Chinese Dry Wall Claims. How Does the Contractor Respond to Claims for Installing Products with Unknown Defects!
This is a very interesting case for the business and construction litigator. One of the things I really like about construction litigation is the fact that a single case can involve multiple ares of the law. Many cases are like law school exams, where the attorney must find all the issues.
Scott Wolfe at the Construction Law Monitor has posted a very interesting piece on the multiple areas of the law and multiple issues arising from claims for defective drywall installation. There is even a Chinese Drywall Blog that focuses exclusively on this issue.
Is there any argument that the builder who unknowingly installed defective drywall is off the hook? Innocence is not a normal defense to breach of contract or warranty claims. What about the suppliers? When the builders purchase goods for use in construction, the transaction is governed by the applicable states Uniform Commercial Code (Art. 2 Sales.)
The Uniform Commercial is not uniform in all aspects between the various states. But in general terms, Article 2, Sales, gives the buyer all the power to reject non-conforming goods when delivered. Clearly the drywall was not rejected because it was installed. But, once the buyer accepts the goods, or exercises control over the goods that is inconsistent with any interest of the seller, the goods will be deemed accepted. Once the goods are accepted, the seller is usually off the hook for any defects that could have been discovered with a normal inspection. But, again, there is an exception. If the defects are latent, (not readily discoverable in an inspection,) and the defect is material, the buyer can revoke the acceptance. I realize that I am greatly simplifying the code sections, but I am doing so on purpose to explain the broad structure of Article 2.
If the builder installed defective drywall, and did not now about the defect, what responsibility does the drywall supplier have to the builder? If I am representing the builder, I would immediately initiate a claim against the drywall supplier.
What about Insurance? What duty does the builder have to notify the owners of a potential hazard in their home or building? These are great questions. What are the possible remedies for the home owner? Are class actions the way to go? Some have been started. I suspect that class actions will be difficult because of the breadth and depth of the problem. There will be too many different fact situations to reasonably handle in a class action in many cases.
Another aspect of construction law is the fact that many times a builder - supplier contract will have an arbitration clause, yet there is no arbitration clause in the builders - owner contract, or vice versa.
This is problem that is worth watching. Many state courts are facing a fiscal crises, and they will be ill equipped to handle hundreds of dry wall cases. Don't be surprised to see some legislation proposed to deal with these problems.
Ultimately the injured party is the home or business owner that constructed a home or office. How the owners will be compensated - or receive relief - is going to be a challenge. Are homeowner insurance policy going to cover the damages? There are some real problems with this approach, including any pollution exclusion. Home owners need also be aware of any applicable statute of limitations.
Will builders be willing to reconstruct buildings - which is what would be required in many cases. Will suppliers be willing to provide defect free drywall at no cost? Will the Chinese be willing to compensate the injured parties - or at least return the money to the original buyers?
This problem is just beginning.
