Greg disects some of the potential lawsuits against a manufacturer giant.

If it appears that the Dryvit penguin seems to be standing a little more stooped these days than you remember, there's good cause for the corporate icon to be feeling a bit down in the feathers.

The industry-leading West Warwick, R.I., EIFS manufacturer is moving toward final court approval of a potential $75 million class action settlement with thousands of plaintiffs nationwide. If approved, the settlement would be the largest to date resulting from EIFS litigation.

Although it comes at a steep cost, the settlement allows the manufacturer to maintain its position that poor installation and substandard building practices-not EIFS-are at fault in a multitude of water intrusion claims, while at the same time deflecting an otherwise potentially choking amount of expensive and time-consuming litigation.

To a large extent, the settlement allows Dryvit move toward getting back to business as usual. The settlement may go a long way toward clearing out the backlog of EIFS litigation, providing a framework that, while not cheap, could help bring closure to a long and painful period for the industry.

Timing's just right

And it couldn't come at a better time. Earlier this year, a Virginia court stung the company with a $2.5 million award in a Norfolk condominium suit. Dryvit has filed an appeal to the judgement. And while there is good cause to challenge the ruling, there's no guarantee the appelate court will even hear the case.

The Virginia award also underscores the fact that many of the EIFS-related lawsuits filed over the past five years are starting to bear fruit. While the proposed settlement won't dismiss Dryvit from all outstanding liability, it wipes away a substantial portion of potential claims.

Under settlement terms, plaintiffs who can establish they own Dryvit-clad homes and who elect to participate in the settlement will receive reimbursements up to $7,500 for repairs to water intrusion troublespots. Homeowners additionally will receive a three-year "MoistureFree" warranty covering any future moisture problems, providing up to $10,000 for exterior repairs.

The MositureFree warranty provides that all covered homes will be protected from moisture-related damage to the exterior cladding, transitions and other exterior wall components. However, the warranty does not address any consequential damages attributable to moisture intrusion. Damage to sheathing, framing or other building components are not covered, nor are any health claims resulting from detrimental environmental conditions.

The future looks bright

For many affected homeowners, it's not a bad deal, particularly if their homes are essentially trouble-free. The homeowner is provided the assurance of a three-year moisture intrusion warranty, and the manufacturer is free of any repair costs beyond the fixed portion of the settlement.

It's also a pretty fair deal to those homeowners whose homes require repair. Following an initial inspection at Dryvit's expense, homeowners must first undertake necessary repairs before they can receive the MoistureFree warranty. Homeowners will then be reimbursed up to 50 percent of repair costs, up to $7,500 per claim, provided the total number of claims is less than 7,000. The manufacturer's contribution is reduced incrementally if the number of claims is higher, dropping to a limit of 40 percent at 10,000 claims or more. Plaintiffs are still free to pursue suits against applicators, builders, or any other parties to alleged construction defects.

If 7,000 homeowners partake in the settlement, Dryvit could be exposed to upwards of $75 million in settlement claims. In all likelihood, however, the manufacturer will probably end up paying less-possibly as little as half-depending upon the number of plaintiffs that opt to stay in the settlement, as well as the extent of their claims. Under the proposal before the courts, $26 million in fixed costs are allocated, including more than $11 million to plaintiffs attorneys. Additionally, $3.5 million is allocated to warranty administrative costs, $5.7 million for purchase of 3,500 warranties, $2.6 million for inspection, and $2.5 million for public notice.

Although it comes at a high price, it's also a pretty good deal for Dryvit. Not only is the settlement far reaching in its scope-excluding only homeowners in North Carolina-all potential plaintiffs are by default party to the agreement. Apart from those homeowners who opt of the settlement, Dryvit is excused from any further damage claims.

But the settlement doesn't solve all of the manufacturer's legal woes. Homeowners who opt out can continue to pursue claims against the manufacturer. Also, the settlement language explicitly excludes personal injury claims, meaning that the company is still at risk to lawsuits claiming illness from mold or other adverse environmental conditions. Fortunately, in our industry, these suits have been few and far between. The downside is, in those cases where damages have been awarded, they have been substantial.

Because the settlement is still pending in court, Dryvit officials could not offer comment. The settlement must first clear a schedule fairness hearing in October, at which time the true settlement costs-and benefit-for Dryvit will be detailed.

Beyond the impact to the manufacturer and affected homeowners, the settlement is expected to cause ripples throughout the industry. If adopted, the settlement positions Moisture Warranty Corp, issuers of the MoistureFree warranty, as a recognized source of warranty protection for EIFS-clad homes. While warranty policies and the attendant home inspections may be a bitter pill for the industry to swallow, it does allow all those affected to move beyond the litigious mess that's mired our industry. W&C