Massachusetts Lead Poisoning and Insurance Liability

Introduction:

• Lead coverage is almost always excluded by your insurance carrier if you are not compliant with the law. If you are compliant, depending on specific policy forms, you may or may not have lead coverage; but this will be irrelevant. By conforming to the law you are generally no longer legally liable. Most insurance policies include a “duty to defend” clause and whether or not coverage is excluded, they will pay for defense costs. However, if lead coverage is excluded, you may face some serious financial or legal implications.

As of December 1 st , 2017 the Mass. Department of Public Health has more than halved the threshold of blood-lead level concentration that constitutes lead poisoning. All children in Mass. must undergo several rounds of blood tests monitoring the concentration of lead and will not be allowed to attend public schools without these tests. ¹

Given that the threshold for lead poisoning has been cut in half, it’s entirely possible that that this may become an issue for all landlords. Although lead paint was banned in 1978, the majority of residential units in Mass. were built prior to this change. This is a large liability exposure for landlords, and this most recent change in the law potentially affects all Mass. landlords.

Under Massachusetts and federal law, owners must comply with Tenant Notification requirements when a prospective tenant is about to rent a home built before 1978. This applies regardless of whether the tenant or potential tenant has a child under 6.

The Lead Law does require the removal or covering of lead paint hazards in homes built before 1978 where any children under 6 live.

Lead paint hazards include loose lead paint and lead paint on windows and other surfaces accessible to children. Owners are responsible for complying with the law. This includes owners of rental property as well as owners living in their own single family home.

To put everyone at ease: 97.5% of children previously tested fell below the new poisoning threshold ² .

The Mass. Division of Insurance (DOI) closely regulates how insurance companies are required to respond. While the full document is significantly longer ³ , in summary:

1. Owners of residential property built before 1978 in which children under six years of age live must have the property inspected for lead paint by a licensed lead inspector or risk assessor.
2. An insurer may decline to insure any premises for liability insurance of any kind. But, once such an insurer in the regular (“admitted") market elects to write liability coverage on any given residential rental premises constructed before 1978, it must cover liability from injury from lead in dwelling units
   
3. NOTE: Non-admitted or ‘surplus/excess’ lines companies are NOT required to follow the DOI requirements for lead coverage and may fully exclude it for any reason. Please talk to your agent to see if there is an absolute lead exclusion applied to your policy. It’s far more likely than not that there is.
4. An insurer in the regular/standard market may exclude coverage of liability for injury from lead in a residential rental dwelling unit if the unit (and associated common area) is not in compliance with the Lead Law. However, if such an insurer intends to apply an exclusion of this kind, it must, at the same time, offer the insured the option of "buying back" the lead coverage it intends to exclude.
   
5. NOTE: Buyback coverage is typically only available if you have brought the home into compliance with the lead law. It is a relatively expensive coverage and if you have already had the property/unit deleaded it’s not (in my opinion) worth the premium of purchasing the buyback coverage.
6. With respect to damages resulting to a lead poisoned child, a property owner is strictly liable under the Lead Law for his or her failure to comply with the Lead Law. This means that the property owner does not even have to be aware of the presence of lead paint in his or her property. The potential damages that may be awarded in such cases may depend on the degree of lead poisoning. Court awards can be considerable for severely poisoned children, as they often include the costs of lost potential earnings, long-term remedial education and medical care for what can be permanent injuries.
   
7. NOTE: A property owner who meets the requirements of the Lead Law is free of strict liability as long as he or she maintains a valid Letter of Compliance or Letter of Interim Control. However, such a property owner must exercise reasonable care to maintain the condition of compliance. He or she can become liable to a lead-poisoned child if he or she breaches that duty of reasonable care - that is, is negligent.

In terms of the scope of claims from lead poisoning cases, each case is unique. After speaking with Kovalev Insurance Agency’s underwriters and several claims managers at both residential and commercial property carriers, it’s clear they have never (with one exception, see below) in their many years seen a single paid lead poisoning claim. Either the coverage is excluded, or the insured was not liable. Based on a quick Google search, there have been several recent high-profile cases where juries have awarded well over $1M in damages. ⁴

A word from one of Kovalev Insurance Agency’s underwriters:

"I had one where the child was disabled, and the mother claimed it was from lead paint. We paid $75,000 to settle pretrial. Estimated total was something over $1M for future care of the child, etc. We couldn’t prove the lead didn’t come from the home as opposed to anywhere else and agreed to an out of court settlement."

What does this mean for owners and landlords in terms of insurance coverage? A few tips from our experts:

1. Non-admitted carriers (e.g., Lloyd’s of London):
2. Although there is no way to know with certainty without reading the full unique policy, it’s likely excluded.
3. Admitted personal lines carriers (e.g., DP3 Form, 4 families or fewer)
4. Most carriers carry a lead exclusion endorsement. You may, as per the Mass. DOI regulations purchase buyback coverage but nearly all carriers require that you have letters of lead compliance to do so.
5. Your liability coverage includes a “duty to defend” clause by the insurance carrier. As such, even if you are not compliant, the insurance carrier will still pay defense costs associated with a lawsuit. The carrier will not pay for a potential settlement/judgement.
6. Admitted commercial lines carriers (e.g., Business Owners Policies [BOP Forms], can be any number of families/units)
7. This depends on if the carrier uses ISO forms. Most carriers do. In this case, lead is excluded. If you are compliant with the laws and have a letter of compliance, you have an endorsement on the policy that provides for coverage up to policy limits. Some carriers offer a “supplemental endorsement” which provides for reduced coverage if you do not have the letters of lead compliance. If you are determined negligent, this coverage disappears.
8. As stated for admitted personal lines carriers, your liability coverage includes a duty to defend by the insurance carrier. As such, even if you are not compliant the insurance carrier will still pay defense costs associated with a lawsuit. The carrier will not pay for the settlement/judgement.

For those of you who do not have an Absolute Exclusion (typically only present with non-admitted carriers such as Lloyd’s of London), part of the lead endorsement states that the insurance carrier must have the letters of compliance on file prior to the claim (keep in mind letters of interim control must be updated each year). This means it may not be enough that you, the insured, have them on file, even if the letters are dated prior to the date of loss/occurrence.

In light of this type of policy language, you should send letters of lead compliance to your agent so that they may forward it to the insurance company.

It may be possible to argue post-occurrence that you still had/have the letters and that coverage should apply, but since the wording in the endorsement states the carrier should have it on file – it’s better to be safe than sorry.

To Summarize:

If you are not in compliance with the lead laws, your insurance carrier will exclude lead poisoning coverage and you have a large liability exposure. If you are in compliance, your insurance carrier may or may not provide coverage but you are (generally) not legally liable.

Disclaimer: Nothing in this div should be interpreted as legal advice. We are not aware of the specifics of your insurance policies and nothing in this div should substitute a consultation with your agent. Always be sure to check your policy and the details with your agent. All information in this div is to be considered general knowledge and should not be considered as an alternative to a comprehensive review of your particular exposure. The statements above have been made in light of all information available as of December 1, 2017.

1. Changes to the lead regulation for Pediatric Healthcare Providers
2. Lead Poisoning Checklist
3. Ibid.
4. Google results for cases where juries have awarded over $1M