NU Online News Service, April 28, 4:00 p.m. EDT

The Louisiana State Senate has passed a bill banning insurers from canceling homeowners and commercial property coverage because of Chinese drywall claims.

The legislation, SB 595, sponsored by Senator Julie Quinn, R-Metairie, passed the Senate unanimously on Monday and now goes to the House Insurance Committee.

Insurers are voicing strong objections to the measure that prohibits premium increases, cancellation and nonrenewals of homeowners policies and policies covering commercial properties based on the presence of Chinese drywall or the filing of a claim due to Chinese drywall.

Homeowners have filed damage claims alleging the Chinese wallboard products emit noxious fumes, create respiratory problems, and lead to corrosion of wiring and fixtures within homes.

The Senate's action came a day before a federal judge in New Orleans awarded $164,000 to a family with a drywall claim (see article http://edit.property-casualty.com/News/2010/4/Pages/Family-Awarded-164000-Judgment-In-Chinese-Drywall-Case.aspx).

Greg LaCost, assistant vice presid ent, state government affairs for the Property Casualty Insurers Association of America (PCI), said in a statement he was not surprised the bill passed, but he expressed concern that it "sends the wrong message" about addressing the Chinese drywall issue.

He said imposing legislative fixes could be harmful to the insurance marketplace.

Mr. LaCost added, "Existing state laws and regulations are more than adequate for addressing any insurance concerns associated with Chinese drywall."

He noted that while insurers can nonrenew policies for unoccupied dwellings because of an increased risk of loss, insurers can work with consumers, regulators and others to address the situation without legislation.

He added, "There have not been problems with wholesale cancellation and nonrenewal of homeowners policies on homes containing Chinese drywall."

Sen. Quinn, though, disputed that assertion to NU Online. She said as homeowners make Chinese drywall claims, insurers are denying coverage and in some cases cancelling or nonrenewing those homeowners.

She specified that not all insurers are doing this, but some are.

For the homeowners, she said cancellation of their coverage, and their inability to obtain new coverage, causes a default on their mortgage since the home is uninsured.

Mr. LaCost mentioned a policy being developed by the Louisiana Insurance Department and the Louisiana Citizens Property Insurance, that would provide basic protection for homeowners with drywall issues, as a more pragmatic approach than legislation to addressing concerns.

The policy, reported by NU Online in Nov. 2009 (http://www.property-casualty.com/Exclusives/2009/11/Pages/Link-Found-Between-Chinese-Drywall-And-Corrosion.aspx?k=donelon), is expected to provide some measure of coverage for homes vacated due to Chinese drywall problems.

But Sen. Quinn said, "As we sit here today, there is absolutely nothing offered by the state of Louisiana or Citizens plan in the way of coverage for citizens who have Chinese drywall."

Regarding her bill, she said, "This is a very reasonable solution to a very unique problem."

She said she is "cautiously optimistic" the legislation will pass through the House.

Eric M. Goldberg, associate general counsel for the American Insurance Association (AIA), said the bill is "misguided," and said it restricts insurers' ability to manage their exposures.

Regarding cases where a homeowner's coverage is dropped due to Chinese drywall, Mr. Goldberg said the homeowner could always find coverage in the state's residual market.

He criticized the pattern where defective building products come into the country unregulated and then the insurance industry is expected to pay to fix problems that arise.

He said the government should use its resources to exercise oversight over these imported products.

Special Reports /

La. Moves To Stop Home Policy Cancellations For Chinese Drywall

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