A bill requiring homeowners insurance policies in Connecticut to provide coverage for the peril of collapse and mitigation undertaken to prevent all or part of a covered dwelling from falling down or caving in failed in the Connecticut Legislature. Following a very narrow 10-9 joint favorable report from the Insurance and Real Estate Committee, the Connecticut Legislature did not act on the bill. The demise of House Bill No. 5522, An Act Concerning Homeowners Insurance Policies and Coverage For The Peril Of Collapse (“HB 5522”), is significant for insurers since homeowners policies are not intended to serve as a home warranty or cover non-fortuitous/non-accidental losses, latent defects, improper workmanship/construction and defective materials. More significantly, HB 5522, aside from myriad coverage issues created by the bill’s language, would have likely resulted in premium hikes for Connecticut homeowners to cover what courts have repeatedly found to be uncovered claims.

HB 5522 would have required every insurance company delivering, issuing for delivery, renewing, amending, or endorsing a homeowners policy in Connecticut on or after the effective date (from passage of the legislation) to provide coverage for:

  1. the peril of collapse, including partial or total impairment of a covered dwelling’s structural integrity due to facts such as (a) hidden decay or (b) defective materials or construction methods used in constructing or renovating part or all of the building; and
  2. any mitigation taken to prevent all or part of a covered dwelling from falling down or caving in.

The impetus behind HB5522 is to provide insurance coverage to homeowners for the period of collapse and mitigation following the discovery of crumbling concrete foundations of numerous homes generally located in north-central and northeastern Connecticut. The cause of the crumbling foundations is unclear at this point, and it has been alleged that degradation to foundations has happened over a period of years, and appears to impact homes built in the 1980s. In July 2015, Connecticut Governor Dannel P. Malloy called on the Department of Consumer Protection (“DCP”) and the Office of the Attorney General to conduct an investigation into the crumbling foundation issue. Since that time, other state agencies, including the Insurance Department, Department of Banking, Department of Administrative Services, and Department of Housing, as well as federal, state and municipal officials, have worked with DCP on the issue. During this time, numerous individual and class action lawsuits have been instituted by impacted homeowners seeking coverage under their policies.

Also significant for insurers is that on October 6, 2015, in response to the crumbling concrete issue, the Connecticut Insurance Department issued a formal notice (“Notice”) to all insurers writing homeowners insurance in Connecticut. The Notice informs insurance companies that they cannot cancel or non-renew a homeowner’s policy due to a crumbling foundation. The Notice specifically “directs that no insurer take any action to cancel or non-renew an affected homeowner’s insurance coverage as a result of a foundation found to be crumbling or otherwise deteriorating.” The Notice warned that any non-renewal action taken by an insurer be strictly in accordance with its underwriting guidelines and rules filed with and recorded effective by the Department.