Louisiana Bills Would Ban Insurance Cancellations from Drywall Claims

March 26, 2010

Property insurance companies would not be allowed to cancel policies or raise rates on homeowners who make damage claims stemming from corrosive Chinese drywall, under two proposed state laws in Louisiana.

Bills by state Sen. Julie Quinn, R-Metairie, and Rep. Walt Leger III, D-New Orleans, would provide a degree of protection to Louisiana homeowners who are among about 3,000 nationwide complaining of damage from the drywall.

Both bills also would prohibit rate increases or cancellations of coverage if a house is found by an insurer to have Chinese drywall – regardless of whether a claim is filed or not.

Quinn’s bill goes a step further by offering the same protection to commercial property owners.

Leger said he doesn’t know of any cases where a drywall claim has cost a homeowner coverage or higher rates, but he has “spoken to a lot of people who are afraid they will lose their coverage if they make a claim.”

“I want to encourage people who have legitimate claims to make those claims,” Leger said. “That’s what they pay premiums for.”

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 between health problems and high levels of hydrogen sulfide gas emitted from the wallboard, coupled with formaldehyde, which is commonly found in new houses.

About 2,100 claims have been filed in federal court over the drywall.

Louisiana Attorney General James “Buddy” Caldwell, who says 1.1 million sheets of Chinese drywall were brought into the state after Hurricane Katrina in 2005, is suing drywall manufacturers and developers on behalf of state and local governments. He said the state has lost tax revenue, sustained a decrease in property values and faces high disposal and medical costs because of the drywall.

At the same time, the availability and cost of property insurance has been a consumer concern in Louisiana since the 2005 storms. Despite a drop over the past few years, about 131,000 residential and commercial properties are still covered by the state’s insurer of last resort, Louisiana Citizens Property Insurance Corp.

“Everybody’s concerned about the high cost of insurance,” Leger said. “They’re concerned a claim will drive up their rates or result in cancellation.”

Quinn’s bill calls for a $1,000 penalty against insurers for each violation. Leger’s bill does not contain a specific penalty clause.

State Insurance Commissioner Jim Donelon said he had not run into any consumer complaints about drywall-related cancellations although some legislators had voiced concerns about the possibility.

Donelon said that although claims can affect a company’s decision to cancel a policy, companies in Louisiana can cancel any property owner – without stating a reason – if the owner has not been with the company for at least three years.

Donelon also said his agency had ordered Citizens to create a hybrid policy for its property owners facing Chinese drywall problems.

U.S. Congressman Charlie Melancon of Louisiana has introduced federal legislation that would prevent insurance companies from cancelling or failing to renew homeowners’ policies as the result of Chinese drywall in their homes.

State lawmakers convene the regular legislative session on March 29.

House Bill 668 and Senate Bill 595 can be found at www.legis.state.la.us

Was this article valuable?

Here are more articles you may enjoy.