Recent Florida Decision Related to Chinese Drywall Liability — Will it lead the way in other litigation?

On November 5, 2010, Judge Glenn Kelley of the 15th Judicial Circuit for Palm Beach County, Florida ruled in favor of defendant homebuilders on homeowners’ claims that Chinese drywall installed in their houses was defective resulting in economic loss and personal injuries. Bennett v. Centerline Homes Inc., No. 50 2009 CA 014458 (15th Jud. Circuit Fla.) [PDF].

The Wall Street Journal here provides a history of the issues that have resulted from the installation of Chinese-drywall in American homes and the resulting litigation associated with those problems. This article also provides a brief summary of the Bennett decision and poses the question whether it “could set a template for other judges to use to adjudicate drywall cases across the country.” Homebuilders hope so.

This court made several determinations that will be helpful to homebuilders in lawsuits around the country — that is if other courts will follow the principles applied by Judge Kelley. First, Judge Kelley provides that there are two applications of the economic loss rule in Florida — contractual privity economic loss rule and products liability economic loss rule. The Court found that the second, products liability economic loss rule, did not apply to the tort claims asserted by plaintiffs because it only applies where the defect in the product causes damage to the product but does not cause personal injury or damage to other property. Plaintiffs here assert the opposite — no damage to the drywall but personal injury and damage to other property. Despite this ruling, the Court did find that the first application of the economic loss rule — contractual privity economic loss rule — applied here. The Court found that since the damages sought by the homeowners arose out of the contract they entered with homebuilders, traditional contract damages must be applied to the economic losses suffered by the plaintiffs.

Second, Judge Kelley dismissed plaintiffs’ claims for private nuisance because there is no case law relied on by plaintiffs that “support the contention that a nuisance may exist absent a defendant’s exercise of its property rights.” Third, Judge Kelley ruled that strict liability does not apply to improvements to real property as improvements to real property are not considered products and that homebuilders are not in the distributive chain of a product, thus cannot be held strictly liable. This last ruling may be the most significant and, if adopted by other courts in Chinese drywall cases, will work to the advantage of homebuilder defendants in these cases.