Is Toxic Flooring the New Chinese Drywall?

A few days ago, the popular television program “60 Minutes” aired a story about a national flooring retailer selling Chinese-manufactured laminate flooring that contains extremely high levels of the cancer-causing chemical formaldehyde. The report detailed the false labeling practices of the laminate flooring in China where misleading labels are affixed to the flooring materials to indicate low levels of formaldehyde. All of this is allegedly being done with the knowledge and authority of the flooring retailer. Formaldehyde-rich glues are cheaper than safer alternatives, and those involved in the investigation have accused the retailer of endangering lives in exchange for a financial gain.

Is it legal to sell this flooring? Not in California, which has strict formaldehyde emission standards. Similar federal regulations may take effect later this year. Aside from the regulations, however, homeowners across the country may soon be seeking legal relief from the retailer and others involved in the distribution chain, including manufacturers, suppliers, installers and contractors. In fact, the report indicates that hundreds of thousands of homes across the country contain toxic laminate flooring.

Unlike Chinese drywall, the toxic flooring will likely not cause damage to other building components. Chinese drywall emitted toxic gases that not only caused personal injuries but also corroded metallic components within the walls of homes such as electrical wiring and plumbing fixtures. The damages associated with toxic flooring will most likely be in the nature of repair and replacement costs, loss of use of the home and personal injuries. While personal injuries and causation may be difficult and costly to prove in toxic exposure cases, the potential damages are great. Punitive damages may also come to play if a plaintiff can successfully show that the defendant knew of the problem but failed to warn consumers.

It is too soon to tell whether lawsuits arising from toxic flooring are on the rise. In the meantime, however, those in the construction industry with potential risks in this area should be proactive. If your company learns that it is selling or installing products with unsafe levels of formaldehyde, you should talk to an attorney to determine the best course of action. You should also check your company’s insurance policies to know whether there are exclusions to coverage in the event of a toxic flooring lawsuit. The “your work” exclusion found in most commercial general liability policies could be an impediment to coverage since it bars coverage for damage to the insured’s work. Keep in mind, however, that an important exception to this exclusion involves coverage for damage arising from work performed on behalf of the insured by a subcontractor. A pollution exclusion may also bar coverage for claims of formaldehyde exposure. We have seen this exclusion apply in Chinese drywall cases to bar coverage for claims associated with the emission of sulfur gas. Some policies may also have specific formaldehyde exclusions.

The bottom line is that companies that sell or install flooring or other building materials that are known or suspected to contain high levels of formaldehyde should understand the risks associated with the products and consider potential insurance coverage issues before a claim ever arises.