Hurricane Season & Chinese Drywall

In his decision on the Chinese Drywall Class action suit, Judge Fallon refers to the deteriorated electrical systems as “Corrosion on active residential wiring is a violation of National Safety code as well as the safety and building codes of the various states.” (page 37-38). So, here is the technical question of the day. Sure, insurers have ducked the issue of whether Chinese Drywall is a covered peril for purposes of insurance. In other words, just because you have Chinese Drywall in your house it is not defacto a reason that your insurance will pay a claim to remove it.

But, how about in the instance of another claim against your insurance? For example what is gong to happen when there is a flood? The contractor removes a piece of drywall and there on the back is “Made in China”. Now the problem gets more interesting. There may not even be anything in the building code that says that upon finding Chinese Drywall in a house that you must rip it out. But, if a contractor finds Chinese Drywall, and if he knows or should know that Chinese Drywall causes corrosion of electrical wiring and components and if leaving this corrosion is a code violation – then what?

There are a couple of examples in the insurance industry of similar situations. It is illegal to use asbestos in building products in your home. Yet, many homes were built before the hazards of asbestos were realized. It is not illegal to leave that asbestos alone and in place in your house. (It should be encapsulated if possible and should be left undisturbed so that it dose not turn into easily inhalable dust). And there is no claim against your insurance if you find that you have asbestos in your house. However, if there is an insurable loss, say a fire or flood, and the asbestos becomes friable (that is easy to inhale), or if the materials that contain asbestos, such as floor tile, siding or roof shingles, are damaged by the event and need to be replaced, then your insurance will pay to remove the asbestos under the most stringent of federal guidelines. Not to do so would be a violation of Federal and State safety and building codes and could be a huge liability if it is left in place.

The same thing is true for lead. It may be a little different situation for mold but that is another story.

So, if you have Chinese Drywall in your house and you suffer an insurable loss, and as a result of your insurable loss the Chinese Drywall is discovered and is damaged and therefore needs to be replaced, now the situation becomes similar in a lot of respects to Asbestos and Lead. The contractor should know that there are likely code violations to the electrical system which will need to be addressed. And looking at Judge Fallons opinion, his solution is to remove all of the drywall and all of the electrical system in the house. So, unless you have had your insurance canceled already, or unless your carrier has sent a policy revision that excludes Chinese Drywall and any results of the presence of Chinese Drywall, it looks like there might be a covered claim against your homeowners insurance.

But, not so fast, in the case of Asbestos or Lead, there are a couple of significant differences. Just the presence of Asbestos or Lead does not cause other building components to fail. And that is what is happening with Chinese Drywall. It is the effects of the chemicals in the drywall that are creating the corrosive atmosphere. That may be a little different. For example, if you knew that you had Chinese Drywall and knew that you were creating a corrosive atmosphere and yet did nothing to resolve the issue there could be areas where your insurace would not address the resulting damage.

But, if you were unaware of the presence of CDW or if you removed the CDW and didn’t get it all and it was only when the contractor found the problem as a result of a separate insured loss, I see it as being pretty comparable. So, it would be worth while pursuing.

Don’t think that the carriers are going to roll over easily on this. A very minimal loss could turn into a huge deal. Judge Fallon is figuring $84.oo a sf to remediate CDW and his protocol is to remove all drywall in a suspect house or structure. Carriers will most likely fight that tooth and nail.

Also, contractors are going to have to be knowledgeable about what is going on and what the possible liabilities  are for themselves as well as the home owners. Which really brings us to today’s topic. Chinese Drywall and the upcoming Hurricane Season.

Sooner or later a large storm is going to hit Florida. There will be lots of wet walls that need to be torn out. Lots of Chinese Drywall will be uncovered. We need to be prepared.  Homeowners, condo owners, property managers etc need to be aware of the ideas outlined above.

Contractors need to be aware of the need to identify the presence of Chinese Drywall in structures where they work. If they don’t note the CDW and just cover up walls etc., leaving corroded wires in place the liability from a future electrical failure or  fire fire may well rest in part with them.  Inspection for CDW needs to be part of any evaluation of any insurance claim. The presence of CDW needs to be noted and reported at once to the homeowner and insurance adjuster. The possibilities of code violations and safety issues needs to be transmitted to everyone clearly and effectively. A clear remediation protocol based upon Judge Fallon or CPSP/EPA needs to be suggested. If not I fear that the contractor will be at fault.

After a major disaster such as a hurricane it is sometimes weeks or months before an owner even sees an adjuster. It is sometimes years before a claim is finally settled. The more complex the claim, the longer it generally takes. And claims such as these are going to be complicated. Get ready for the long haul.

Here is where the analogy with mold comes in to play. Even if mold is excluded from a policy, there may be instances where if the carrier is so slow in responding as to be considered negligent, and a s a result wet building materials become moldy, then there may be so me coverage afforded to the homeowner.

The similarity is that even if there is no sign of damages being caused by Chinese Drywall right after a loss, if it is a hurricane situation and the property is wet and without power in a hot climate the actions caused by the CDW can be accelerated. That could start the dace between the homeowner and insurance carrier all over again. The carrier blaming the owner for not acting quickly enough to resolve the problem and the home owner feeling like they were at the mercy of the insurance carrier because there is not a specific way to deal with these situations.

Overall, everyone better be ready when the wind blows and the rains come because this is going to turn into a real mess unless someone gets the process into high gear and comes up with some guidelines.

Consumer Product Safety Commission report on Chinese Drywall

Over the past few days a lot has been made of the Consumer Product Safety Commission (CPSC) report on Chinese Drywall (CDW). What it boils down to is this. If you know that you have CDW, take it out. And while you’re at it, take out all electrical wires, fire and smoke detection equipment, fire sprinklers and any other life safety issues.

The report shows studies that indicate an overall average of 30 times more sulfur compounds being detected  in CDW samples than with domestic drywall.

The report leaves as inconclusive whether there is any basis for bacterial contamination. The CPSC report refers specifically to the Sabre labs report mentioned in a previous blog post. The Sabre report showed extremely high concentrations of bacteria. The CPSP report leaves the bacteria issue as inconclusive.

One of the things that the report is thin on is  what to do about any non Chinese Drywall that may be present.  The report essentially says that you can leave any non Chinese Drywall in place, but it is at your own risk. The CPSC report does not address how to deal with the electric, fire safety, smoke detectors etc. that are wired behind the saved drywall.

Another point the CPSC report does not address AC coils or plumbing pipes because these items are not considered life safety threats.

Overall, the CPSC report is a big step forward, but it is a preliminary report and it leaves a lot of questions unanswered for later.

For now, it looks like the best protocol is complete removal of all drywall and associated wiring, plumbing and HVAC.

I wouldn’t discount the Sabre  study findings on Bacteria at this point.  I would plan on using anti microbials of some sort on the remaining structure.

One thing that I agree with The CPSP report on is: Know your contractor and try to understand all of the implications of what you are going to do if you are planning to remediate a CDW house. Nothing could be worse than spending all of your resources on remediation and then finding out that something was missed. Chances are you won’t get a second chance.

Tax Breaks

Rob Wittman, a Virginia Congressman, is doing what he can to help consumers who have been affected byChinese drywall. He recently filed a bill that would help these homeowners get some tax relief. If the bill is passed, it will allow homeowners to deduct the costs of not only getting rid of the problem, but also the expenses associated with finding another place to live.

If this were to pass it would be great news. the cost of remediation borne by the homeowner would go down dramatically. I doubt that it would go away completely since most people don’t pay enough in taxes to offset the cost of total remediation. But boy what a great start.

Talk about economic stimulus! A ll the taxes rebated would go directly into the hardest hit sector of the economy – construction. And of course, the contractors who receive the money would be responsible for paying taxes and so would their suppliers and their workers.  It could also shorten or eliminate a lot of the ongoing litigation and serve to keep insurance rates down.

This is the type of bootstrap program that makes sense for average Americans saddled with a problem that no one anticipated.

Here’s hoping that this is some light at the end of the tunnel.

Chinese Drywall – hidden winners

Help for homeowners with Chinese Drywall (CDW) does not seem to be coming fast enough. And where there has been help such as local property tax breaks, the amounts are minimal compared to the cost of removal.  And yet there are some people out there who are betting that they can benefit from the Chinese Drywall situation.

Investors are no longer waiting on the sidelines. They are lining up when subdivisions with Chinese Drywall are identified. At this point it looks like the investors are primarily looking at vacant new construction properties owned by distressed builders or banks who have foreclosed on the properties. Bought cheaply enough these houses can be completely gutted to the bare walls and put back with new HVAC, plumbing, electrical and finishes. Then with the curse of Chinese Drywall hopefully removed the remediated houses can be resold for a substantial profit.

Are there downsides and risks associated with this process. Yes, there sure are. There is no agreed protocol for removing CDW. Done wrong the house can revert back to it’s distressed stage and begin to smell like rotten eggs again. In some cases the whole process of discoloration, pitting and deterioration of finishes, wires and HVAC can come back. No matter how profitable the project looks, there is no way to remediate it twice and still make money. Not only that, but if the problem returns after the property is sold to a new owner and the new owner has received full disclosure about the remediation, there are a whole new bundle of legal problems for the would be investor. A careful investor will therefore go overboard and leave no stone unturned in completing the remediation of each house.

While some remediators will save and clean at least some of the hard goods in the house, such as doors, cabinets and countertops. Others won’t even take that much risk. They remove everything and start from scratch with all new components except for the concrete, masonry and framing. Even these remaining members can be vacuumed with special HEPA filter vacuums and then sealed or encapsulated prior to re-installation of finishes. Some contractors will flush the house with forced fresh air or chlorine dioxide gas. And some contractors have started using ozone as a post removal treatment.

Of course the plan of attack is up to the owner and contractor. There are no official standards. At this time Judge Fallon in New Orleans has announced a recommended protocol for those house involved in litigation over CDW. His recommendations include power washing the inside of the structure. Most contractors that I have spoken to are leery about introducing water and therefore potentially mold into an already compromised indoor environment. But, these recommendations don’t apply to investors who are looking to turn a profit on the re sale of the property. Each investor is deciding what approach they are going to take one property at a time.

If you are planning to buy a house that has been remediated, I would go carefully over the protocol that was used and get as many assurances as possible that the problem has been solved. Also, if there are problems in the future what  is the remedy and who is going to be financially responsible.

Overall, I think the best strategy right now is for a potential buyer to work with an investor and remediator right from the beginning. Hire an independent 3rd party inspector to review the remediation plans. The inspector should visit the property while the remediation is underway and offer independent assessments that all of the work that is agreed upon is being done up to professional standards.

In a field where there are no agreed methods of disposal it may seem like an impossible criteria to meet. But there are similar situations in construction such as mold removal, asbestos abatement, radon and other chemical contamination situations. Inspectors who have extensive background in treating contaminated buildings will have a common sense approach to CDW removal as well. Everything should be clean. Workers should be protected. Permits should be obtained. Debris should be disposed of according to state and federal guidelines. Avoid cross contamination. Have a written work plan and daily reports showing how it was followed. Have photo documentation of the entire process.

Buyers should look for a clearance standard that they are comfortable with. In my last post I mentioned an air filtration test that can be sent to an independent laboratory for confirmation that there are no CDW compounds still in the air prior to re installation of new drywall. There is another company which is leaving drywall in place, chemically treating the structure and then testing the drywall for any residual traces of active CDW compounds. The more stringent the clearance protocol is the better for both the investor, the remediator and the eventual purchaser.

Of course, non of this helps the homeowner who bought a house and is now saddled with all of the CDW issues. Somewhat like the rest of the countries problems, it’s not Joe homeowner who is catching a break on this one.