Who Pays?

Things are heating up in the world of Chinese drywall.

Courts are issuing opinions, a U.S. consumer products safety agency is recommending gutting homes with the product, and a consumer watchdog group is insisting that President Obama board Air Force One and head south to see for himself the extent of the disaster that substandard drywall from China has caused.

President Obama wouldn’t have to travel far from Washington, D.C. to see some damage. No need for Air Force One. A group of Virginia homeowners that recently won an award in federal court against a Chinese domiciled manufacturer of drywall over damage to their homes would likely be willing to give the president a viewing.

Builders started importing drywall from China after the hurricanes of 2004 and 2005, along with the housing boom, caused an apparent shortage of the product from U.S. manufacturers. Much Chinese-manufactured drywall has since been found to emit a sulfur hydroxide gas that has been linked to corrosion and possible health problems. Around 3,000 homeowners, mostly in Florida, Virginia, Mississippi, Alabama and Louisiana, have reported problems with the Chinese-made drywall.

In early April, the U.S. Consumer Product Safety Commission issued guidelines advising property owners whose homes contain the faulty drywall to remove not only the product but also the electrical wiring, outlets, circuit breakers, fire alarm systems, carbon monoxide alarms, fire sprinklers and gas pipes. In short, their houses need to be gutted, the CPSC says.

But who’s going to pay for it?

The court handed the Virginia homeowners a win in their class action suit against a Chinese manufacturer but there is no guarantee that the plaintiffs will actually see the money.

Insurers, meanwhile, insist that they’re off the hook because of the pollution and other exclusions in their homeowners’ policies. A civil district court in Louisiana shot that argument down in a finding in late March, stating that the pollution “exclusion does not, and was never intended, to apply to residential homeowners claims for damages caused by substandard building materials.”

That won’t be the last we’ll hear about that ruling, however, as it’s likely to be appealed. So the question still remains: who will pay?

In one of the more creative approaches, Florida applied for federal disaster aid for homeowners with damages from Chinese drywall, claiming the victims of this man-made disaster deserved the same assistance as those who suffer from natural disasters. Nice try, but FEMA said no.

The question of who will pay is on the minds of those behind the Chinese Drywall Complaint Center, which blasted the CPSC’s advice to gut homes with the defective drywall. “[T]he vast majority of affected homeowners cannot afford the $100,000+ repair bill,” the Center stated in response to the CPSC guidelines, adding that “most homebuilders cannot afford it,” either.

The Center says there are hundreds of thousands of homes that contain the defective drywall. While there’s no independent verification that is correct, even if a fraction of that number of homes needs to be completely gutted, the costs will quickly add up.

Who’s going to pay?