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.