Chinese Drywall

Background:
From 2003 through 2005, the Gulf Coast experienced a large number of hurricanes that brought great destruction and despair. Demands for building materials skyrocketed and domestic supplies could not keep up with the huge demand. To help meet the rebuilding needs, materials were brought in from all over the world. Drywall demands were so heavy the United States relied on supplies from China to meet demand. Years later tainted drywall has raised concerns related to health and remediation.

The cost to strip a home of the Chinese drywall and rebuild using proper materials is not likely covered under many traditional homeowners policies because the problems originated with defective materials used in the construction of the home rather than a covered peril causing damage to the completed home. And since the companies manufacturing the drywall are headquartered in China, most of the companies have ignored lawsuits filed against them in the United States.

Current Situation:
It has been extremely frustrating for individuals faced with a home built with Chinese drywall. Insurers in Louisiana are sympathetic to the situation homeowners with Chinese drywall are experiencing. Insurance Commissioner Donelon has advised insurance companies that if the homeowner is taking appropriate steps to remediate the Chinese drywall problem, the insurance company may not non-renew for material change in the risk. Leading insurers operating in the state have responded to the Commissioner and have indicated that they are not taking adverse decision on homeowner’s policies because of tainted drywall. In addition, a Louisiana homeowner that has Chinese drywall and needs an insurance policy to cover the higher risk hazard can get coverage through Louisiana Citizens.

A homeowners insurance policy outlines the list of perils for which coverage is provide including wind, fire and hail. These listed perils are what the premium charged to the policyholder covers. The policy also identifies excluded perils such as floods, earthquakes and damage resulting from “faulty, defective, or inadequate” products, such as defective drywall.

Legislative Action:
Legislation was passed during the 2010 Louisiana Regular Legislative Session prohibiting insurance companies from dropping or non-renewing coverage for homeowners who have Chinese drywall in their houses or have filed a claim based on the presence of drywall imported from the People’s Republic of China before Dec. 31, 2009. The law is retroactive and carries a penalty of up to $15,000 if a company is found to be in non-compliance. The legislation has a sunset provision of July 1, 2013.

Resources:
Insurance Information Institute Chinese Drywall Fact Sheet