, pipes, and electrical fixtures. Mullen said the problem expands by another 100,000 structures when you add in materials that are re-used or recycled and when you count commercial buildings. Since high temperatures and humidity trigger the problems, he said there could be a lag in claims arising from homes in the northern U.S. where heat and humidity are not as intense and constant as along the Gulf Coast.
Levin added other damaged items to the list, such as kitchen appliances, fire alarm systems, jewelry and artwork. Stickley even mentioned litigation around fire alarm systems that have failed. Lewis said property damage is complicated by the possibility that the drywall has contaminated other parts of homes, such as cabinets, studs, flooring, concrete and furniture. Chinese-made drywall may even have contaminated other, U.S.-made drywall, he said. Lewis said there is a debate over whether to remove all wiring in a home, or just the damaged portions. He said damage to other property will be raised, listing things like computers and televisions. These factors complicate the issue of remediation and exactly what is meant by “complete replacement,” he said.
Mullen added that claims of lost property values will be inevitable as buyers become more aware of problems, and as information is disclosed about the presence of Chinese-made drywall in homes on the market.
Gonzalez said this is a type of defect not seen before, given the level of impact it has on homeowners and the building industry, which itself is particularly hard hit by the economy. He called for a measured approach to the litigation to “minimize the impact on those least culpable” and pursue those most responsible.
Lewis said that unlike litigation surrounding lead and asbestos, the science is “literally brand new” on drywall. Don’t expect much to show up on literature searches. “There is no textbook where this is laid out,” Lewis said.
Medical monitoring will be a source of disagreement between plaintiffs and defendants. Lewis said plaintiffs will assert these claims to determine whether people are being exposed to noxious emissions and whether they develop ear, nose and throat symptoms, allergic-type reactions and whether symptoms go away when people leave the property for an extended period. He expressed concern about children who seem particularly affected, but said the symptoms are seen in people of all ages.
Mullen called out other long-term claims that may arise around issues with pregnancy. He said other potential causes of symptoms need to be ruled out, however, nothing that causation will be a key battle in this litigation. Because of the nature of the product, its use and the distance it had to travel, the potential defendants starts to expand beyond manufacturers and builders, to anyone along the distribution chain, he said.
Levin disagreed with comments opposing medical monitoring at this time because of what he called “the vast unknown” surrounding the health effects of contaminated dry wall. “If we knew everything, we wouldn’t need medical monitoring,” he said, adding it will be necessary to determine precisely what ailments are connected. A health fund, like that established in the Three Mile Island litigation, in which Levin participated, is what he will pursue in Chinese drywall litigation.
Stickley said insurers obviously will be implicated in the litigation, and anticipates disputes over trigger of coverage and the number of occurrences. Gonzalez said carriers have already raised the pollution and finished-products exclusions. Many commentators don’t believe these will hold up he said and there will be “substantial insurance proceeds” pursued.
Gonzalez dug in to the potential defendants, starting with a primer on how the product is made. Gypsum is mined from a quarry, heated to dry, then rehydrated to form a slurry, a paste that is then sandwiched between materials. The mining process raises questions as to whether the contaminants are natural or whether pollutants migrated from, say, a nearby farm where pesticides were used. The ingredients are supposed to be inert, he said, but there is a high level of active ingredients that, when hit with water or humidity, release sulfur gas.
“So manufacturers are on the front line,” he said, naming Knauf companies, which are German-based with subsidiaries in China. Knauf Plasterboard Tianjin Co. Ltd. and Knauf Tianjin have been sued. Taishan Gypsum, a China company, is another defendant.
Other potential defendants listed on the call included builders, developers, subcontractors, shipping companies, importers, distributors, architects, directors & officers, and others – with a great deal of liability shifting expected.
Suits & Service
Types of claims raised or anticipated include strict liability, negligence, nuisance, extension of privity through warranty, medical monitoring, and requests for injunctive relief. Gonzalez said most states are still following the Restatement of Torts, while others are looking at the Third Restatement which, he said, requires analysis of a safer product.
The international aspect of this litigation further complicates matters, especially in dealing with companies based in China and Germany. Levin noted the high cost of simply serving these foreign defendants, saying it cost his firm $15,000 to serve a complaint, a process that took weeks. He warned anyone serving a defendant in China NOT to make reference to the Republic of China or Taiwan. Simply state that the defendant is a “foreign corporation,” otherwise the ministry there will not accept service – the government only recognizes one China. Mullen questioned whether non-U.S. insurers also will be brought in as claims are filed.
Science & Health
Stickley, noting the lack of science on the personal injury side, anticipates significant Daubert debates. Lewis said Daubert won’t be a factor in the property claims, given the clear definitions of property damage. Mullen asked whether some builders may have jumped the gun and performed removals too fast, and whether they had liability releases in place.
Gonzalez ran through a list of potential expert witnesses that may be needed in this litigation: engineers, chemists, general contractors, industrial hygienists, toxicologists, pulmonologist, ear-nose-and-throat experts, and allergists. Mullen added economists, epidemiologists, architects, and neurologists. Lewis said it will be important to look at potentially confounding causes of symptoms.