SD3 - Issues Relating to Property Insurance and Lead Poisoning Risks and Liability


Executive Summary:
Purpose of Study

The State Corporation Commission was requested by the 1999 General Assembly, pursuant to Senate Joint Resolution No. 393, to study issues relating to property insurance and lead poisoning risks and liability. The study was requested because, among other reasons, the Joint Subcommittee Studying Lead-Based Paint Abatement received testimony from real estate professionals that housing insurance policies consistently include clauses excluding lead poisoning risks for older houses and multiple family units. Furthermore, the study resolution noted that Virginia has no standards for lead-risk reduction or abatement or mechanisms to protect the buyers and renters and the real estate professionals with whom they do business from potential and devastating illnesses and liabilities. The SCC was requested to obtain input from commercial property owners and managers and other real estate professionals and appropriate professional organizations as well as representatives of the insurance industry.

In order to comply with the study request, the Bureau developed a study plan to solicit information from commercial property owners and managers and insurance companies. Responses were received from 94 companies representing 61% of the commercial multiperil market and 59% of the liability insurance market in Virginia. Responses were received from 135 property owners and managers. Two responses were received from realtors.

Findings

Based on the information received from insurance companies actively writing habitational dwellings in Virginia, the majority of companies currently writing habitational risks held for rental exclude coverage for claims arising from lead-based poisoning. This could have the appearance of indicating that there is an availability problem for coverage for lead-based poisoning for the owners of the properties. Coverage is excluded from most policies issued to property owners with units constructed prior to 1978. Property owners are not able to "buy-back" the coverage for an additional premium, thus exposing them to increased liabilities.

Based on the information received from property owners and managers, most do not have insurance for lead-based poisoning. Very few owners/managers have attempted to obtain the coverage. The vast majority of respondents to the survey have properties that were constructed prior to 1978. Additionally, relatively few of the respondents have performed any lead mitigation work to the units they own or manage; however, only two of the respondents indicated that they or their companies had been sued for lead poisoning. The fact that only two of the respondents have had a claim made against them may account for the small number of respondents who have tried to purchase coverage for lead poisoning.

Several states have enacted laws addressing lead in habitational dwellings held for rental. Maine, Maryland, Massachusetts, and Vermont have implemented different programs to address childhood lead poisoning.

Recommendations

Based on the answers given by insurance companies actively writing habitational dwelling insurance in Virginia, the Bureau believes that coverage for lead-based poisoning risks may become more available if standards covering lead-based poisoning hazards and mitigation requirements are promulgated including independent verification procedures. The Joint Subcommittee Studying Lead Poisoning Prevention may wish to make such recommendations in its report to the General Assembly. Additionally, if standards are adopted, this issue should be revisited several years after the adoption of such standards to determine if insurance coverage has become more available. At that time, the Joint Subcommittee, or any successor thereof, may wish to conduct an analysis of the legal climate in Virginia to determine if any additional recommendations are necessary such as setting caps on liability for owners and real estate professionals.