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Let the Buyer Beware – Chinese Drywall Issues

Contractors need to be aware of recent problems associated with drywall exported from China. This drywall has been in the country for several years, but the defects have only recently been discovered. The defects latent in the drywall are the corrosive properties of a few of its key components that were purportedly interchanged with waste-product (flyash) from coal-fired power plants.  


According to this article from the Tampa Bay Tribune, “a preliminary assessment of 12 homes in South Florida last January, finding that the drywall in those homes contained strontium sulfide and elemental sulfur. Further tests determined that high relative humidity or heat produced hydrogen sulfide, carbonyl sulfide and carbon disulfide in what had been determined to be defective drywall, all of which can cause copper corrosion in homes and possibly post a health hazard.”


Other defects, with debated side effects, are the odors caused by the drywall.  One source cites “Sulfur compound gases, even at low levels, have been found to cause respiratory problems,” such as asthma, said Nachman Brautbar, a toxicologist and clinical professor emeritus at the University of Southern California School of Medicine. 


On the other hand, “It seems most likely that it’s a nasty odor problem, as opposed to something acutely toxic,” said Morton Lippmann, a professor of environmental medicine at New York University, who reviewed recent Florida health department’s findings on Chinese drywall for The Wall Street Journal. 


Lawsuits are being filed as buildings are being identified as problematic.  Some developers are taking corrective action, but others are long gone. Liability is bouncing around the roulette wheel at this point; but where it will fall, cannot be certain. 


What this means is that insurance companies are now becoming exposed under Contractor General Liability or Commercial Umbrella coverage. There is no process yet established for remediation of such a widespread and difficult to trace problem. The future contingent liability will continue to be uncovered as new buildings are discovered with this problem.


Part of the problem, as stipulated by the Wall Street Journal, is that the defective drywall isn’t always labeled by the manufacturer – this should be the first warning sign! If the supplier can’t put their name on it, how can you? 


The bottom line is that buyers need to beware. Contractors need to take a closer look at their suppliers. With such grave consequences as destruction of value and potential health ailments, working with trustworthy suppliers that are accountable and responsible takes on an even greater importance. As the old saying goes, “You get what you pay for,” and in the case of lower cost building materials from outside of the country, this can certainly be true. 


Contact the real estate and construction group at Skoda Minotti at 440-449-6800 to help meet your accounting and business advisory needs.

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