Lennar Corp. (NYSE:LEN) on Friday said it has set aside $39.8 million in its warranty reserve account to deal with costs associated with defective Chinese drywall in homes sold primarily in Florida.

In its quarterly 10Q financial report to the Securities and Exchange Commission, Lennar disclosed that it had identified some 400 homes delivered in Florida mostly during 2006 and 2007 that have drywall issues. However, it said at this time it can not "reasonably" estimate future exposure relating to the defective drywall but that it was continuing its investigation and, if more home are found, it would need to set aside more money to cover warranty issues.

The company expects a $20.7 million insurance payment for covered damages that will go towards replacing the defective drywall and the resulting damage to plumbing and HVAC systems. It said it is seeking reimbursement from subcontractors, insurers and others for the costs of remediation.

"Defective Chinese drywall appears to be an industry-wide issue as other home builders have publicly disclosed that they are experiencing similar issues with defective Chinese drywall," Lennar stated in the filing.

The 10Q also disclosed that as of July 10, Lennar was aware of 41 Florida state court suits and two federal class action suits that have been filed against it by homeowners and family members in connection with the defective drywall. It, in turn, has sued the entire supply chain, including the Chinese and German manufacturers of the drywall, in Miami-Dade Circuit Court."Lennar is attempting to perfect service of its complain on the Chinese defendants," the filing said.

Defective drywall has been installed in as many as 100,000 homes across the nation during the housing boom. It emits a corrosive gas that damages some appliances, HVAC systems and plumbing and smells like rotten eggs. Several state and federal investigations have been launched into the issue.