- Posted by Admin on October 27, 2009
For months there has been an undercurrent of unrest in homeowners circles that didn’t directly get the homeowners insurance industry involved until quite recently. Most people wouldn’t think something as innocuous as the drywall installed in their house could pose any kind of threat, but that all changed this year. It was discovered that certain batches of drywall imported from China were apparently made from a chemical process that didn’t sufficiently refine out the sulfur and other contaminants found in their source, which typically is the smokestacks of power plants, as I understand it.
Most drywall manufactured in this country historically has been made from mined gypsum, although in more recent years there has been a trend here, too, towards the “manufactured” gypsum using lime or limestone and gas from coal-fired power plants. Such a process requires desulfurization methods to remove impurities in synthetic gypsum. If such methods are flawed, so is the gypsum.
What problems can contaminated drywall cause? First of all, there are health concerns that as of now involve primarily complaints rather than diagnoses – a rotten egg smell accompanied by itchy eyes and skin, runny noses, nose bleeds headaches, asthma attacks, and more. These seem to bear some similarity to the symptoms claimed when mold was the issue – real symptoms, raising passionate emotions in those affected, whose source legitimately can be debated.
Besides the health issues, though, there is another latent impact of the contaminants involved that complicate this issue from an insurance standpoint – the drywall contaminants are corrosive. If this is the case, over time wiring and/or copper pipes can corrode and fail, which becomes a potential life-threatening or building-threatening hazard of its own right. Failed wires are a dangerous fire hazard. Failed pipes, including those associated with air conditioning systems, can be a very expensive insured peril. Both fire and water are covered by homeowners policies, but building defects are not. Are you beginning to see how this issue starts to become pretty complicated from an insurance standpoint?
This all came to a head a couple of weeks ago in Florida (as if that state didn’t already have enough homeowners issues!), when Citizens Property Insurance Corp., the state-created non-profit insurer-of-last-resort (that through the state’s failed social experiments in artificial price suppression has become the dominant homeowners insurer in the state), issued non-renewal notices to several insureds after they submitted claims related to Chinese drywall, unless the insured removed and replaced the faulty drywall. The reason for the notices was not any claims that had been paid – there had been none, and building defects are excluded from their policies, as mentioned above. Rather, it was the potential for insured loss due to the corrosion that resulted in the notices – this now was a known condition that made an insured loss more likely, and the insured had an obligation to repair it before it caused said insured loss.
Had this been a loose board on the steps to the insured’s deck, or missing shingles on his roof, no one would question Citizens’ right to make such a demand. In fact, everyone would agree they would be irresponsible not to. However, in this case, we are dealing with something new and unknown, and something with an $80,000-$100,000 or so price tag. Now is it fair? To complicate matters, Citizens was not the only insurer to take this stance, although only one other insurer did as of yet.
We will have to see how this plays out. Politics will play a role, as it always does. First of all, there is talk between the US and China on potential remediation. There are an estimated 100,000 houses affected in this country, primarily in the Southeast, so the problem is not as widespread as it could be. That is why this is not going to be the next “mold” – due to lack of exposure, but certainly not due to lack of passion. As for the non-renewal notices, one of Florida’s US Senators happens to be former Insurance Commissioner Bill Nelson. As might be expected, he took quite an interest in the plight of the affected homeowners. Coincidentally, after he got involved, Citizens revoked their notices of non-renewal, saying that upon further review the hazard was not as great as originally feared.
Who knows what was said to Citizens behind closed doors? Regardless, the issue is a complicated one, but thankfully it also is a limited one in scope. Chinese authorities have acknowledged there is a problem, and maybe the restitution will come directly from them. However, this issue does highlight the tenuous nature of the homeowners market, and how unforeseen and often emotional issues potentially can blow up into major loss events not anticipated, or priced into the rates, by the industry.