Louisiana Bill Would Ban Insurance Cancellations Due to Chinese Drywall

By Melinda Deslatte | April 23, 2010

A prohibition against insurance companies dropping coverage for homes or businesses that contain corrosive, Chinese-made drywall has advanced in the Louisiana Senate.

The bill by Sen. Julie Quinn, R-Metairie, would bar property insurers from canceling, refusing to renew, or increasing premiums or deductibles because of Chinese drywall at a property.

People who rebuilt their south Louisiana homes after Hurricane Katrina claim the imported drywall emits sulfur, methane and other chemical compounds that have ruined homes and appliances and harmed residents’ health. The contaminated wallboard is costly to replace.

Quinn said she’s received dozens of complaints from homeowners who say they will lose their insurance because they filed a claim related to Chinese drywall or who are afraid to report their drywall problems to insurers for fear they will be dropped by the company. She didn’t, however, have specific numbers of homeowners who have lost coverage or faced a threat that they will lose coverage.

“I don’t think you should be able to dump these policies because it harms your profit,” said Sen. Elbert Guillory, D-Opelousas.

The Senate Insurance Committee approved the prohibition measure without objection, despite opposition from the insurance industry, whose lobbyists argued the bill would violate existing insurance contracts and could force up insurance rates statewide.

“If you can’t adjust your premiums to a particular risk, you’re going to be causing a situation where you have to spread that risk to everyone else,” said Chuck McMains, a lobbyist for the Property and Casualty Insurers Association.

Sen. Dan “Blade” Morrish, R-Jennings, said anyone with an insurance policy in effect for three years or more would be protected from cancellation or lack of renewal under existing law. Quinn’s bill, he said, would impact those people who have had their current insurance policies for fewer than three years.

Quinn’s bill only deals with drywall that was imported from or manufactured in China before Dec. 31, 2009. Anyone found in violation would face a penalty up to half the insured value of the home or property, plus all court costs and attorney fees.

In the House of Representatives, Rep. Walt Leger III, D-New Orleans, has filed a bill similar to Quinn’s that would ban property insurance companies from canceling policies or raising rates on homeowners who make damage claims stemming from corrosive Chinese drywall.

In a report issued in November, the Consumer Product Safety Commission said its studies found a “strong association” between the Chinese drywall and corrosion in homes. The agency also said it found a possible link to health problems.

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Consumer Product Safety Commission (CPSC) recently issued an advisory to homeowners with Chinese drywall to completely remove the tainted product and replace all electrical components and wiring, gas service piping, fire suppression sprinkler systems, smoke alarms and carbon monoxide alarms.

About 2,100 claims have been filed in federal court over the drywall. Louisiana Attorney General Buddy Caldwell is suing drywall manufacturers and developers on behalf of state and local governments.

During the past month federal and state courts have ruled in class action suits related to Chinese Drywall.

A Louisiana civil court in late March rebuffed an insurance company’s use of the pollution exclusion and two other exclusions in an “all risk” homeowners insurance policy to deny claims resulting from so-called Chinese drywall.

Specifically, the Civil District Court in New Orleans Parish, in Simon Finger and Rebecca Finger versus Audubon Insurance Company, No. 09-8071, said Audubon’s “Pollution or Contamination” (POL), Gradual or Sudden Loss” (GSL) and “Faulty, Inadequate or Defective Planning” (FIDP) exclusions could not be used as “affirmative defenses” to deny coverage in the case.

In early April, a federal judge in New Orleans awarded seven plaintiffs from Virginia more than $2.6 million in a consolidated case involving damage to the plaintiffs’ homes as a result of the installation of substandard drywall from China. The award was against the Chinese manufacturer of the drywall.

Senate Bill 595 can be found at www.legis.state.la.us

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Latest Comments

  • April 25, 2010 at 11:49 am
    ashkicker says:
    Homeowners coverage must really be a big profit center to justify the judicial and legislative environment that PC insurers choose to endure in Louisiana. I am sure that PC ac... read more
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