Residents of homes with faulty drywall reached an $8 million settlement with a New Orleans company that distributed the Chinese drywall to homes in the Gulf region for rebuilding after hurricane disasters.

Interior/Exterior Building Supply’s two primary insurers, Arch Insurance Co. and Liberty Mutual Fire Insurance Co., will each put $4 million into an escrow account until U.S. District Court Judge Eldon Fallon can determine how to distribute the funds.

The deal, still subject to court approval, is the first monetary settlement in the case, which began about two years ago.

The amount of money may increase if plaintiffs go to trial this summer against Interior/Exterior’s excess insurer, North River Insurance Co., which has $72 million in coverage, according to The Times-Picayune.

The settlement affects about 2,000 to 3,000 homeowners in Louisiana, Texas, Mississippi and Alabama, where Interior/Exterior was the primary distributor of Knauf-brand drywall, and maybe a “handful” of households in Florida, the newspaper reported.

Russ Herman, lead plaintiff lawyer, told The Times-Picayune he hoped the settlement would encourage other parties to settle.

Drywall affects thousands

Companies imported Knauf-brand drywall from China between 2004 and 2008 because the U.S. couldn’t produce enough for the housing boom and rebuilding efforts in the Gulf after the 2004 and 2005 hurricane seasons, the newspaper reported. One of the worst hurricanes, Hurricane Katrina, occurred in 2005.

The drywall released sulfuric gases that corrode metal appliances and components in homes. Residents of homes with the faulty drywall said it gave them headaches, respiratory and skin ailments. They have lived for years in houses they can’t afford to fix and are unable to sell.

As of April 6, the U.S. Consumer Product Safety Commission (CPSC) said it has received about 3,845 reports from residents in 42 states, Washington, D.C., American Samoa, and Puerto Rico, and as many as tens of thousands of homes may be affected. About 56% of the reports are from Florida, and 19% are from Louisiana, the CPSC reported. About 5% are from Virginia.

Rebuilding

A deal was reached in October with Knauf Plasterboard Tianjin, a Chinese manufacturing unit of the German company Knauf Gips, according to The Times-Picayune.

Although many of the foreign manufacturers are beyond the reach of the law, Knauf and other entities that dealt with the drywall, including Interior/Exterior, agreed to pay for a pilot program to rebuild 300 homes with Knauf-brand drywall in Louisiana, Mississippi, Alabama and Florida, the newspaper reported.

The program launched in Florida in February, and in Louisiana in March.