Drywall is, literally, all around us. Yet, some drywall is allegedly causing property damage and prompting health concerns. Thus, the next wave of construction litigation has hit our shores—defective drywall claims. Drywall is a building material used to make interior walls and ceilings. It is primarily gypsum wrapped in paper, but the core can also have added fiber, plasticizers, foaming agents, potash and various other ingredients to inhibit the growth of mildew and increase fire resistance. Impurities in this core material can cause problems, including adverse environmental conditions in residences or other buildings where the drywall is installed.

After the hurricanes of 2004 and 2005, reconstruction led to a sharp increase in the demand for drywall. Drywall shortages hit first and hardest on Florida's Gulf Coast, leading contractors and distributors to start obtaining drywall from Chinese manufacturers. Reports state that at least 550 million pounds of Chinese-made drywall have been offloaded at multiple U.S. ports since 2006—enough to build 60,000 average-size homes. One of the largest concentrations to date of Chinese drywall has been found in Southwest Florida. Reports state that enough Chinese-made drywall shipments to build 36,000 homes landed in Florida ports.

Primarily two kinds of drywall board were imported: half-inch standard drywall and 5/8-inch "fire-rated" or type "X" drywall. Building codes mandate the use of "fire-rated" drywall for certain construction, such as interior and exterior walls near furnaces, because it delays the spread of fire in walls and ceilings for up to one hour. There are several types of fire-rated drywall. Some use fiber material in the core to combat heat and fire, while others contain mineral cores for an even more fire-resistant product.

Imported drywall usually must have documentation attesting that it meets international fire standards. American Society for Testing and Materials Standard ("ASTM") C36 was a domestic standard for drywall that was replaced in 2005 by C1396/C1396M. This standard requires a certain level of fire resistance for the gypsum core and establishes standards for the board's ability to deflect humidity and how the board handles pulled nails. Tampa port officials reported that much of the drywall arriving on container ships from China over the past few years did not contain the required documentation or official stamps confirming that it met international manufacturing and safety standards.

Some drywall that was imported from China is allegedly defective. It has been reported that although the drywall may meet ASTM standards, the water used to mix the gypsum may have been wastewater that contained chemicals, including sulfur. This drywall is claimed to emit sulfuric gases that corrode electrical wires, copper wiring, pipes and air conditioning components. The sulfuric gases also permeate wood studding, which effectively causes a rotten egg smell in the homes even after the drywall has been removed. The sulfur compounds and the resulting noxious sulfur-like odors are also linked to health problems, including respiratory issues. As one might suspect, the cost to replace both the drywall and other allegedly defective materials is high.

To date, the suspect drywall has been found in new homes built from 2004 through early 2007 in at least 13 states. Specifically, investigations have found suspect drywall in Florida, Arizona, Colorado, Georgia, Louisiana, Maryland, Nevada, New Jersey, New Mexico, North Carolina, South Carolina, Virginia and Texas. Florida homeowners have submitted almost 100 complaints to the Florida Department of Health ("FLDOH") about problems relating to their drywall, and the complaints have been logged from Manatee, Sarasota, Hillsborough, Lee, Dade, Palm Beach, Highlands, Broward, Citrus, St. Lucie, Collier and Martin counties. The extent of the problem is unknown, but at least 80 homes in Southwest Florida have been identified. The suspect drywall has been located in residential properties of all types. Indeed, reports state that even Florida Lieutenant Governor Jeff Kottkamp has moved his family out of their Fort Myers home while the issue is being investigated. The problem is prevalent enough that some real estate agents are beginning to add Chinese-made drywall information to their disclosure forms when buying and selling Florida real estate.

Potential Liability The "writing is on the wall." Lawsuits are beginning to be filed against the manufacturers and distributors of the affected drywall. For example, a lawsuit filed in Florida state court by a builder alleges that the manufacturer should have known that the drywall was defective. A class action lawsuit pending in the U.S. District Court for the Middle District of Florida charges that German drywall maker Knauf Gips KG ("Knauf"), its Chinese plasterboard units and other defendants, including the manufacturers and distributors of the drywall, negligently manufactured and sold the defective drywall, which was "unreasonably dangerous" in normal use because it corroded plumbing, air conditioning and electrical components, and caused coughing and irritation of sinuses, eyes and throats. The suit also seeks to recover from the defendant for strict products liability and breach of warranty, among other causes of action. To date, residential builders that have been identified as obtaining product from Knauf include: Lennar Corp., Taylor Morrison, WCI Communities, Meritage Homes, Ryland Homes, Standard Pacific Homes and Aubuchon Homes.

It is important to note that it is not just the manufacturers and distributors that should be concerned about litigation arising from this allegedly defective drywall. Homebuilders and contractors that installed the drywall should also be aware of their potential liability. For example, some builders commented that the suspect drywall was heavier and broke differently and in a more jagged manner than domestic drywall. Therefore, an issue might exist regarding whether the builders had notice that the drywall was potentially defective. Moreover, architects or engineers involved in construction projects should be mindful of potential professional malpractice liability exposure. Any person in these roles named as a defendant may have significant indemnification or contribution rights against others in the chain of distribution that are more responsible. Manufacturers and distributors of plumbing, electrical or air conditioning components that have failed or have been alleged by customers to be defective should also consider whether it is possible that defective drywall is the true reason for the problem.

Liability may also fall on the design, construction and inspection teams, based on breach-of-warranty claims. The American Institute of Architects ("AIA") and the Associated General Contractors of America ("AGC") provide standard form contracts widely used in construction transactions. These contracts contain the typical express warranty clauses given by many contractors, including that all work will be of good quality, free from faults and defects and conform to the contract documents. Builders of new homes also implicitly warrant to the owner that the homes will be completed in a workmanlike manner and will be suitable for habitation. Some limits on the extension of the warranties exist. For example, the defect complained of must have been latent—undiscoverable despite reasonable inspection—or the warranty does not survive. When a home or building is not suitable for its intended purpose because of substandard or defective materials, builders may be also liable of misrepresentation, unfair business practices or negligence, depending on the governing law.

Issues regarding insurance coverage are also likely to be important. Insurance policies, which often are written with broad pollution exclusions, may offer no legal defense for building industry companies faced with lawsuits because drywall is allegedly emitting toxic gas inside homes and walls that may be deemed "pollution." Companies may want to seek counsel regarding whether to put their insurance companies on notice of potential issues. Companies should also review their contracts, subcontracts, warranties and insurance policies to analyze their liability and their ability to satisfy potential compensatory damages. Government Regulatory Responses Federal and state agencies are also investigating drywall products imported from China. U.S. Sen. Bill Nelson (D-Fla.) has asked the U.S. Environmental Protection Agency ("EPA") and the U.S. Consumer Product Safety Commission ("CPSC") to investigate whether Chinese-manufactured drywall is toxic. U.S. Rep. Vern Buchanan (R-Fla.) has also written the Federal Trade Commission and the Office of the U.S. Trade Representative, asking them to take corrective steps.

The CPSC has responded by focusing on whether the sulfur-based gases emitted from the drywall are corroding household wiring and whether these gases pose a potential safety hazard. If the commission determines there is a safety hazard, it could order a halt in further sales of certain drywall products. The CPSC has been asked to prepare drywall safety standards. To the extent that potential CPSC regulatory action could impact business operations, concerned parties may want to seek counsel about providing input during this phase of the regulatory process. Carbon disulfide, carbonyl sulfide and dimethyl sulfide have been found in air samples of some of the affected homes. If inhaled in large quantities, carbon disulfide can affect a person's nervous system and can be life threatening in high levels, according to the U.S. Department of Health and Human Services. As for carbonyl sulfide (another potential byproduct), some states have established health criteria regarding the permissible levels. Accordingly, a manufacturer's liability for selling defective drywall may vary considerably depending upon the state of installation. In response to many complaints, FLDOH is currently investigating potential health hazards that may arise when metals inside a home are rapidly corroding.

Therefore, the regulatory response by individual states may impose substantial new costs on manufacturers, distributors and consumers of drywall products. To the extent that one has concerns that state regulators may not have been provided with adequate information about this issue, interested parties should seek counsel to formulate an effective submission to the pertinent regulators.