Written By
Chick Zoll
The property loss from Chinese drywall could exceed every U.S. hurricane except Katrina and Andrew.
This week a minor player in the growing stink surrounding Chinese Drywall settled its lawsuit with a key manufacturer of the tainted gypsum board. The homebuilder’s settlement, coming on the heels of two other judgments in April, gives insight into how this growing catastrophe will affect independent agents. While homebuilders with the biggest exposures have yet to settle and thousands of individual homeowners are consulting with their lawyers, it is safe to say the impact will be bigger than recent news reports indicate.
The chart below shows the impact of Chinese drywall will be widespread based on complaints received as of May 12, 2010 at the Consumer Products Safety Commission. An estimated 500 million pounds of tainted drywall came into the United States from 2004 to2006—that is about 7.1 million 4’x8’ sheets of drywall and it may be in more than 100,000 homes. While the number of homes affected is greatest in Florida, Louisiana, Mississippi, Alabama and Virginia, the drywall supplies have affected all but 12 states.
Source: Consumer Products Safety Commission
The three reported settlements or verdicts indicate that the initial estimates of $20 to $30 billion in losses associated with tainted appear feasible. The adverse health effects of living with the drywall have not been addressed, but the property loss potential alone would make Chinese drywall bigger disaster than every U.S. hurricane except for Katrina (2005) and Andrew (1992).
It seems obvious that the total loss will greatly exceed the two indentified foreign-based manufacturers ability and/or willingness to compensate homeowners. The market value of the manufacturing firms is difficult to obtain because they are not public companies, but it seems very unlikely that both firms combined would have a market value of more than $20 billion. Add to that the fact that collecting a U.S. liability judgment against a foreign corporation based in China is probably a long-shot at best. This will leave homeowners and their lawyers looking to every possible source for compensation beyond manufacturer payments.
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