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Chinese Drywall Lawsuits Are Partially Settled by Louisiana Supplier InEx

Interior/Exterior Building Supply Ltd. of Louisiana agreed to pay $8 million cash and assign $72 million in insurance rights to resolve claims by thousands of U.S. property owners whose homes were ruined by defective Chinese drywall.

Terms of the proposed settlement were set out in papers filed today in federal court in New Orleans, where thousands of claims over corrosive drywall made in China have been consolidated before U.S. District Judge Eldon Fallon.

“This is the first Chinese drywall settlement with a major supplier, Interior/Exterior, and a number of its insurers,” Russ Herman, liaison counsel in the multidistrict litigation, said in a statement.

InEx’s primary insurers, Arch Insurance Co. and Liberty Mutual Fire Insurance Co., each agreed to pay $4 million cash toward the claims. InEx assigned claimants its rights to pursue an additional $72 million in excess insurance coverage from North River Insurance Co., according to the court papers.

If Fallon approves the deal, claimants will be divided into two categories. Louisiana property owners will form one class; all other U.S. homeowners will form the other. InEx assigned the rights to the excess insurance to the non-Louisiana class, according to court papers.

Foul-Smelling Gases

In 2005 and 2006, InEx bought more than 500,000 pieces of drywall from units of the Knauf Group and other Chinese manufacturers. The products allegedly contained chemicals that released foul-smelling gases and corroded wiring and appliances which homeowners were forced to rip out and replace.

In October, Fallon endorsed a plan for a Knauf 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. Those cases had been intended to help determine property damage in cases against other manufacturers and importers, including Chicago-based USG Corp. (USG)

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 James Caldwell said last year.

After a hearing today, Herman said in an interview that the InEx settlement will resolve between “2,000 and 3,000 of the 14,000 cases” filed across the U.S. He said lawyers will have a better idea of how many will qualify after class-action notifications are sent to claimants next week.

“This is a significant bite,” Fallon said of the InEx agreement at the hearing today. “We got the momentum because of Knauf’s pilot settlement,” he said. A further hearing on the proposed InEx settlement is set for May 6.

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: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com; Allen Johnson Jr. in New Orleans at allenmct@gmail.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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