Health News Digest

June 27, 2011

Chinese Drywall Update:  The Banner Settlement Is No Cause For Rejoicing

Money and justice

By  Michael D. Shaw

The media—especially in Florida—are all abuzz over the proposed settlement offered to certain homeowners by Banner Supply, a large distributor of drywall, and its insurers. If accepted by Federal Judge Eldon E. Fallon, $54,475,558.30 will be available. A spokeswoman for the plaintiffs’ attorney said the deal covers between 500 and 800 homes which were supplied with drywall by Banner.

At first blush, this sounds great. If 800 homes are included, for example, this works out to about $68,000 per home. But wait. The proposed settlement also has a provision for attorney’s fees, which cannot exceed 32% of the total. So, let’s take 30% off that amount, leaving us with $47,600.

The average cost to remediate an affected house is $47/square foot. Let’s use 2000 square feet for our example home, but feel free to redo my calculations for any size residence. As such, the cost of remediation (not including relocation and temporary housing) would be $94,000. Thus, in this case, the settlement seems to cover half of the construction costs.

Considering that homeowner’s policies have not covered Chinese drywall damage, half a loaf is better than none, right? As you will soon see, however, the real potential recovery will be far less than this.

Court documents filed by Banner state that the company purchased roughly 1.4 million sheets of Chinese drywall, most of which was made by Knauf Plasterboard Tianjin Co. According to construction industry sources, a common tract home of 2500 to 2700 square feet will contain 150-200 sheets of 4 x 12 drywall.

Using the 200 sheet figure, we conclude that 7,000 homes are affected. But even this is understating the number of homes, since our 7,000 calculation would require that in each case, 100% of the home’s drywall is tainted Chinese board. In fact, 20-25% of the drywall in a house is not of the type covered in the settlement. The tainted Chinese board was virtually all ½-inch, and does not include moisture-resistant or ceiling board.

But, let’s ignore that for the moment.

You may wonder why I am so interested in the number of affected homes. It’s because federal law requires that a settlement such as this one be open to all potential claimants. Inasmuch as Banner’s own documents declared the 1.4 million figure, the “500 to 800 homes” number quoted by the plaintiff’s attorneys is well beyond disingenuous. It is borderline fraudulent, unless their average claimant’s house is 26,000 square feet.

Going back to the 7,000 home figure, and bearing in mind the 30% for attorney’s fees, the potential recovery would be around $5400. And, for our 2,000 square foot example home, this would cover less than 6% of the construction costs.

To be fair, perhaps not every single potential claimant will come forward. If we say that only 5,000 claimants will make themselves known, the potential recovery is now around $7600, covering 8% of the construction costs.

Finally, these calculations do not take into account costs associated with documenting how much tainted drywall—from Banner Supply—is in a structure. It may prove exceedingly difficult to trace the origin of every sheet of drywall in a home.

Of course, this entire exercise assumes that Judge Fallon will accept the terms of the proposed settlement, and given the negligible potential recovery (except by the attorneys), his approval is far from certain. Affected homeowners would do better to negotiate with a remediation contractor, and withdraw from the class.

Notwithstanding the large amount of money involved, as far as the affected homeowners are concerned, this is little more than a scam.