Should You File a Claim with Your Insurance Company if Your Home Has Chinese Drywall?

Citizens’ Decision To Renew And/Or Write Insurance To Victims Of Chinese Drywall Will Have Far Reaching Impact

When Citizens Insurance first told folks with Chinese drywall that they would not renew their policies and/or would not write insurance to victims of Chinese Drywall, advocates were unsure as to whether to tell their clients to file a claim with their homeowner’s insurance.  However, when Citizens spokesman John Kuczwanski said “If someone has Chinese drywall, they can still get a policy with us,” the decision as to whether to file a claim is easy - file the claim.

There are several reasons why a victim of Chinese drywall should file a claim.  For example:

1. You will have real insurance and not insurance that could be subject to rescission - If you have your homeowner’s insurance with a carrier other than Citizens, then filing a claim with that carrier could subject you to being cancelled or non-renewed.  In either case, you can still get insurance from the insurer of last resort, Citizens Insurance.  However, if you know you have Chinese drywall and you don’t tell your insurance company, then the policy that you think protects you may not be worth the paper it is written on.  If, in the future, your home has a fire because the ground wires are blackened by Chinese drywall and the insurance company finds out about this, then the insurance company could argue that the insured failed to fully inform their carrier of a significant change in the risk for the property and rescind the contract after the fact.  If this occurred,  the insured would be in a far worse position.  By filing a claim with the insurance company, although the claim is likely to be denied, you would be informing your insurance company of this change in the condition of the property.  This would ensure that your policy is truly there to protect you.

2.         Your claim rights against your insurance carrier are protected - Currently, most, if not all, of the homeowner’s insurance carriers are denying claims for Chinese drywall.  At this time, based on my reading of the contracts, this may be a proper denial.  However, there are a number of lawsuits against these carriers which are trying to force these carriers to pay these claims.  If these lawsuits are successful, then you may be entitled to have your claim paid by your homeowners insurance.  However, if you fail to timely make your claim, then the insurance can simply deny your claim after the fact relying on the late notice for the reason of the denial.  If you file your claim timely and it is then denied, then if the law changes and carriers are obligated to pay these claims - your claim would be preserved.

3.         You preserve your right for a income tax deduction - As we previously reported on this Blog, the IRS wrote to Sen. Bill Nelson on July 2, 2009, and said that casualty losses caused by Chinese drywall would be tax deductible so long as those losses were “not compensated by for by insurance or otherwise.”  Therefore, a condition precedent to this deduction is proving that your insurance does not cover this loss.  The best way, and maybe to the only way, to prove that this loss is “not compensated by insurance, is to have a formal denial by your insurance carrier.

Therefore, for all of these reasons a claim should be make with your insurance carrier.