WASHINGTON – Despite harsh words from Sen. Richard Blumenthal (D-Conn.), a regulator and an industry representative agreed Thursday that Connecticut insurance companies did no wrong in altering homeowners’ policies while a manufacturing issue surfaced and threatened the homes and life savings of hundreds, potentially thousands, of customers.
The issue came to light in 2016 when hundreds of homeowners in Connecticut discovered that the foundations of their homes were crumbling. Insurance companies have denied claims, asking instead that homeowners replace foundations at costs running up to $200,000. The insurers, and many others, have blamed a manufacturing defect.
Concrete used to lay these foundations included pyrrhotite, an iron sulfide mineral that oxidizes, swells and expands over time when exposed to oxygen and water. Insurers have pointed to the supplier of the concrete, J.J. Mottes Company, which for decades tapped into a quarry that has reportedly provided concrete for some 20,000 homes in the area.
Blumenthal, relaying widely reported information from NBC Connecticut and The New York Times, accused the insurance companies of altering homeowners’ insurance policies to exclude foundations from coverage. He said they simply added the word “abrupt” for coverage language concerning house collapses.
“It is an example of the type of insurance practice that may be tantamount to fraud. It certainly involved deceptive and misleading practices,” Blumenthal said Thursday during a hearing before the Senate Commerce, Science and Transportation subcommittee on consumer protection, product safety, insurance and data security. “Instead of alerting their customers, they surreptitiously changed the policies.”
The Connecticut lawmaker asked his panel of regulators and experts if the insurance companies have an obligation to alert their customers when such a serious issue arises. Sean Kevelighan, CEO of Insurance Information Institute, an industry group that educates the public on insurance policies, said that the exclusion of defective materials is a standard exclusion in a homeowner’s policy. He also noted that the Connecticut insurance commissioner has stood by the policy changes in question.
“That doesn’t change the fact that this is an unfortunate situation,” Kevelighan said.
“Isn’t this precisely the reason why people buy insurance?” Blumenthal asked.
Kevelighan said that the defective material is not a homeowners’ policy issue, but it might be an issue for the manufacturer and group responsible for construction. Blumenthal then asked John Doak, Oklahoma’s insurance commissioner, if the situation in Connecticut doesn’t “make your blood boil.” Doak agreed with Kevelighan.
“This to me is more of a commercial risk exposure due to the manufacturer, or the quarry that was used going back to the source,” Doak said, noting that similar issues have arisen in his state, with foundational problems and earthquake insurance.
Blumenthal claimed that if this were to take place in Oklahoma, it would be insurance companies picking and choosing when to pay for earthquake claims – with damage covered “in April in leap years,” for example.
“The insurers have an obligation to do better,” Blumenthal said.
Doak agreed that insurance companies have an obligation to educate their customers on insurance policies, but unfortunately most consumers don’t read their policies until there is a need for a claim, he said.
“When they get these disclosures or endorsements in the mail, where some of the policies are changing, based on the terms and conditions and regulatory authority, some of these are changing, but many of them are not read,” Doak said.
“In my view, there is no question that the disclosures were totally inadequate, that this conduct is unconscionable and indefensible and that there ought to be adequate redress in the courts, and I will take action to support the efforts in the courts more vigorously than we have before,” Blumenthal said.
To this point, Blumenthal’s office has declined to enter into lawsuits that homeowners have filed against insurance companies and those they hold responsible for their losses. Some homeowners’ properties are now considered worthless as a result of the foundation issue. Blumenthal noted that many of these homeowners are middle- and working-class families.