Blumenthal to Insurance Industry: Crumbling Foundation Insurance Policies May Violate Law

(Washington, DC) – In an exchange during a Senate Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security hearing on Insurance Fraud, U.S. Senator Richard Blumenthal (D-Conn.) today raised serious concerns regarding insurance industry treatment of pyrrhotite-related homeowner claims, stating the practice may amount to an illegal deceptive practice. Blumenthal serves as ranking member of the subcommittee.

“I want to talk about an issue that is of grave concern to Connecticut and the Northeast, and possibly the country. It goes by the name of pyrrhotite. Few in this room would know how to spell it and not many around the country would know it, but it is well known in Connecticut, and in Massachusetts and in other parts of the Northeast. 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. “Insurers have been unwilling to provide desperately needed assistance to these homeowners. Instead of alerting their consumers to the risks once the insurers became aware of them, insurers surreptitiously updated their policies. They updated their policies to strictly define the coverage of collapse to only abrupt collapse, and they added foundations to the list of policy exclusions. They never properly told their customers what they were doing. They never told them the reason they were doing it. They never adequately notified them so the homeowners could take steps to protect themselves either by rebuilding or taking construction precautions with their foundations, or taking new policies that covered this problem. Insurers clearly knew there was a problem with crumbling foundations before homeowners knew, and they immediately sought to shield their liability—in other words, protect themselves rather than protect their customers.”

Video of Senator Blumenthal’s remarks, as well as the response from insurance leaders can be viewed here.

Panel witnesses included:

• The Honorable John Doak, Oklahoma Insurance Commissioner, testifying on behalf of the National Association of Insurance Commissioners (NAIC)
• Mr. Dennis Jay, Executive Director, Coalition Against Insurance Fraud
• Mr. Sean Kevelighan, Chief Executive Officer, Insurance Information Institute
• Mr. Tim Lynch, Director of Government Affairs, National Insurance Crime Bureau

·         Ms. Rachel Weintraub, General Counsel, Consumer Federation of America