drywallwalls
The family room, which used to be just a back porch, has one wall against the enclosed garage. This room only has wood paneling, with some kind of insulation behind it, followed by some kind of wood paneling/sheathing on the garage side.
I read that drywall on a garage wall is supposed to be fire rated but I can't tell if that means on the garage interior only or if it also needs to be on the family room interior wall attached to the garage.
This will likely be a location specific issue, so it doesn't hurt to check your local codes.
All the fire rated work that I've done has been between units (both to other units and common areas) and any load bearing structures of a multi-unit dwelling. When we do that, fire blocking is installed in the ceiling space as well to prevent a fire from traveling through the ceiling to another unit. For everything else within a single unit, and in a single family home, we don't use any fire rated drywall.
Edit: A few reasons I'd disagree with Eric on this one. First, I'm presuming you already have a certificate of occupancy (or someone did) to move in with an unfinished utility room. That required an inspection that presumably allowed the space as is. Next, most codes for combustion devices (furnace, gas hot water) require that you have ventilation. Installing a vented door is perfectly acceptable and won't provide any fire stopping. And, finally, most HVAC's (if the furnace is forced air) will be connected to vents that run to every room in the house. From the little I saw, the furnaces and utility rooms in searches likely referred to multi-unit dwellings, and that does need to be fire stopped. You also have to use fire caulk around every hole. Our multi-unit buildings also have sprinklers throughout and spring loaded vents that snap closed in event of a fire.
That all being said, there's absolutely nothing bad about installing fire rated material around the furnace, other than the extra cost and that it's a bit more difficult to cut. If you want to do it, then by all means, do so.
Edit 2: One last note, realize that fire rated drywall increases the resistance from 30 minutes that you'd typically see with 1/2" drywall to 1 hour. Fire rated doesn't mean fire proof.
A better question would be, why is my sheathing getting wet?
The grain of the sheathing suggests to me it is Homosote Homasote. It should not be squishy, rather firm and resilent.
Something is allowing water past your brick barrier, and then, past what was vapor barrier (for the time, 15-30# tar embedded felt paper. I would look up, overflowing gutters can get behind fascia boards and run down the inside of the bricks, soaking the sheathing if the vapor barrier was broken during the bricking (as sometimes happened, also mortar bridging can cause this). In no case is it normal for the sheathing to be wet. Poor tuck pointing (especially around windows) can also allow water intrusion.
Once the water intrusion is corrected, all stud bays in the affected areas should be opened and the sheathing evaluated for viability. Also, opening the cavity will allow faster drying out and possibly see where the intrusion is starting.
As an aside, my 1941 house used a gypsum lath board for plaster.
Best Answer
The fire protection is for fire traveling from the garage to the living spaces, not vise versa.
The garage is to be separated from a living space with 1/2” gypsum board installed on the garage side and with a 1 3/8” min. solid core door. (See ICC R309.2)
In addition, if a living space is above a garage, then it needs to be separated with 5/8” Type X gypsum board AND no sleeping room can open directly into a garage.
Your existing wood paneling on the living side is acceptable, as is.