Dip tube lawsuits settled

The settlement, which is expected to be finalized in April, resolved about two dozen class actions, in part, by providing $175 to cover the replacement of eligible dip tubes and the flushing of a home’s plumbing system, and a lesser amount for replacement only.

Anyone owning an eligible dip tube can be compensated for replacement and repair costs under terms of the settlement. Homeowners already experiencing dip tube-related plumbing problems can receive immediate help and do not have to wait until the agreement becomes final. Homeowners with affected dip tubes but not experiencing any problems will receive a certificate for replacement after the settlement becomes final. Certificates must be redeemed within six months of receipt. Customers who already paid for replacement of a dip tube and/or related repairs but did not go through a water heater manufacturer will be eligible for reimbursement of up to $175.

Specific requirements of the settlement include:

• Beginning Nov. 22, 1999, contractors were required to refer customers who called them with dip tube problems to call 800/329-0561 to reach a claims administrator with Crawford and Co., the firm managing the settlement;
• Contractors must sign up with Crawford to become a registered dip tube contractor. If a contractor does not register he will not be reimbursed for any work related to dip tubes;
• Claim forms must be submitted by both homeowner and contractor to receive reimbursement;
• If a contractor’s costs exceed the $175 allotment the case must be submitted to a special circumstances panel, comprised of licensed contractors, which will determine if the additional costs are justified.

Customers who already paid for repairs with their own money must submit claim forms postmarked on or before June 30 to receive reimbursement benefits. All other customers must submit claim forms postmarked on or before Dec. 31, 2000. Written requests to be excluded as a class member must be postmarked by March 25. All class members may begin filing claims immediately. For copies of claim forms and for further details of the settlement agreement, contractors can visit www.diptubesettlement.com. Contractors should call the contractor-only toll-free number at 800/876-9280.

Water heater manufacturers involved in the settlement include A.O. Smith Corp., American Water Heater Co., Bradford White Corp., Lochinvar Corp., Rheem Manufacturing Corp. and State Industries. Despite the settlement agreement, the water heater manufacturers and Perfection Corp. have continued to deny any liability with respect to their products. Perfection Corp., the dip tube manufacturer, was named as a defendant in the class action settlement but did not participate in its development. Tank manufacturers fully intend to recover as much as they can from Perfection and have already sued Perfection’s insurers to recover their costs, according to a manufacturer’s lawyer. 

Dip tubes are plastic tubes that force cold water to the bottom of a water heater to increase the heater’s efficiency. Perfection has identified potentially 14 million dip tubes that might react with hot water by falling apart into chips. The chips cause decreased efficiency of the water heater and float throughout a plumbing system getting stuck in faucets and household appliances. 

Tank manufacturers should have notified their contractor customers by letter explaining terms of the agreement. Homeowners will be notified of their eligibility through a public education campaign that will include mailings to identified dip tube owners as well as print and television advertisements.

Those involved with developing the agreement told Contractor the $175 allotment was based on extensive research of contractor wages across the country and would be sufficient to reimburse either a homeowner or a contractor for any problems related to faulty dip tubes.

"The judge took the time to make sure the settlement took care of the people it should--the consumers," said Ralph Phalen, an attorney representing class members. "This settlement gives 100% compensation for everyone.

"If a consumer has problems they will be fixed at no cost to them. Also, there is no cap on the settlement amount," Phalen said.

Contractors, on the other hand, said the $175 might not be enough to cover their costs, and that other details of the settlement might put them between a rock and a hard place with their customers.

"I think this whole thing will be a big mess for the contractor who has to go out there and deal with the customer," said Roger Peugeot, president of Roger the Plumber in Overland Park, Kan. "Customers will want to get things fixed right away, and they won’t care about paperwork the plumber has to do. Customers will be impatient and plumbers will have to deal with that.

"Plus, most of our customers have homes with five to seven bathrooms. So to flush out all the dip tube particles from homes like that, and then to stand behind that work, would take more money than it appears contractors will be offered."

In the spirit of good business relations, Peugeot said he will fix an existing customer’s problems and not bill anybody for the work. But non-customers who want Peugeot to make a service call will have to be charged.

"Usually our average price for a flush-out is at least $300, but the litigation will only cover $175," Peugeot said. "And who knows when the (special circumstances) panel will be available to approve more money? And what if every house I go to has a more expensive problem? The panel might think, ‘This guy always has a high price,’ and I may get blacklisted."

The special circumstances committee was not set up to reject claims, said Kerry Miller, an attorney representing water heater manufacturers. Panel members’ duties will involve reviewing possibly one or two pieces of paper. The panel should contain about five contractor members, with one member rotating out now and then.

"There should not be too many cases in excess of $175," Miller said. "Any contractor who signs up to be an approved contractor through Crawford automatically agrees to the $175 limit for repairs."

Reimbursements for contractors who began dip tube-related work for their customers before Nov. 22 were being handled by their tank manufacturer suppliers. Any work begun after that date had to be submitted through Crawford for reimbursement.

Perfection Corp. is communicating with the tank manufacturers and its goal is to make peace with them, said Bill Mertens, Perfection’s attorney.

"We are involved in litigation with our insurance companies that is preventing us from settling this situation with the tank manufacturers," Mertens added. "There is no litigation against Perfection Corp. at this time and our preference is to settle with our insurance companies so we can come up with an agreement with the tank manufacturers."

Affected dip tubes are those supplied or sold by Perfection between August 1993 and October 1996. A hearing will be held April 21 to determine: 1) whether the proposed settlement is fair; 2) whether the court should approve the application for payment of attorneys fees ($5.65 million).

"The settlement agreement accomplishes everything we hoped it would," said Alan Hilburg, consumer education specialist for the water heater manufacturers. "It puts in place a system for all consumers to be satisfied completely."

The agreement does not appear to be so clear cut to Nancy Cummins, service manager of Hutzel Plumbing and Heating in Ann Arbor, Mich.

"Everything was going fine up until the class action deal," Cummins said. "Since we have had to refer customers to Crawford’s 800 number our customers have been very angry. We have to tell them that we can’t come out to do it and that they have to deal with Crawford. That upsets them because they just want it fixed, and because they know in some instances we were at their neighbor’s house fixing the same thing weeks ago, and now we can’t come out."

Hutzel is an authorized A.O. Smith service company, and the manufacturer has been more than fair in handling situations that started prior to Nov. 21, 1999, she said. If a technician had a callback and had to re-flush the systems or replace faucets, A.O. Smith reimbursed the contractor.

"But now, if our costs exceed the $175 or the three hours allotted us to perform dip tube work, we don’t get paid," Cummins said. "And what are we contractors going to do? We want to take care of our customers, but we want to get paid as well. We can’t just stop working after three hours. If people who call are our customers and we installed their water heater, we want to take care of them. This agreement has put contractors in a very bad spot."

Also See:
Lawsuits filed over dip tubes

Dip tubes failing in water heaters