Sen. Blumenthal Tells Insurance Industry Policies That Don’t Cover Crumbling Foundations May Violate Law

Aug. 08--At a Senate hearing on insurance fraud Friday, Sen. Richard Blumenthal raised concerns over insurers refusing to cover failing concrete foundations.

"It is an example of the kind of insurance practice that maybe can amount to fraud. It certainly involves deceptive and misleading practices and unfortunately has cost hundreds of Connecticut homeowners possibly their life savings," Blumenthal said. "Instead of alerting their consumers to the risks once the insurers became aware of them, insurers surreptitiously updated their policies."

Blumenthal raised the issue during a Senate subcommittee on consumer protection, product safety, insurance and data security hearing on insurance fraud. Representatives from the insurance industry including, the National Association of Insurance Commissioners, the Coalition Against Insurance Fraud and the National Insurance Crime Bureau were in attendance.

Since the issue of failing foundations came to light, Gov. Dannel P. Malloy has said as many as 34,130 homes are at risk for failing foundations. More than 500 homeowners in 23 towns have filed complaints with the state Department of Consumer Protection stating that their concrete foundations are failing.

According to a state report in early January, a mineral known as pyrrhotite was present in the concrete aggregate used for the foundations that are now crumbling, and was partly to blame, as was the amount of water used in installation.

Insurance companies have denied homeowners' claims, saying the problem does not qualify for coverage under their definition of collapse, leaving homeowners to bear the burden of a costly foundation replacement. The cost to replace a foundation can be as much as $200,000.

Homeowners have sought numerous solutions to the problem including lawsuits against their individual insurance companies and a class action lawsuit against 111 active Connecticut insurance companies.

On July 21, homeowners with failing concrete foundations filed a formal complaint with the U.S. Attorney in Hartford asking that federal officials investigate what the state of Connecticut, including the insurance commissioner and Blumenthal who was Attorney General at the time, knew about the issue.

In the complaint, homeowners Tim Heim said the state was notified by 2003 of the issue and failed to act.

"We need accountability, this cannot continue," Heim said. "If there was any misconduct or federal laws broken, we need to know. They should have taken the proper actions to initiate an investigation."

On Friday, Blumenthal questioned representatives from the insurance industry about why insurance policies were changed to not provide coverage for failing foundations.

"Changing policies to exclude a problem insurers know is looming that will in effect, rob homeowners of their life savings. That is the issue. Not pyrrhotite...it's a practice of insurers changing policies," he asked.

Sean Kevelighan, the Chief Executive Officer of the Insurance Information Institute, said not covering for collapse is a "standard exclusion" and that a solution for homeowners is not necessarily in the purview of insurance companies.

"That may be a manufacture or construction issue, but it's not one that falls to the personal homeowner insurance policy," Kevelighan said.

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