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LA Insurance Commissioner Says Insurers Will Not Be Able to Cancel Some Policies on Tainted Drywall

Source: A.M. Best

Posted on 24 Nov 2009

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Louisiana Insurance Commissioner Jim Donelon said the state's insurers will not be able to cancel policies related to tainted drywall manufactured overseas if the policyholder has been with the company for more than three years.

Homeowners companies will also not be allowed to raise premiums for customers who report the drywall, which is said to emit elevated levels of sulfur and strontium. Where the drywall is found, homeowners have reported metal corrosion in copper pipe, heating and air conditioning units, electrical wiring and health effects.

The insurance department is creating a task force to deal with the issues created by the tainted drywall, much of it manufactured in China, Donelon said at a conference call. The drywall was used in large part from 2004 to 2007 when it was in short supply following the destructive hurricane seasons and the housing boom.

The state's last resort insurer, Louisiana Citizens Property Insurance Corp., is also stepping up to provide a "bare bones" policy, Donelon said. "It won't have all the whistles and bells but it will meet the requirements of lenders," he said. In some cases, consumers will pay less than a standard homeowners policy, Donelon said.

Insurers do not insure vacant properties because it is risky, Donelon said, noting that homeowners faced foreclosure as lenders insisted the unoccupied home be insured as the drywall was replaced.

"It's what we're here for, " said John Wortman, chief executive officer of Citizens. The policy is called a "Builders Risk Renovation" policy and was used after hurricanes Rita and Katrina, Wortman said. It is unknown how many policies Citizens can expect to get, he said.

Donelon said estimates of those affected by the construction product range from 1,500 to 4,000 homes. "We're here to see to it that insurance companies do the right thing by their policyholders," he said. Consumer protection measures are "unique to Louisiana," he added. "There will be no one with nowhere to go."

Donelon said homeowners have been faced with "dead ends" as they try to rectify the conditions created by the tainted drywall. Many homeowners are forced to leave their homes, including Sean Payton, head coach of the New Orleans Saints, Donelon said. In the meantime, insurers are dropping policyholders. Claims are being denied because of certain policy exclusions.

Donelon called on the federal government to help in recovery efforts particularly in Louisiana, Florida and Mississippi, where the tainted drywall appears most prevalent. Louisiana has made $5 million available to consumers under the Louisiana Recovery Authority.

"The federal government owes victims a lot more than that," Donelon said. "Congress has to step up."

According to BestLink, the top writers of homeowners multiperil in Louisiana in 2008, based on direct premiums written, were: State Farm Group, with a 30.4% market share; Allstate Insurance Group, with 16.7%; Louisiana Farm Bureau Mutual Insurance Co., with 6.4%; Farmers Insurance Group, with 6.3%; and Liberty Mutual Insurance Cos., with 6.3%.