Construction Risk

Mold-Related Construction Defect Claims: Who is Liable for Alleged Damage Caused by Exterior Insulation Finishing Systems (“EIFS”)

By: Gordon & Rees, LLP

EIFS or synthetic stucco is at the forefront of construction defect allegations regarding water intrusion, property damage and mold growth. EIFS generally consists of a layer of exterior grade gypsum glued to a foam board. The foam board is then coated with a heavy base coat of the synthetic stucco. Next, a layer of fiberglass mesh is pressed into the base coat. The final step is an application of an acrylic, water-resistant finish.
EIFS is used for its properties of better insulation, more durability, and as a less expensive alternative to traditional stucco. Prior to 1996, there are claims that the EIFS did not provide a path for water that migrates behind the EIFS to drain back out. Since 1996, manufactures have new EIFS products that provide migration paths. However, the use of EIFS has declined following the 2000 International Residential Code (“IRC”) decision to ban EIFS. Several states have adopted the IRC recommendation.
Recent lawsuits allege that the synthetic stucco material actually becomes porous and allows water to seep in and become trapped, rotting the wood beneath the exterior finish and causing potentially severe structural damage and mold. Often claims are made that improper installation causes water from rain and other sources to migrate through damage or gaps in the coating or below and along windows, doors and other wall penetrations where there is not adequate flashing.
EIFS claims are being made against manufacturers, developers, architects and builders. The claims are a hybrid of product liability and construction defect. Manufacturers point to poor installation and maintenance, while the trades look to the inherent properties of the product. While typical theories of liability and defenses among the parties are present, there are issues that may limit the number of defendants on these claims.
A national class action settlement agreement has been reached on behalf of homeowners of EIFS-clad homes in states other than North Carolina against one manufacturer, Dryvit Systems, Inc. Bobby R. Posey, et al. v. Dryvit Systems, Ind., No. 17,715-IV (Tenn. Cir. Ct., Jefferson City.) There is an “opt out” deadline of September 3, 2002 for class members. A fairness hearing on the settlement is set for October 1, 2002. There is controversy regarding the benefits to homeowners. Plaintiffs claim the settlement is “repair-oriented” and based upon agreements reached with the company in North Carolina in 1997 and 1998. The agreement provides that members are entitled to free inspections, partial reimbursement for repairs and a three-year limited warranty. The warranty does not include any incidental or consequential damages and specifically excludes liability for mold. Repairs are reimbursed at 40 percent of the estimated cost of repair, up to a maximum of $6,000. The settlement offers no money up front to any members other than the named plaintiffs. Critics of the agreement claim it is wrongly based on the premise that the EIFS can be repaired and fails to address the substantial consequential damages potentially caused by mold. For more information on the settlement see For members that do not “opt out,” any claims for mold related damages cannot be made against Dryvit.
In some instances the manufacturer is no longer a viable defendant due to bankruptcy. In Baltimore, six homeowners of a gated townhouse community sued the developers, general contractor and subcontractor for allegedly defective installation of a synthetic stucco product called InsulScreen that is claimed to have allowed moisture intrusion and mold to grow underneath the siding. Gerzanich, et al. v. Struever Bros., et al. (Md. Cir. Ct., Baltimore City). The InsulScreen EIFS is also allegedly defective. The manufacturer United States Gypsum, a division of USG Corp., filed for Chapter 11 bankruptcy in 2001 due in part to asbestos related liabilities. As such, the manufacturer cannot be named as a defendant in lawsuits such as Gerzanich until the company emerges from bankruptcy.
The issue of limited liability due either to class action settlements or bankruptcy of EIFS manufactures is likely to present issues in future lawsuits as to whether builders and developers will bear a greater portion of liability for the uncompensated consequential property damage and bodily injury claims resulting from these suits.

About this Article. This article is reprinted with permission from the April-August 2002 newsletter by the law firm of Gordon & Rees. The newsletter is titled “Coverage, Claims and Technical Information Today: Breaking the Mold.” For further information contact: Gordon & Rees, LLP; Embarcadero Center West; 275 Battery Street, Suite 2000; San Francisco, CA 94111; (415) 986-5900; Fax: (415) 986-8054; Sara M. Thorpe ( or Laura L. Geist ( Report, Vol. 4, No. 9 (Oct 2002)

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