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Chinese Drywall Update

New guidelines spell more confusion for Chinese drywall cases.

April 04, 2011 Photo
On March 18, the U.S. Consumer Product Safety Commission (CPSC) and U.S. Department of Housing and Urban Development (HUD) released an update to guidance on remediation for homes with drywall problems. The report, Identification Guidance and Remediation Guidance for Homes with Corrosion from Problem Drywall, makes a few significant changes: (1) It declares that the removal of all electrical wiring is no longer necessary; and (2) it adds the year 2009 to the range of years in which the tainted drywall was installed in U.S. housing, extending the time frame by one year.

"This decision [not to mandate wire replacement] is based upon the results of recent scientific studies on the effects of corrosive environments on electrical wires, which found no acute hazardous conditions or performance issues with the wiring in conditions simulating decades of exposure to problem drywall," according to the executive summary.

"In general, residential electrical system components appear to be relatively tolerant of the corrosive environment created by problem drywall, if the system is installed properly," a CPSC report says.

They "appear to be relatively tolerant if installed properly." Not very definitive if you are a homeowner, a home buyer, a mortgage lender, or an insurer.

The new guide continues to call for the replacement of all possible problem drywall; fire safety alarm devices (including smoke alarms and carbon monoxide alarms); electrical distribution components (including receptacles, switches, and circuit breakers, but not necessarily wiring); gas service piping; and fire suppression sprinkler systems. As for the wiring, the government says even some exposed wiring that has corroded doesn't necessarily need to be removed if it can be cleaned off successfully.

Why Worry?
At first glance, the changes might look like good news for insurers. Moreover, the government says in its press release announcing the altered guidelines that the relaxation of the wiring-replacement mandates could save on remediation costs. Maybe, but Sandia National Labs, the testing agency whose experiments generated the Interagency Task Force on Problem Drywall's new guidelines, was in no way definitive in its findings.

"While no fire, smoking or other safety events occurred during the course of this experiment, CPSC staff and Sandia are mindful of the limited scope and controlled conditions of this experiment," the task force said in a report of the test results. It further stated that the experiment doesn't cover every difference in "conditions, wiring, installation, brands, environmental conditions and other possible confounding factors that are actually present in the affected houses."

The experiment was limited to 15-amp wiring and 110-volt outlets, and it didn't test exposed, corroded wire after it had been cleaned; although, in the report, the task force suggests cleaning wiring as an alternative to replacing it.

In addition, U.S. District Court Judge Eldon Fallon ruled last year that all electrical wiring should be removed as part of the repair process for tainted drywall. He is overseeing consolidated drywall litigation in New Orleans, and hundreds of homes are already being repaired under a pilot program based on his instructions. For now, this remediation settlement with the drywall company (Knauf Plasterboard Tianjin Co.) stands, and the protocol Fallon established, based on days of presentations of scientific evidence, will continue to be used in settlements. The goal is to expand the protocol for thousands of other homes containing the contested, tainted drywall.

Making guidance even murkier, the CPSC's new report says, "All repairs must comply with local codes." So if a locality decides wiring needs to be replaced, which authority’s guidelines will prevail, and can the locality’s ordinance be challenged in court?

Something's Missing
The Sandia experiment and the subsequent report from the Interagency Task Force beg more questions than they answer when it comes to making determinations about claims. It is unclear which findings, Judge Fallon's or the Interagency Task Force's, will stand the test in other court challenges. Judge Fallon based his ruling on substantial, real-world evidence, and the Sandia methodology left much unaccounted for that would arise in the real world.

Moreover, the CPSC and its affiliated agencies that dabble in the field of drywall-policy making don't provide federal guidelines on several areas critical to claims adjustment.

Dust—The procedures for handling and protecting against corrosive demolition dust from tainted-drywall repair are given only a cursory recognition: HEPA vacuuming is optional.

Internal damage—There seems to be no consideration of corrosion to the internal systems of HVAC, appliances and other systems with circuit boards, any of which could be claimed under a drywall-gas damage loss.

Local code—While the report says that all remediation work must abide by local code, there appears to be no governing federal rule.

Universality of findings—The Sandia methodology targeted widely used 15-ampere wiring for 110-volt outlets with PVC insulation, but the findings could be challenged for claims that involve untested 20-amp wiring, 220 outlets and wiring with other specifications than those used in the experiment.

Many approaches in solving the dilemma have lumped tainted-drywall claims into one basket when, in reality, every case is unique. Some homes' walls may be 100% Chinese drywall; others may have only a wall or room that was built or replaced during the problem years. The new regulations make no distinction between the two. A case-by-case analysis by an adjuster is the best option.

As for the broader legal and regulatory venue, in a recent case, Walker v. Teachers Insurance Co., the plaintiffs claimed that the discharge of gasses doesn't fall under the pollutant exclusion because it is, by definition, smoke, which is covered. Using the Merriam-Webster definition of smoke—a suspension of particles in a gas—the judge ruled in favor of the plaintiff. The case is under appeal, but it will be worth watching.

Regarding the new federal guidelines, an affected homeowner and former chief of staff for the Environmental Protection Agency in Philadelphia formally requested a public hearing on the March 2011 guidance. The CPSC has said it is considering opening a public forum in response to his request.
Charlie Jones, CGC, CIE, CSI, CDDC, IA, WIND certified Umpire, is the CEO of Barkett Kenney, Inc.
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