STATE OF CONNECTICUT

STATE OF CONNECTICUT

INSURANCE DEPARTMENT

Testimony Public Safety and Security Committee Insurance and Real Estate Committee Planning and Development Committee

Banking Committee February 28, 2017

Senate Bill No. 794 An Act Assisting Homeowners with Crumbling Foundations.

Committee Chairs, Co-Chairs, Ranking Members, and Members of the Public Safety and Security, Insurance and Real Estate, Planning and Development, and Banking Committees, the Insurance Department appreciates the opportunity to submit written testimony to update lawmakers and affected homeowners on Insurance Department activities regarding crumbling foundations and to provide comments supporting Governor's Bill, Senate Bill No. 794 An Act Assisting Homeowners with Crumbling Foundations.

The Department fully understands that this has been a challenging and frustrating time for many families in eastern Connecticut and we take their concerns very seriously. Through our statutory authority, the Department has taken actions to help those directly affected and to more clearly understand the scope of the problem. As of this date, there have been many estimates but no accurate accounting of how many homes are affected and that is a critical element for finding a workable solution.

Background of Homeowners' Insurance Coverage

Standard homeowners' insurance has historically not provided coverage for crumbling foundations that occurred over many years. This applied to homeowners' policies nationwide. Standard homeowners' policies generally cover a collapse caused by a sudden and accidental occurrence unless the policyholder was aware of decay or deterioration prior to the collapse.

However, language in some policies was found to be vague when the issue was brought to court. Specifically, a Connecticut lawsuit ? Beach v. Middlesex Mutual Assurance ? resulted in a 1987 Connecticut Supreme Court ruling that found the term "collapse" used in the homeowners' insurance policy was sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of a building ? even a substantial impairment that occurred over many years.

The Insurance Services Office, Inc. ("ISO") ? the advisory organization that drafts the homeowners' policy language that many insurers use throughout the U.S. ? reviews all court cases on a national level and periodically amends policy language to clarify coverage intent. In the mid-1990s, ISO clarified policy language to address the ambiguity identified in the Beach v. Middlesex Mutual Assurance court case over

About the Connecticut Insurance Department: The mission of the Connecticut Insurance Department is to protect consumers through regulation of the industry, outreach, education and advocacy. The Department recovers an average of more than $4 million yearly on behalf of consumers and regulates the industry by ensuring carriers adhere to state insurance laws and regulations and are financially solvent to pay claims. The Department's annual budget is funded through assessments from the insurance industry. For every dollar of direct expense, the Department brings in about $7.45 to the state in revenues. Each year, the Department returns more than $215 million in assessments, fees and penalties to the state's General Fund.

STATE OF CONNECTICUT

INSURANCE DEPARTMENT

the definition of the word "collapse" used in a homeowners' policy. That was one of many revisions that ISO made to policy language for policies marketed throughout the country, not just Connecticut.

Insurance Department Actions

Prohibiting cancellations and non-renewals: To protect affected homeowners, the Department issued a notice to the industry in October 2015 that prohibited carriers from canceling or non-renewing homeowner policies strictly due to crumbling foundations. The Department took this action to encourage homeowners to come forward to determine whether their claims are being adjudicated properly under all applicable state insurance laws and regulations. The Department followed up in January 2017 by extending that non-cancellation notice to Condominium Master Policies.

Data Call: In June 2016, the Department issued a data call to carriers to compile an analysis of foundation-related insurance claims in eastern Connecticut and to help the state better understand the scope of the issue.

The Department requested data on claims, claims denied, claims paid and claims still open, from 47 carrier groups that write homeowner and master condominium policies on structures built from 1983 to 2005 within a 20 mile radius of the J.J. Mottes Concrete Company in Stafford Springs, Connecticut. Those results are included in the table below:

No. of Towns

37

Homes Built from

1983 to 2005 34,130

Total Claims

322

Claims Denied

80

Claims Closed with Payment

44

Claims Closed without Payment

33

Open Claims

165

The data shows that less than 1 percent of homeowners in the affected area have filed foundation-related claims with their insurance companies. Further these claims are foundation-related but may also include other foundation issues besides crumbling foundations. The Department encourages more homeowners to come forward as the state looks for solutions. Public Act 16-45 protects homeowner confidentiality when making a complaint with the Insurance Department and other state executive branch agencies regarding crumbling foundations.

Consumer Complaints: The Department's Consumer Affairs Division is the frontline for complaints for all types of insurance, but to date only 33 homeowners have contacted the Department with crumbling foundations issues. Of those 14 were formal complaints and 19 were inquiries. The Department shares our complaint information with the Department of Consumer Protection to assist in their investigations on behalf of consumers.

About the Connecticut Insurance Department: The mission of the Connecticut Insurance Department is to protect consumers through regulation of the industry, outreach, education and advocacy. The Department recovers an average of more than $4 million yearly on behalf of consumers and regulates the industry by ensuring carriers adhere to state insurance laws and regulations and are financially solvent to pay claims. The Department's annual budget is funded through assessments from the insurance industry. For every dollar of direct expense, the Department brings in about $7.45 to the state in revenues. Each year, the Department returns more than $215 million in assessments, fees and penalties to the state's General Fund.

STATE OF CONNECTICUT

INSURANCE DEPARTMENT

The Department continues to work with the Administration and our sister agencies to help find solutions for affected homeowners and strongly encourages homeowners to contact the Department with their complaints and they can easily email us at insurance@. Consumers can also reach us online at cid and by phone 800-203-3447.

Department Bulletin IC-37: The Department published Bulletin IC-37 this past January. This bulletin directed the industry to disclose to homeowners the contractual limitations period for pursuing a lawsuit in the event a property loss is denied. In response to a consumer complaint, the Department investigated a denied claim and found that the "date of loss" in these situations ? or other situations where a loss or damage can occur over time and/or is not visually apparent to the policy holder ? can be subjective. In order to better protect consumers, the Department requested that in the event of a loss, an insurer provide their insured with the date upon which the contractual limitations period for bringing suit will expire. The policy of this bulletin became effective and applied to homeowners' claim denial letters processed after February 15, 2017.

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The Department supports the Governor's Senate Bill No. 794 An Act Assisting Homeowners with Crumbling Foundations, which would establish a low-interest loan program to be administered by the state Department of Housing. Participating municipalities would be able to borrow funds with stateguaranteed lower interest rates through the Connecticut Health and Educational Facilities Authority (CHEFA). This proposal is a positive step as it makes more resources readily available for affected homeowners and provides municipalities with a framework to provide a solution to begin to remediate the situation.

The Department thanks all of the Chairs, Co-Chairs, Ranking Members, and Members of the Public Safety and Security, Insurance and Real Estate, Planning and Development, and Banking Committees for the opportunity to submit testimony for today's joint committee public hearing.

About the Connecticut Insurance Department: The mission of the Connecticut Insurance Department is to protect consumers through regulation of the industry, outreach, education and advocacy. The Department recovers an average of more than $4 million yearly on behalf of consumers and regulates the industry by ensuring carriers adhere to state insurance laws and regulations and are financially solvent to pay claims. The Department's annual budget is funded through assessments from the insurance industry. For every dollar of direct expense, the Department brings in about $7.45 to the state in revenues. Each year, the Department returns more than $215 million in assessments, fees and penalties to the state's General Fund.

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