Will Massachusetts Insurers Be Next To Deal With Crumbling Foundation Claims?

Today, December 18, 2018, the Connecticut Supreme Court will hear arguments of three suits over whether homeowner policies provide coverage for crumbling foundations caused concrete containing pyrrhotite, an iron sulfide that has reacted naturally with oxygen and water over the decades.

While homeowners have filed claims under the homeowner insurance, carriers have denied the claims and successfully defended a number of lawsuits. However, one federal judge certified a question from a crumbling foundation policy suit to the Connecticut Supreme Court over what constitutes a “collapse” under a homeowner policy.

One insurer that has stepped forward to provide some grant assistance to its customers is the Travelers. On December 6, 2018, Travelers established the Travelers Benefit Program—a $5 million fund to assist customers in repairing homes with crumbling foundations in northeast Connecticut.

Over 35,000 homes in Connecticut and Massachusetts affected

The best estimates have almost 35,000 homes built between 1983 and 2016 that had foundations poured with concrete mined from a quarry in Willington, Connecticut. The quarry the company used had high concentrations of pyrrhotite.

The pyrrhotite from this quarry was part of the aggregate used for the cement being delivered for residential construction in Connecticut and Massachusetts. Over the course of fifteen to twenty years, the pyrrhotite can react with the seepage of water and oxygen by expanding. For house foundations with this concrete, cracks develop that eventually could lead to the failure of the foundation.

Once the pyrrhotite cracking begins, homeowners face the problem of replacing the foundation at costs that range up to $250,000.

Not just a Connecticut problem since the quarry delivered cement to Massachusetts

While the company mining the pyrrhotite delivered most of its concrete for Connecticut home construction, it also delivered concrete to towns in Hampden and Worcester counties. Homeowners in East Longmeadow, Monson, Palmer, Ware, Wales and Hampden have reported foundation problems caused by pyrrhotite.

In September 2018, a packed meeting of homeowners in Monson attended a forum on crumbling foundations. According to news reports of the meeting, some of the attendees had already spent tens of thousands of dollars trying to remedy crumbling foundations from pyrrhotite laced concrete from the Willington quarry. The driving distance between the Willington quarry and Monson is less than fifteen miles.

The state senators and representative who attended the Monson forum had worked to pass a budget amendment in the summer to set up a commission to study the issue and to appropriate state money to reimburse homeowners for the cost of testing their foundations for pyrrhotite.

Connecticut has set up a not-for-profit captive insurer for crumbling foundations

The Connecticut Department of Housing has characterized the pyrrhotite foundation problem as “a slow-moving natural disaster” affecting forty-one towns in north, east, and central Connecticut. The damage is irreversible, and the most effective repair is to replace the existing foundation with a new one that does not contain pyrrhotite. The department reports the current estimates to replace these foundations range between $150,000 and $250,000 per home.

In October 2015, the Connecticut insurance department prohibited insurers from non-renewing or canceling homeowner policies because of the insured property having a crumbling pyro

In 2017, Connecticut established the Crumbling Foundation Assistance Fund. This fund is a not-for-profit captive insurer incorporated as the Connecticut Foundation Solutions Indemnity Company, LLC (CFSIC). The fund will become operational on January 10, 2019.

This captive insurer’s funding comes from:

• $100 million in state bonding ($20 million/year for the next five years);
• approximately $9 million annually for ten years through a $12 annual surcharge on homeowner’s insurance policies.

Once operational, the CFSIC will provide funding for foundation replacement to those Connecticut residents who qualify. It is generally recognized that based on the foundation replacement cost and the number of potential claimants, CFSIC’s funding is woefully inadequate.

For this reason, Travelers created the Travelers Benefit Program to provide additional financial support for its customers. Beginning Feb. 15, 2019, eligible Travelers customers whose repair costs exceed the benefit provided by the CFSIC will be able to enroll in the Travelers Benefit Program. The program will provide current customers up to $25,000 and former customers up to $10,000, subject to program terms.

Will Massachusetts insurers see successful crumbling foundation claims?

While the bulk of the pyrrhotite foundation problem has emerged in Connecticut, recognition of the problem is growing in the Western Massachusetts towns near the border with Connecticut.

As some Massachusetts homeowners have their major asset collapse under them, they will look to their insurance policies and its coverage for “collapse.”

In the cases going before the Connecticut Supreme Court, the question is:

What constitutes a ‘substantial impairment of structural integrity’ for purposes of applying the ‘collapse’ provision of this homeowners’ insurance policy?”

This question arises because in an earlier case, the Connecticut Supreme Court ruled that the term “collapse” in a homeowner insurance policy, when otherwise undefined, was “sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of a building.”

While Agency Checklists recently wrote about a case where an insured put forth a similar argument regarding avoiding damage to the insured property. See Agency Checklists’ article of May 8, 2018, “No Coverage For Roche Bros. Who Spent $800,000 In Snow Removal Prevention. Massachusetts law is not as liberal as some other states in construing the word “collapse” in homeowner policies.

In a decision where the insured urged the Appeals Court to find the term “collapse” ambiguous and to cover the “substantial impairment of the structural integrity of a building” the Court specifically ruled against the insured stating, “There are no degrees of collapse. The policy does not cover ‘imminent’ collapse, as [the insured] argues; it only covers the collapse.”

Based on this legal precedent, there seems little likelihood of any coverage applying under a Massachusetts homeowner policy for a crumbling foundation claim.