The insurance industry may not be acting in its own long-term interests by refusing to pay out on insurance policies affected by crumbling foundations in Connecticut.
That is the view of Michael Maglaras, head of the Connecticut Foundation Solutions Indemnity Company (CFSIC), a state-owned captive set up to help homeowners affected by crumbling foundations.
The Connecticut Supreme Court recently found in favour of Liberty Insurance, in its case involving Steven Karas and Gail Karas, who were claiming coverage for the cracking and crumbling of their concrete basement walls.
The court was considering what degree of deterioration constitutes a ‘‘substantial impairment of the structural integrity’’ of those walls, sufficient to trigger coverage. It concluded that the ‘‘substantial impairment of structural integrity’’ standard requires proof that the home is in imminent danger of falling down.
David Grandpre, a structural engineer, testified that the plaintiffs’ foundation had ‘‘the most severe cracking problem’’ of any of the Mottes foundations he had inspected, and that, without the shoring up of the walls the plaintiffs’ has installed, the home ‘‘might become unsafe at some time in the near future.’’
But he admitted he could not ‘‘say within a reasonable degree of engineering certainty’’ that the walls will fall down ‘‘within the next 100 years.’’
Maglaras said he was not surprised by the verdict on a professional level based on the facts of the case. “But I think the insurance industry has adopted a position that may not be in its long-term interests,” he said. “There has to be some recognition of the human tragedy of this case. Many people have lost around 50-60 percent of the equity in their properties, the toll that takes on the families involved is profound.”
There are hundreds of homeowners in northeastern Connecticut whose foundations were constructed using defective concrete manufactured by J.J. Mottes Concrete. According to a study commissioned by the state of Connecticut and conducted by the Department of Consumer Protection, the stone aggregate used in Mottes concrete between 1983 and 2010 contained significant amounts of pyrrhotite, a ferrous mineral that oxidises in the presence of water and oxygen to form expansive secondary minerals that crack and destabilise the concrete, resulting in its premature deterioration.
The verdict shifts the cost of the problem off the insurance industry and onto the taxpayers of Connecticut.
Many homeowners who were litigating against their insurers had already registered with CFSIC, but the captive was always a fall-back option if a commercial settlement could not be reached, and they therefore had their claims marked as inactive pending an outcome of that process. They will now be marked as active claimants, meaning the CFSIC’s balance sheet now needs to grow to accommodate the additional costs.
Maglaras said: “Our mandate hasn’t changed, the only difference is we have more clients than expected. Families who were expecting some relief from their insurance companies are now moving away from the litigation process and coming to us.”
He added: “Captives have always been most effective when the commercial market has failed, backed out or refused to provide coverage. This a perfect example of that.”
Connecticut Foundation Solutions Indemnity Company, Michael Maglaras, Liberty Insurance