Who Worse? Chinese Drywall Manufacturers or American Insurance Companies

Thursday, October 15, 2009 23:24
Posted in category Uncategorized

When the stories of Chinese drywall hit the wires earlier this year, I made a conscience decision to stay away from the explosive nature of the problem because, simply put, this was yet another example of where firms sourcing from china made huge error in judgment.  A supply chain of another imported product gone bad, and “China” was once again on the hook.

Like children’s toys, this was a product, and a problem, that was going to be a very emotional one.  It involved people’s homes, and homeowners who were once again  given the short end of the stick.

What initially made this case all the more interesting to me is that as I have done a lot of work in the building materials industry, and that through the years I have been involved in sourcing products for this industry, the facts did not add up (for me).  You had a few dozen reports of bad drywall scattered geographically aroudn the Southeast of the United States, and there did not seem to be a single contractor or developer that was the primary buyer.

Yet, given the nature of this product, one would have expected to see entire neighborhoods have the exact same problem as drywall (and almost every other building material) is manufactured, transported, and sold in bulk.  Sold to large wholesalers (sometimes direct to contractors -but only the VERY largest) who sell by the truckload to distributors and contractors on site.

Which led me to think that were to sell into a new project in say Florida, then the weather conditions would be consistent across the neighborhood.. right?  Conditions that should have been producing neighborhood sized clusters right, and that was what I was looking for.

However, as the quote from today’s WSJ article U.S. to Press China on Drywall suggests, no clusters have been proven to exist:

The CPSC has received about 1,500 reports from residents in 27 states  […]  As many as 100,000 houses across the country have the suspect drywall, most of them built in 2006 and 2007 when a spike in new construction occurred in part as homeowners rebuilt following hurricanes in 2004 and 2005

This lack of density left me a bit skeptical early on, and still does to a large degree because (as once again quoted from the WSJ article) 98.5% of the cases that are being reported are still unconfirmed, and that while there are a reported 27 states reporting problems, the articles authors suggests that the main reason for ordering the drywall in the first place was hurricane replacements.

Hurricanes in 27 states? Sure, Katrina took out the better part of 4 states, but we have all seen how that rebuild has gone.

So, that is why I initially left this issue to pass.. initially

That was, until I saw the the MSNBC article Insurers dropping Chinese drywall policies this afternoon where the lead paragraph read:

James and Maria Ivory’s dreams of a relaxing retirement on Florida’s Gulf Coast were put on hold when they discovered their new home had been built with Chinese drywall that emits sulfuric fumes and corrodes pipes. It got worse when they asked their insurer for help — not only was their claim denied, but they’ve been told their entire policy won’t be renewed.

Let me repeat (in bold) the most offensive part –  not only was their claim denied, but they’ve been told their entire policy won’t be renewed.

To be honest, it was a paragraph that set me on FIRE.  That not only (and let’s assume for the moment that the product is bad) has every actor in the supply chain failed them, but now their own insurance companies – companies that they have paid monthly premiums to – have dropped their policies.

Another sign of just how broken the system is.

You have a FOREIGN firm manufacturing in China who has potentially export bad product to buyers in the States who have distributed container loads (MSNBC article says 500 million pounds was imported between 2004 and 2008) of product to sites around the country, and because the entire supply chain failed to do their jobs, and now the insurance firms feel no need to live up to their obligations either… it is now in the hands of the US Consumer Product Safety Commission to see if they can get China (yes, China) to help flip the bill for the estimated 15 billion USD it wil take to resolve this issue.

Honestly, and I am out of the sourcing game now, this is what I hate.  That (1) you have a foreign firm operating in China that clearly does not have a quality control process with any integrity.  They have come here looking for a cheap manufacturing base, and the people they left to run it have found cheap materials to accomplish that task (2) you have a supply chain that is void of testing products because the 3k USD is seen as a barrier to profit.. for that container.. and therefore never done (3) you have a trade system whose agencies are incapable of keeping up.  US and Chinese customs officials, as it they were not busy enough, now have to check for quality and (4) no one in the entire system feels any measure of responsibility, or feels that they should step up and admit that the product/ process is bad.

.. and this news comes a day after I read that Mattel has settled another 22 class action lawsuits.

the relief will be presented in the form of refund checks, an agreement for the companies to comply with a new quality assurance program and a $275,000 donation to the National Association of Children’s Hospitals

.. and who else thinks that they got off easy on that one?

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10 Responses to “Who Worse? Chinese Drywall Manufacturers or American Insurance Companies”

  1. Nan Gongyuan says:

    October 16th, 2009 at 4:37 am

    Sounds like a simple case of buyer beware. The American importers who bought the stuff should carry the can. As for the insurers, thats a disgrace. America needs to get over the “cheap is good” mentality. Its not good. Cheap is often crap. So if Americans want better quality, they’re going to have to drop their purchase expectations, buy less, and receive more.

  2. Jeremy says:

    October 16th, 2009 at 4:54 am

    American Insurance Companies

  3. Alex says:

    October 16th, 2009 at 9:30 am

    “James and Maria Ivory’s dreams of a relaxing retirement on Florida’s Gulf Coast were put on hold when they discovered their new home had been built with Chinese drywall that emits sulfuric fumes and corrodes pipes. It got worse when they asked their insurer for help — not only was their claim denied, but they’ve been told their entire policy won’t be renewed.”

    I’m sorry if I’m being very slow here. How does an insurance company arbitrarily decide to not support protection their policy holders seemed to pay for? Is this a test case where insurers end up having to never pay for anything?

  4. Yann says:

    October 18th, 2009 at 8:47 am

    Very good article.
    I have myself a small sourcing company here in China that exports to France and USA, and even at my own humble level of business I’ll never send something to my export countries without having tested them. Always throwing the stone on China is far too easy! In China they say “yifenqian,yifenhuo” which is exactly the “you get what you paid for” means. China know how to produce almost everything, from the small bonus keychain you’ll find in your detergent packaging to satellites and Iphones. They can make high quality products and shitty quality products, it depends on what you’re looking for. The bad quality “made in China” motto was ok for the 80’s and 90’s, now it’s over.

    And I just can’t believe that american insurance companies just unilaterally won’t renew their policy… Those people have no face, how can they sleep at night? Can’t a class action be successful ? (I’m not american so I’m not that familiar with this type of action).

  5. Rich says:

    October 19th, 2009 at 12:40 am

    @ Nan Gongyuan.

    I am with you on that, but I would also press that the brand who is contracting out in China should also be in the hook if the importer is different from the brand.

    Honestly – insurance firms… arg. how can they be allowed to legally drop clients who have paid the monthly payments exactly for this day. It is like putting money down through a layaway program, and when you have your payments finished you are told that the TV is gone and you cannot have your money back.

    .. and that is “F”ed up.

  6. Rich says:

    October 19th, 2009 at 12:42 am

    @ Alex.

    Sounds like Michael Moore should be called in. I have no idea whether or not these people have a legitimate claim, or if there is a problem with the drywall, but for the insurance companies to just drop people because they may hav a problem is horribly irresponsible.

    I remember when the insurance companies tried to pull themselves out of Katrina and the state of Louisiana banned them from selling into the region ever again… that perked up their ears.

    R

  7. Business Culture China says:

    October 20th, 2009 at 2:14 am

    The dry-wall story in another sticky issue that will make Chinese business ventures only more complicated.

  8. Terry & Donna says:

    October 27th, 2009 at 5:27 pm

    We built our dream home in 2006 – completed in April 2007. In August 2008 our A/C evaporator leaked and had to be replaced, as we were past the one year parts and labor warranty we had to pay $800.00 for a new evaporator coil. In April 2009 the A/C evaporator on our second A/C unit leaked, that is when the A/C technician informed us that they have getting a lot of business form new home buyers who had Chinese drywall and charged us another $800.00. We contacted our builder and he admitted that he had other customers whom he verified had Chinese drywall installed by his subcontractor who was declaring bankruptcy to get out of the lawsuits he saw coming. The builder told me if I sue him he will have to do the same. Meanwhile in July 2009, the A/C evaporator installed in August last year started leaking again and we were charges another $800.00 and then in Sept. the A/C evaporator installed in April began to leak another $800.00 to repair brand new A/C systems purchased with our new home. We are stuggling to pay for these repairs and our other bills. If we take a home equity loan we will have lost all the equity we earned over 25 years to repair this home and will be saddeld with doubling mortgage payments.
    The problem is real all of our silver jewlery is tarnished beyond repair. Like everyone else our home owners insurance company denied our claim based on pollurted materials used in our construction. Funny that denials come so fast but no one has actually offered any help. We are desparate to get help fixing our home as our thousands of other people in our position.
    Believe me the problem is real and it’s destroied our happiness of building our dream home and shaken our financial future.

  9. Stu says:

    November 3rd, 2009 at 9:08 am

    Nice story. The drywall should have never been eligible to come in to our country. The people who let this happen should be held accountable for this. They let a product come into our country that cost us. As for the insurance company… They should not be allowed to drop due to that reason. If they don’t want to pay then that is fine. If the insurance company was to pay, the insured would get increased premiums because reserves would be exhausted due to a problem that someone else caused. Insurance is not a warranty on your home. Someone made money off the defective drywall, so they should pay for the damages.

  10. Rich says:

    November 3rd, 2009 at 10:01 am

    Stu.

    Very true…. Someone made money off the defective drywall

    R