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Insurers join proposed settlement in defective Chinese drywall case

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NEW ORLEANS—A preliminary settlement was reached Tuesday between Florida-based drywall suppliers, insurers and a proposed class of homeowners whose residences were damaged by tainted Chinese drywall, attorneys said.

Banner Supply Co., a distributor of the tainted wallboard imported from China, entered a proposed preliminary settlement in New Orleans federal court that would pay approximately $55 million to affected homeowners in Florida.

Banner’s four insurers—Chartis Inc., FCCI Insurance Co., Hannover American Insurance Co. and Maryland Casualty Co.—have agreed to pay out the proposed settlement, according to court documents.

Miami-based Banner and several subsidiaries—Banner Supply Co. Fort Myers L.L.C., Banner Supply Co. Pompano L.L.C., Banner Supply Co. Tampa L.L.C., Banner Supply Co. Port St. Lucie L.L.C. and Banner Supply International L.L.C.—submitted the settlement to U.S. District Court Judge Eldon E. Fallon for approval.

The case is part of the Chinese-Manufactured Drywall Products Liability Litigation class action.

No liability admitted

Banner has denied liability for all its activities involving the purchase, supply, distribution, marketing, use, sale and/or delivery of Chinese drywall. However, the company and its insurers realize they run the risk of an adverse judgment and agreed to negotiate a settlement, according to court documents.

Banner distributed the drywall that was manufactured in China by Knauf Plasterboard Tianjin Co. Ltd. until October 2006, when it began receiving complaints from homeowners that the drywall was emitting a strong odor that later linked to corrosion of wiring and household appliances and possible health problems.

In separate litigation, a jury in Miami decided in June 2010 that Banner was liable for damages to a couple’s home and awarded them $2.4 million.

During that case, the plaintiffs alleged that Banner knew there were problems with the wallboard it imported from Knauf. However, the proposed settlement documents in this week’s proposed settlement claim that was not true.

Knauf blamed

Banner found out that Knauf “made material misrepresentations to Banner about the fitness and safety of its drywall in order to induce Banner to sign (a) confidential settlement agreement” between the two companies, Banner said in the settlement documents. “Knauf knew that the impurities in Knauf drywall would cause and were causing serious and widespread property damage” and “Knauf knowingly concealed material information from Banner,” the Florida-based company said in the filings.

As a result, Banner lost customers and had its “business and reputation ruined,” the settlement said.

“Our business has thrived for over 58 years because our customers have trusted us,” Michael Peterson, of the Miami-based law firm Peterson Espino P.A. and Banner’s counsel, said in a statement. “We are settling this matter to bring a resolution for our customers and to allow the homeowners to fix their homes. We regret that this could not have been achieved sooner, but Banner recognizes that prolonged litigation would not have accomplished this goal.”

In May 2010, Chartis tried to deny coverage to Banner due to pollution exclusions in its policy. That attempt was unsuccessful and the case was included in multidistrict litigation in New Orleans.

“We are please this settlement resolves this particular matter,” a Chartis spokesman said in the statement about the proposed MDL settlement.

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