Posted on 19 Nov 2009
A federal bill filed this week would prohibit insurers from canceling or altering coverage of homes because they contain defective Chinese drywall, but experts said its chances of passage appear remote.
The proposed Drywall Victim Insurance Protection Act “will give homeowners peace of mind that they won’t lose their insurance while they repair homes affected by Chinese drywall,” said Rep. Charlie Melancon, D-La., the bill's sponsor.
The four-page bill would make it illegal for insurers to cancel or not renew policies on single-family homes and condominium units based on the fact they contain or are suspected of containing drywall with certain characteristics. Those characteristics include drywall imported from or manufactured in China from 2004 to 2007 or have elevated levels of sulfur or strontium.
The bill also would prohibit insurers from changing premiums or terms of coverage because of the drywall, and allow homeowners whose polices are canceled or not renewed to sue their insurers.
Melancon’s bill is in response to reports that some insurers have or are considering dropping or not renewing homeowners insurance policies because of the drywall. Those insurers claimed the drywall falls under pollution or defective construction exclusions.
Among them was Citizens Property Insurance Corp., Florida’s public insurer of last resort, which told a Colorado couple that it was not renewing a policy on their Punta Gorda retirement home. The company later reversed its decision after it attracted widespread media coverage.
The couple’s Miami attorney applauded Melancon’s bill, but said it likely will face an uphill battle in Congress.
“Any kind of relief that victims of defective Chinese drywall can get will be a benefit,” David Durkee said. (But) I do think they are going to have some difficulties bringing this forward and passing it.”
That’s largely because states, not the federal government, regulate insurance, he said. There also could be constitutional issues with the federal government regulating private contracts involving individuals, Durkee said.
A spokesman for the Insurance Information Institute, an industry association, said the proposal “would have little or no effect” if passed for those reasons.
“Insurance is regulated at the state level, and any legislation that affects policyholders would have to originate from statehouses, not Congress,” Michael Barry said.
Despite that, Melancon’s bill drew praise from U.S. Sen. Bill Nelson, D-Fla., who wrote 11 insurance companies to express outrage at cancellations.
“While homeowner insurance largely is governed by state laws, it doesn’t hurt to press wherever possible, and Nelson certainly supports Rep. Melancon’s effort,” spokesman Bryan Gulley wrote in an e-mail.