Insurance Law360
November 12, 2015
On March 1, 2015, television news magazine “60 Minutes” aired a report concluding that Chinese-manufactured laminate flooring sold by Lumber Liquidators contained and “off-gassed” formaldehyde at levels exceeding health and safety standards promulgated by the California Air Resources Board (CARB). Much has happened in the eight months since the allegations regarding Lumber Liquidators’ laminate flooring became a topic of conversation in living rooms across the country: Lumber Liquidators is the focus of several ongoing investigations into its practices, continues to be the target of numerous consumer lawsuits and faces litigation in connection with its claims for insurance coverage.
From the moment the 60 Minutes piece aired, it was clear that the allegations concerning Chinese-manufactured laminate flooring would have an impact on the insurance industry. Almost immediately, the specter of potential insurance claims prompted comparisons with the onslaught of Chinese drywall claims the industry has faced in recent years. While it may be too early to predict whether laminate flooring will be the “new Chinese drywall,” recent developments suggest that the insurance industry has in mind the lessons learned during the Chinese drywall crisis and is applying those lessons to address this new species of claims.
Lumber Liquidators on the Defensive
In the wake of the 60 Minutes report, Lumber Liquidators took issue with the “deconstructive” testing methods relied upon by 60 Minutes, which involved removing the laminate surface of the flooring before measuring formaldehyde emissions. In its view, these testing methods did not produce meaningful results because they did not reflect how the products are actually used by consumers. The company denied that its products were unsafe and continued to sell Chinese-manufactured laminate flooring. However, to assuage customers’ concerns, Lumber Liquidators offered to provide customers with indoor air quality test kits. The company did not offer to replace flooring.
Various politicians, including Sen. Charles Schumer, D-N.Y., called for probes of Lumber Liquidators’ products and practices. In late March, the Consumer Product Safety Commission heeded these calls and launched an investigation, which is still ongoing. In May, shortly after the CPSC investigation was announced, Lumber Liquidators suspended sales of its Chinese-produced laminate flooring. The same month, embattled CEO, Robert Lynch, abruptly quit his post.
In addition to its laminate flooring woes, Lumber Liquidators also faced an unrelated criminal probe by the U.S. Department of Justice of the company’s practice of importing hardwood from foreign suppliers that allegedly violated timber harvesting regulations. Just last month, the company reached a $13.2M settlement with the DOJ and pled guilty to violations of the Lacey Act and...
