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U.S. to Ask China to Help Pay for Defective Chinese Drywall

Across the country, ationwide, thousands of homeowners whose houses were constructed with defective Chinese drywall may find that not only will their insurance claims be...
October 21, 2009

Across the country, ationwide, thousands of homeowners whose houses were constructed with defective Chinese drywall may find that not only will their insurance claims be denied but their homeowners insurance policies may be dropped. At least three insurance companies have already canceled or refused to renew policies after homeowners filed claims to replace the material. The new chairman of the Consumer Product Safety Commission said she would ask China to help pay for the billions of dollars in damage to U.S. homes blamed on Chinese-made drywall.

As many as 100,000 houses across the country have the suspect drywall, most of them built in 2006 and 2007 when a spike in new construction occurred in part as homeowners rebuilt following hurricanes in 2004 and 2005. That prompted imports of drywall, which developers traditionally had sourced domestically.

Sen. Bill Nelson (D-Fla.), recently asked President Barack Obama to include Chinese drywall on the agenda when the president travels to China next month. PIA National Director of Federal Affairs Mike Becker met with Sen. Nelson about the issue on Tuesday October 20. Sen. Nelson said he sent out letters late last week to eleven property insurers in Florida asking for a formal statement on the issue. The letter states in part:

"I've heard from a number of my constituents who suffer every day from the adverse effects of contaminated Chinese drywall installed in their homes.  These homeowners have to incur large expenses just to make their homes livable again. 
 
"Now Floridians are telling me their insurers are refusing to pay claims or are dropping their coverage.  An account in yesterday's Wall Street Journal is illustrative.
 
"As a member of the Senate Commerce Committee and a former state insurance commissioner, I find these accounts deeply troubling.  I would like you to provide me a statement regarding your company's policy on claims and coverage relating to contaminated Chinese drywall.
 
"Thank you for your immediate attention to this matter.  I look forward to your response to these concerns."

Insurers are wary of Chinese drywall, which the risk management firm Towers Perrin recently estimated could cost the industry $15 billion to $25 billion, or three to five times the cost of the insured property losses of Hurricane Rita. Claims will involve not only homeowners asking their insurers for help remediating, but also pursuing the commercial liability policies of builders, contractors and suppliers who handled the product before it got to their homes.

"This is like the small wave that's out on the horizon that's going to continue to grow and grow until it becomes a tsunami," said attorney David Durkee, who is representing homeowners who are suing builders, suppliers and manufacturers over the bad wallboard. 

John Kuczwanski, a spokesman for Citizens Property Insurance Corp., a Florida insurer that has had 23 claims over Chinese drywall and has so far denied five, explained that a claim was denied because the problem is considered a builder defect, which is not covered under the policy.  The insurer also considers the problem a pre-existing condition that could lead to future damage, which explains why the company will not renew the policy unless the problem is fixed.  Kuczwanski said, "We provide insurance, not warranty service."  Robert Hartwig, president of the Insurance Information Institute, agreed that homeowners policies were never meant to cover "faulty, inadequate or defective" workmanship, construction or materials. Tom Zutell, a spokesman for the Florida Office of Insurance Regulation, said he was troubled by the cancellations, but he acknowledged that they are legal.

U.S. to Press China on Drywall (The Wall Street Journal 10/17/09)

Homeowners With Chinese Drywall (New Orleans Times-Picayune 10/18/09)