Knauf Plasterboard Tianjin, one of the largest manufacturers being sued for producing defective Chinese drywall, will announce tomorrow that it will participate in a remediation pilot program that involves repairing about 300 homes. At least one drywall supplier, Louisiana-based Interior Exterior Building Supply, and several insurance carriers will also help fund the program, sources close to the negotiations say.

The program, which is expected to include homes in Florida, Louisiana, Mississippi and Alabama, could be the first step toward a global settlement over the contaminated drywall, which emits sulfur gases that can corrode electrical wiring and trigger respiratory problems. The Consumer Product Safety Commission has received more than 3,500 complaints from people who say their homes have been affected by the defective product.

Only homes built with Knauf drywall will be included in the pilot program. Other companies that are being sued for manufacturing defective drywall -- including Taishan Gypsum Ltd., which has direct ties to the Chinese government -- are not part of the agreement.

The homes will be repaired according to a protocol developed by U.S. District Court Judge Eldon E. Fallon, who is presiding over the litigation in New Orleans. It requires, among other things, that all the drywall be removed, along with the wiring, the air-conditioning system and other components – a procedure that will effectively gut the interiors of the houses. One of the program’s goals is to settle on a cost for the work. Homeowners who have paid to fix their homes themselves have often spent more than $100,000.

Attorneys for the plaintiffs, Knauf Tianjin and other defendants will discuss the agreement Thursday morning at a press conference on the courthouse steps. The deal would mark the first time that homes involved in the lawsuit will be remediated on a sizeable scale. If the program is successful it could lead to Knauf Tianjin settling with all the homeowners who have been affected by its product.

“After difficult negotiations, we have now obviously found a trendsetting settlement-solution for claims processing which will satisfy the affected property owners and could serve as a model for similar cases,” said Jörg Schanow, General Counsel of Knauf Gips, the German parent company of Knauf Tianjin.

Knauf Tianjin’s lawyers have argued that the German parent, Knauf Gips, should be excluded from the lawsuit – and that Knauf executives in Germany shouldn’t be required to appear as witnesses— because Knauf Tianjin alone is responsible for the product. But in August, Judge Fallon ordered Knauf Gips to turn over crucial documents and to make German executives available for depositions. As the Sarasota Herald-Tribune and ProPublica have reported, Knauf’s German headquarters is closely involved in the operation of its Chinese subsidiaries. When the drywall problems first arose in 2006, Knauf officials from Germany helped deal with the complaints.