The superintendent of a new captive insurance company charged with distributing millions of dollars to Connecticut homeowners with crumbling foundations is warning he doesn’t have nearly enough money to address the problem.
Michael Marglaras said he hopes to secure more funding and assistance to help the thousands of affected homeowners from various sources, including the insurance industry, banks, the U.S. Department of Housing and Urban Development, the Federal Emergency Management Agency and the state of Connecticut.
“By any calculation, I don’t care who’s calculation it is, there’s not enough money,” Marglaras, a 42-veteran of the insurance industry, told The Associated Press in an interview.
Marglaras is heading the new Connecticut Foundation Solutions Indemnity Company, created by state lawmakers, which will oversee the distribution of $100 million in state bonding – $20 million a year for the next five years – as well as the estimated $8.5 million to $9 million in annual proceeds from a new $12 annual surcharge on Connecticut homeowners’ insurance policies. That surcharge is supposed to last 10 years.
The new indemnity company is expected to be up and running Nov. 15 at the earliest, or possibly around Dec. 1, to begin cutting checks. But Marglaras estimates the roughly $133.5 million committed over five years will cover the cost of replacing foundations for only 650 to 700 homes, considering the average $185,000 cost per home.
“I have at least a $1 billion problem,” he said.
Marglaras estimates 5,000 to 9,000 homes will have to be fixed over the next few years. That includes homes with the most severe cracking and deterioration, as well as those just beginning to show signs of the problem, which has been linked to the presence of pyrrhotite, an iron sulfide that has reacted naturally with oxygen and water over the decades.
Described as a slow-moving disaster, pyrrhotite causes the concrete to crack and crumble, making some homes unsellable and unlivable. Some state and local officials have estimated more than 35,000 homes in the northern, eastern and central parts of Connecticut could be affected because the foundations were built with concrete that originated from the same quarry in Willington.
Meanwhile, Marglaras said he was still waiting, as of last week, for the state Department of Housing to transfer all the approved state bond money to the indemnity company. The first $20 million was due June 30, but only $850,000 was transferred in August. He said it’s been a long and complicated process that he hopes will wrap up soon.
“In fairness to the Department of Housing, they are not used to funding an insurance company. So they had early on, some questions,” he said.
Democratic Gov. Dannel P. Malloy is optimistic the two sides ultimately will come to an understanding.
“I think that the Department of Housing has a job to do and the superintendent has a job to do, and these issues can and will all be worked out,” Malloy said.
Malloy said he’s also optimistic that a new report released Friday by the U.S. Army Corps of Engineers and requested by his administration will give weight to the state’s argument that the federal government should provide financial assistance to the homeowners as well. The corps is recommending the state pass legislation to test quarries for pyrrhotite and set an acceptable amount of the mineral in aggregate for concrete. There are currently no standards in the U.S. for an acceptable level for pyrrhotite.
Besides Connecticut, the crumbling foundation problem also has been identified in some homes in western Massachusetts.
“I think that this report raises very real issues about FEMA’s position with respect to funding,” Malloy said. “And quite frankly, I think it raises real issues potentially about insurance companies’ liability.”
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