Chinese Drywall Accord to Repair Damaged Homes Wins U.S. Judge's Approval

A federal judge endorsed a plan for a Knauf Group unit to help repair 300 homes damaged by defective drywall, the first step toward a potential settlement of legal claims estimated by plaintiffs at as much as $500 million.

Repairs will begin as soon as next week on dozens of homes in Alabama, Florida, Louisiana and Mississippi, Russ Herman, an attorney for homeowners suing the company, told the court. The program may expand to 3,000 homes if it’s successful.

“We’ve got the first step in the global resolution reporting today,” U.S. District Judge Eldon Fallon said during a hearing today in New Orleans.

The cases, part of coordinated litigation over allegedly defective drywall, had been intended as a bellwether to help determine property damage issues in cases against other manufacturers and importers, including Chicago-based USG Corp. More than 1.1 million sheets of harmful Chinese drywall were used in Louisiana rebuilding projects after hurricanes Katrina and Rita struck in 2005, state Attorney General Buddy Caldwell said in January.

The agreement calls for the companies to oversee removal of the drywall and replacement of electrical wiring and fixtures damaged by toxins in the wall covering, such as excessive formaldehyde. Homeowners will also be compensated for alternative living arrangements during the repairs, attorneys for the plaintiffs said.

Costs Per Foot

Herman estimated repairs to the average 2,500 square foot home will cost $60 a foot. With $8.50 per square foot paid to plaintiffs for temporary relocation, the cost for each home might be $171,000. The total for the 300 homes may reach $51 million. Renovations for all 3,000 homes involved in the lawsuit would be 10 times that number, Herman said in an interview.

Kerry J. Miller, an attorney for Knauf, called Herman’s estimates high and said the company will work with contractors to be efficient and keep the construction costs down.

Knauf Plasterboard Tianjin Co. will hire and supervise contractors to do the work and the renovated homes will be inspected by environmental engineers, the lawyers said outside of court.

Affected homes in Texas and Virginia weren’t included in the agreement, Miller said.

“There’s a lot of hope and expectation here,” Miller said. “The hope is the program is going to be expanded.”

Among the builders, suppliers and insurers joining the agreement are QBE Insurance Group Ltd. and State Farm Mutual Automobile Insurance Co., the Louisiana Homebuilders Indemnity Trust, and the Louisiana-based supplier Interior/Exterior Building Supply.

The case is In re Chinese-Manufactured Drywall Products Liability Litigation, 2:09-md-02047, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporters on this story: William McQuillen in Washington at bmcquillen@bloomberg.net; Allen Johnson in federal court in New Orleans at allenmct@gmail.com.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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