Wednesday, September 27, 2000

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Section: Part A
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Faulty Furnaces Set Scores of Fires, Weren't Recalled

Safety: Thousands of homes in the state have such units. After years of delay, agency will issue a warning.

By: JENNIFER OLDHAM 
TIMES STAFF WRITER

Defective attic furnaces manufactured by a now-bankrupt firm have caused scores of residential fires in California in the last decade, fire inspectors and federal investigators said.

Hundreds of thousands of unsuspecting homeowners may be at risk from these furnaces, made by Indiana-based Consolidated Industries and sold under various brand names in California from 1984 to 1992, these sources said.

The Consumer Product Safety Commission, the independent federal agency responsible for warning citizens about defective products, has known about the problem since the mid-1990s. It said Tuesday it will issue a warning today about the furnaces.

The commission's staff said it didn't issue a warning earlier because federal law prohibits it from doing so while it is in negotiations seeking a product recall. The agency said it had hoped to issue a recall, but was unable to do so when Consolidated--which would have been required to finance this action--went out of business.

The lack of a recall or warning to date had created a sense of foreboding among many fire-prevention officials.

"Every time we have a cold snap we have a furnace fire," said Michael Freige, a senior fire inspector for the Torrance Fire Department, who said Consolidated furnaces have caused seven residential fires there since 1994.

The issuance of a warning without a recall means that homeowners probably will have to foot the bill--averaging about $2,000--for inspecting and replacing the furnaces. Some homeowners' insurance policies may absorb the cost.

The case highlights problems the CPSC runs into when it must deal with financially insolvent companies. It also raises the question of whether laws that limit the agency's ability to issue product warnings during an investigation put consumers at unnecessary risk.

"The preference is for a recall," said Paul H. Rubin, a professor of economics and law at Emory University and a former economist for the CPSC. "Warnings are generally more generic, for example, 'Do not put things in front of electric heaters.' "

Consumer advocates say the commission's tight budget prevents it in many cases from pursuing companies like Consolidated that are unable to finance a recall.

"The commission is always bound by its limited budget," said Rachel Weintraub, a staff attorney for the California Public Interest Research Group. "It's always needing to balance what it can do to protect consumers and what it can afford to do."

To date, no deaths or injuries have been caused by the furnace fires. But residential damages range from a 1990 blaze in North Tustin that destroyed a Ferrari and evening gowns, to a $750,000 fire in Rancho Palos Verdes in 1995 that consumed a home's roof and contents, to a $300,000 blaze in Porter Ranch last year that led to months of counseling for a six-member family.

All three incidents sparked litigation. Two cases were settled and the Porter Ranch case is pending against the builder and Consolidated. Manufacturer Denies Furnaces Hazardous

Consolidated said during discovery proceedings that it sold about 140,000 attic furnaces in California, said Rob MacDonald, an attorney at Richard G. White Inc. who represents California homeowners. But the CPSC said the company and its distributors sold at least 250,000. The units were sold under 30 brand names, including Amana, Coleman, Kenmore, Premier, Sears and Trane.

Trane Co. said it set out to investigate some of the 7,000 Consolidated furnaces it distributed in California as soon as it was informed of fires caused by the units.

"As soon as Trane learned about the problem with the furnaces it conducted an immediate investigation and virtually all the units it was called in to inspect had no problems," said Jeff Bleich, an attorney with Munger, Tolles & Olson, a law firm representing Trane.

Reports by federal safety engineers who tested the furnaces show that they cause fires because of alterations Consolidated made to comply with California's regional smog control rules. Metal rods installed on top of the burner to absorb greater amounts of nitrogen oxide increase the temperature inside the furnace, warp the burner and surrounding parts and eventually allow the flame to escape.

Attorneys for the company dismiss the furnace fires as statistically insignificant.

"Furnaces only last 15 to 20 years," said Daniel Freeland, Consolidated's bankruptcy trustee. "If they were so defective, I think you would have thousands and thousands of fires."

The commission staff said it made the determination that the Consolidated attic furnaces cause fires. The CPSC said its findings supported California homeowners who filed a class-action lawsuit in 1994 against Consolidated and four of its distributors: Addison Products, Bard Manufacturing, American Standard/Trane Co. and Amana Appliances. A Santa Clara Superior Court is scheduled to hear a plaintiffs' motion to set a trial date next month.

"We agree with the plaintiffs in the class-action suit," said Mike Gidding, a CPSC attorney. "From the safety side of things, there's not much of a dispute."

But even with this determination, the CPSC didn't warn consumers.

The agency's staff said attorneys who filed the class-action lawsuit against Consolidated warned furnace owners through a notice that they were required to issue when the case was certified as a class action in 1997.

But this notice wasn't sent to each individual member of the class, MacDonald said. Instead, it was printed several times in regional newspapers, he said.

"We don't know where those households are," MacDonald said. "Consolidated's records show the furnaces going to distributors, who sent them to other distributors. They went through 10 hands before they got to consumers."

The CPSC wanted to ultimately issue a recall that would reimburse owners for the furnaces, said Alan Schoem, director of the agency's Office of Compliance.

But a recall became much more difficult when Consolidated filed for Chapter 11 bankruptcy reorganization two years ago because of financial liabilities stemming from lawsuits filed by fire victims and their insurers.

Attorneys representing California homeowners dispute the CPSC's use of the firm's bankruptcy filing as an excuse for its inaction.

"There's always an exception in bankruptcy law for government enforcement activity," said Dan Mogin, a San Diego attorney who this summer filed a class-action lawsuit against Sears.

The CPSC said it had hoped the company would emerge from bankruptcy.

Schoem likened the case to one involving Cadet Manufacturing, an Oregon furnace maker that filed for bankruptcy as soon as the CPSC filed a claim against it alleging its in-wall electric heaters can overheat and catch fire.

The agency was able to work with the firm and its creditors to tailor a recall for about 2 million heaters that allowed the company to stay in business and provide heater owners with a 50% discount on new units, Schoem said.

But in the Consolidated case, the company switched this summer to Chapter 7 bankruptcy, liquidating its assets and wiping out CPSC's hopes of a similar agreement.

The agency has been conducting recall negotiations with Consolidated distributors but has yet to reach an agreement with any of them, Schoem said. He said these companies sold only about 20% of the furnaces installed in California. Agency Criticized on Warning Delays

Product safety experts say this isn't the first time that the CPSC has been criticized for taking too long to release information about a faulty product.

Mary Ellen Fise, general counsel for the Consumer Federation of America, a Washington-based consumer advocacy group, likened the case to one in the late 1980s in which the CPSC was negotiating a recall of infant pillows made by several manufacturers that were linked to the suffocation deaths of 19 babies. The agency reached a recall agreement with some of the manufacturers, but not others, so it waited to go public, Fise said.

Several builders have responded to the safety questions involving Consolidated attic furnaces on their own. Southern California's fourth-largest builder, Shea Homes, started investigating this spring and said the furnaces could be in more than 100 of its communities.

Homeowners who have had fires caused by faulty furnaces faced not only extensive smoke and fire damage, but also the trauma of dislocation and rebuilding.

"Little did I know the nightmare was about to begin," said Joy Sweeney, whose Porter Ranch family needed counseling after their home was damaged last year.

Experts agree that it's only a matter of time--typically after eight to 10 years of steady use--before the units become a hazard. The majority of the Consolidated units have reached, or are about to reach, this critical phase.

"Based on testing in the field, these furnaces are guaranteed to fail," said Gerald Zamiski, an engineer at Long Beach-based Vollmer-Gray Engineering Laboratories who has tested hundreds of Consolidated's furnaces for a report commissioned by the CPSC. Zamiski also acted as an expert witness in cases filed by insurance companies against Consolidated.

Attorneys and fire investigators say fire isn't the only danger presented by Consolidated furnaces. The class-action lawsuit filed this summer by San Diego attorney Mogin against Sears, a Consolidated distributor, was initiated by a Bird Rock, Calif., family who contractors said could have died when carbon monoxide leaked from a malfunctioning furnace.

"The issue here is not whether Consolidated manufactured a defective furnace," Sears attorneys wrote in response to the plaintiffs' motion for class certification. "It is whether Sears engaged in false advertising and/or breached supposed express warranties."

The attorneys wrote that documents provided with 212 Consolidated furnaces that Sears distributed in California specify that they are Consolidated furnaces with a one-year installation warranty.

The furnace fiasco began in the mid-1980s. Consolidated wanted to cash in on California's record-breaking building boom.

But the furnaces did not meet regional air quality district standards. So Consolidated altered the furnace, engineer Zamiski said, and never fully tested the change.

Consolidated provided emissions-test results to air-quality officials in the Bay Area Air Quality Management District and the South Coast Air Quality Management District. The South Coast district said it does not test furnaces or specify how manufacturers should meet emissions standards.

"Manufacturers have to certify that their equipment meets the emissions limits by having it tested by an independent lab," district spokesman Bill Kelly said. "We examine those lab reports for conformance with our regulations and then we certify them if they comply."

Many of the attic furnaces were purchased by home builders and some were sold as replacement units. In 1984, contractors started installing them in subdivisions. Investigators Cited Furnaces in Fires

The first fires caused by attic furnaces occurred in 1990. No one has documented the number of fires caused by the units, but many fire departments contacted for this story cited at least one incident.

Throughout the 1990s, fire investigators reported Consolidated furnaces caused blazes in many communities, including Redondo, Manhattan and Newport beaches, North Tustin, Rancho Palos Verdes, Irvine, Victorville, Yorba Linda, Porter Ranch, Torrance, San Pedro, Venice, Murrietta, San Diego, Compton and Ventura.

Because attics aren't equipped with smoke detectors, many people who had fires were unaware of the fire until it was well underway.

Joy Sweeney smelled smoke in her Porter Ranch home early one morning in February 1999. Then she saw smoke seeping out of a light fixture in the upstairs hall and raced to evacuate her four children.

"As I picked my 4-year-old up out of her bed and was walking out of the room, I glanced up and flames were shooting out of her heating duct," Sweeney said. The furnace was mounted in the attic above the little girl's bed.

How to Check Your Furnace

Check the unit's make and model number. Call a licensed heating and air conditioning contractor to inspect the furnace. (A contractor must take the furnace apart and look closely at the burner and heat exchanger for damage. Experts warn that most Consolidated units are not repairable.)

If you check the unit yourself, turn off the gas and power first. Note: Whether your homeowners insurance will cover a new furnace depends on your coverage. Check with your insurance carrier.

Homeowners with attic furnaces that have one of the following brand names and model designations should call a licensed contractor:

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Source: Richard G. White Inc.