# GAO United States General Accounting Office Washington, D.C. 20548

Resources, Community, and Economic Development Division
B-257413 July 15,1994

The Honorable Donald W. Riegle,Jr. Chairman The Honorable Alfonse M. D’Amato Ranking Minority Member Committee on Banking, Housing and Urban Affairs United States Senate

The Honorable Henry B. Gonzalez Chairman The Honorable Jim beach Ranking Minority Member Committee on Banking, F’inance and Urban Affairs House of Representatives

In recent years, the problems associated with lead-basedpaint have received considerable national attention. Leadpoisoning is the number one environmental health problem affecting children in the United States, according to the Centers for Disease Control. The Centers estimate that up to 3 million children, or about 15percent of all children under the ageof 6, may have unacceptably high levels of lead in their blood. The primary route of exposure to lead is the incidental ingestion of dust and soil contaminated by lead from the deteriorated paint surfaces of walls, door jambs, andwindow sashes.

Becausethe nation’s housing stock, both public andprivate, is a major source of lead paint hazards,the Congress passedthe Residential bead-Based Paint Hazard Reduction Act of 1992,which mandates a comprehensive effort to dealwith the problems.’ In establishing the respective responsibilities of the Environmental Protection Agency (EPA) and the Department of Housing and Urban Development (HUD), the ad requires EPA to develop work-practice standards for use during inspection and abatement activities, aswell ashealth-based standards for lead-based paint hazards and Iead-contaminated dust and soil. The act requires HUD to issue guidelines primarily for reducing lead hazards in the agency's federally assisted properties.

‘The Residential Lead-BasedPaint Hazard Reduction Act of 1992,amongother things, amendedthe Lead-3ased Paint Poisoning PreventionAct of 1971.8-267413

As an additional part of that mandate, the act requires that we addressthe problems that property owners face in obtaining insurance for lead paint hazards. Without insurance or standards for removing lead hazards, property owners are less inclined to rent to families with children, participate in federally assisted housing programs, and invest in removing lead hazards.Thus, in consultation with your offices, we agreedto examine



## Results in Brief 9 the risks facing property owners becauseof the limited availability of insurance for lead hazards and the reasons why insurance companies are excluding this coverage;

l contractors’ experiences in obtaining liabil.&y insurance for their lead abatement activities; and

. measures taken by the states andthe federal government for increasing the availability of liability insurance for lead-basedpaint hazards.

Millions of property owners face significant financial risks because liability insurance for lead hazards is becoming increasingly difficult to obtain A number of owners and their insurers havealready made payments-some have paid millions of dollars-to the families of lead-poisoned children. To avoid the growing number of claims, property owners can attempt to remove lead hazards-which can be costly-but no nationally accepted methods or standards for such abatement exist. Consequently, the owners cannot be sure that their abatement efforts will reduce their liability. Moreover, the insurance companies believe that it is not good business to insure against unpredictable claims for damages resulting from widespread lead hazards. Thus, until EPA establishes reasonable standards for the inspection and abatement of lead hazards in privately owned property, little progress will be madetoward providing insurance for property owners or abatement contractors. Except for some large contractors with proven records of abating environmental hazards, contractors generally have had difficulties obtaining insurance for claims arising in connection with testing for and abating lead hazards. This situation is agrowing concern in the housing industry because it is the smaller-sized firms that will perform much of the abatement and rehabilitation work. Without lead hazard coverage, contractors and property owners may face substantial claims.

Efforts to increase abatement and make insurance more available to private property owners have occurred primarily at the state level, where

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property insurance is regulated. For example, Massachusetts and Maryland require that insurance companies offer insurance, provided that property owners reduce lead hazardsto meet certain abatement standards. Industry officials told usthat the availability of insurance is unlikely to increase until the federal or state governments establish abatement standards and limits on liability for property owners. At the federal level,
HUD assisted housing authorities in procuring a master insurance policy during the early 1990sthat protected housing authorities and their contractors against claims asaresult of lead testing andabatement activities. However, after the policy expired, HUD decided not to implement another, choosing instead to develop criteria for housing authorities to use in obtaining coverage for lead hazards. Federal attention is now focused on the work of alegislatively mandated task force that is studying the problem of lead-based paint and plans to report in early 1995on awide array of issues.


## Background Leadpoisoning is the most common environmental health problem affecting young children in the United States,according to the Centersfor Disease Control. Although leadwas banned from residential paint in 1978, more than half of the housing stock-an estimated 57million older homes-still contains lead-basedpaint. To combat this health threat, the Congress enacted the Residential Lead-Based Paint Hazard Reduction Act of 1992(known astitle X of the Housing and Community Development Act of 1992).

Title X aims to develop a national strategy for building the infrastructure necessary to eliminate lead-basedpaint hazards in all housing as expeditiously aspossible.2 For example, title X requires that HUD provide public housing authorities and other owners of federally assisted properties with guidelines for evaluating and reducing the lead hazards in their properties. The legislation also requires that EPA develop work-practice standards for the abatement contractor industry to use during the inspection and abatement of lead-based paint in both private and federally assisted properties. EPA is also to develop health-based standards for lead-based paint hazards and lead-contaminated dust and soil. A key provision of title X created the Task Force on Lead-BasedPaint Hazard Reduction and Financing to recommend efforts to reduce lead-based paint hazards in privately owned housing.

%tle X defines a lead-basedpaint hazardasanycondition that causesexposure to leadfrom leadcontaminated dust, leadcontaminated soil, or lead-contaminated paint that is deteriorated or present in accessible surfaces, friction surfaces, or impact surfaces andthat would result in adverse human health effects.

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## Limited Availability of Insurance Places Property Owners at Risk Insurance is asystem in which aperson transfers the financial consequences of loss exposures to an insurer who covers the insured for losses andprovides for sharing financial lossesamong aJlof those insured. The insurers choose the risks they plan to cover by aprocess called underwriting, which identifies and evaluates risks and setsthe premium to be charged for the risk accepted by the insurer. The insurers have maintained that the basic concerns of underwriting a risk-the fortuity of occurrence and the predictability of loss-cannot be satisfied when dealing with pollution risks such aslead-based paint, thereby making these risks difficult to insure.

Millions of property owners could face substantial ilnancial losses because of the presence of lead paint hazards in their rental units. At greatest risk are the owners of low- and moderately valued single-family and multifamily dwellings who are facing potentially expensive lead liability settlements and abatement costs. Making the property owners’ problems worse is the absence of nationally accepted methods for reducing lead hazards. Because of the lack of abatement standards andthe limits on liability, and in keeping with the basic tenets of the insurance industry, the insurance companies have increasingly chosen not to offer liability coverage for those properties containing lead-basedpaint Without liability insurance, those property owners who are unable to reduce financial risks to a minimum may abandon their rental properties, thereby reducing the supply of affordable housing. Given these realities, many believe that increasing the availability of insurance is anecessary part of a comprehensive solution to this problem.



### Lead-Based Paint Claims Reportedly Are Increasing Despite the lack of reliable national data.,several sources indicate that the number of lawsuits against property owners on behalf of children harmed by lead hazards have increased in recent years. This increase is particularly evident since the mid-1980s in Boston and Baltimore area courts. As of August 1993,both cities had about 1,500casespending. Although insurance company officials said that they haveseenan increasing number of lead poisoning claims in the last few years, they did not haveenough datato establish aclear trend. Someinsurers expect that lead poisoning claims will increase significantly over the next few years. Onereason is that when the Centers for Disease Control lowered in 1991 the threshold at which children are considered to be at risk, the potentid universe of such children expanded greatly.

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The settlements andverdicts in lead poisoning caseshave reached millions of dollars. In New York City, for example, achild who was poisoned by lead in acity-owned apartment recently won a$10million verdict against the city. In Washington, D-C.,ajury found both the landlord and the property manager liable for the injuries to two brain-damaged children who were exposed to peeling lead-based paint. The children were awarded $2.7million in damages.Such awards, however, arethe exception, not the rule. Still, the costs are substantial. A 1993study by The National Center for Lead-SafeHousing estimated that most lead poisoning casesin Boston and Baltimore are settled for amounts from $50,000to $400,000.Because of the expensive litigation costs and the potential for jury awards in millions of dollars, an insurer told usthat many companies prefer to settle their smaller claims before they reach the court.



### Lack of National Standards In many states, little guidance is available to private property owners who 

### for Lead Hazard Control want to reduce-as opposed to fully abate-lead hazards in their rental 

### and High Abatement Costs properties. Although HUD hasdeveloped guidelines ontesting procedures 

### Pose a Dilemma for and abatement techniques for lead-basedpaint, the guidance applies 

### Property Owners specifically to public housing and may not be practical for usein privately owned properties (although the guidance could provide amodel for property owners who wish to fully abatetheir properties). Therefore, to provide guidance to property owners and landlords who wish to properly maintain their buildings or at least reduce the levels of lead hazards in their buildings, HUD hasrecently developed guidelines describing affordable actions to reduce lead hazards in all housing-public, federally assisted, and private-and expects to complete them by the end of 1994. These proposed guidelines focus on hazard containment and reduction and provide alist of cost-effective stepsthat property owners cantake in lieu of total lead-based paint abatement. Developing standards for useby contractors in performing lead-based paint inspection, hazard mitigation, and full abatement activities in privately owned residences isthe responsibility of EPA. These standards

are generally more technical than HUD'S guidelines for property owners. However, aswe reported in May 1994,EPA hasbeen delayed in developing these standards because of the time neededto consult with state and local governments to ensure that the standards will meet their needs.3 We recommended that in the interim EPA promote the useof HUD'S guidelines for public housing. EPA'S development of standards for removing lead

3Toxic Substances:Status of EPA'sEffortsto Develop LeadHazard Standards (GAO/RCED-94-114, May 16,1994).

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hazards in the private sector hasbeenfurther hindered by concerns about the accuracy and reliability of testing technology. Thus,property owners remain uncertain about how to safely and effectively reduce the risk of lead poisoning in rental housing inhabited by children.

The cost of abatement ispart of the dilemma facing property owners, who must weigh the expense against the potent&I costs of liability judgments that could result in the loss of their properly. The property owner representatives we spoke with aIsowere concerned about whether owners could realistically afford to abate lead hazards, even if agreed-upon standards were established. The cost of total abatement-completely removing all lead-can, in somecases,exceed the rental income generated from the property, or even exceedthe value of the property. According to a recent study,4the costs of fulI abatement of all lead-basedpaint in a housing unit can range from $7,500to $40,000.In 1990,HUD estimated that the total cost of testing for and removing lead-basedpaint from a residence was about $8,000and that the total of such costsfor aII pre-1980 privately owned housing was about $500bilhon over a lo-year period. Individuals representing aproperty owner organization and aninsurance company told usthat the supply of low-income housing will decreaseif expensive abatement measures are required acrossthe country. However, according to HUD officials, HUD recently estimated that under its proposed hazard reduction guidelines for alI housing, the coststo mitigate or contain lead hazardswith new paint and minor repairs would range from $2,000to 2,500per unit for pi-e-1978multifamily housing and rise to about $3,500for pre-1960 single-family housing.



### Lack of Abatement Standards and Other Uncertainties Threaten Availability of Insurance The increasing number of claimsand the uncertainties involving lead hazard mitigation are causing manyinsurance companies to withdraw from the market for lead liability coverage. In addition, many insurers have taken the position that lead-basedpaint in housing presents an uninsurable exposure when the paint is not completely removed or abated. Most recently, several state insurance departments, which regulate most coverage, have received numerous requests from companiesto eliminate or reduce their coverage of lead hazards. For exampIe, asof March 1993 the New York State Insurance Department granted 21insurance companies the right to exclude lead poisoning from the coveragethat they offer property owners. Later, New York officials becameso concerned about the consequencesof granting the exclusions that they placed a

%ea&Basd Paint Hazardsandthe Comprehensive HousingAffordability Strategy(The National Centerfor Lead-SafeHousing, 1993).

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moratorium on them. While the exclusions are in effect, the property owners covered by thesepolicies are liable for any lead poisoning claims made againstthem.

Insurance companies and other knowledgeable individuals whom we spoke with gavethe following primary reasonsfor citing lead asan uninsurable risk and for causing insurance companies to seeklead exclusions from general liability policies?

l The medical and legal communities are uncertain asto what constitutes lead poisoning in children.

l No nationally recognized lead abatement standards exist for property owners to follow that will leadto reducing lead hazards,limiting the number of poisoning claims, and creating somepredictability in the size and timing of the stream of payments that the insurance companieswill needto cover the smaller number of expected losses.

l The insurance companies do not have enough data about past lossesto confidently predict future lossesandto assesspremiums. Insurance officials also saidthat if lead liability could be priced, property owners probably could not afford it.

l Increased screening of the levels of lead in children’s blood andthe public’s increased awareness of the causesof lead paint poisoning are likely to result in increased lead paint litigation. 4 The perception is #at many landlords cannot afford or havelittle incentive to minimize lead hazards.

The inability of owners of rental properties to obtain liability insurance may ultimately affect the availability of affordable housing. Property owner representatives told usthat rather than facethe expenseof abatement ($7,500to $40,000)or the threat of claims (which havereached $10million) from poisoned children, someproperty owners may abandon their properties.



### Insurance Is Part of a Insurance has emerged asa key component in the search for asolution to 

### Comprehensive Solution the long-term problems inherent in attempting to reduce lead paint 

### for Reducing Lead Hazards poisoning in children. Insurance officials concur that lead poisoning is a 

### and Compensating Victims societal problem whose far-reaching implications demand thejoint efforts of government and housing experts aswell asthe insurance industry. They believe that insurance is critical but that a unified effort involving not only

sAsignificant sourcefor thii material is LeadLiability Insurance for the Private Ownersof Low to Moderate Income Rental Housing: IsAdequate,Affordable CoverageAvailable? (The National Center for Lead-SafeHousing,Aug. 1993).

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government and housing policymakers but also property owners and residents, under acomprehensive plan, will be necessaryto effectively reduce lead hazards. For insurance to be part of the solution, insurance officials want to seelimits placed on the property owners’ liability after lead hazards in rental properties havebeen reduced.

In addition to a combined effort by the key stakeholders, insurance officials and others believe that abatement standards and the future of relevant technology must be addressed.According to insurance officials, at thevery least, acceptable standards must addressdeteriorated lead-basedpaint that is chipping, flaking, or peeling. The development of abatement standards depends on the ongoing research on removal methods andthe growth of technology. Although manufacturers are racing to produce testing and abatement technology, the experts we spokewith questioned the reliability of the most predominant testing method and therefore the precision and accuracy of the equipment. In the absenceof dependable methods and equipment, insurance officials believe that educating the public about lead exposure and protective measureswill go along way toward enabling residents to protect themselves against the health risks posed by lead.
Onceabatement standards are in place, insurers will be more likely to require owners of rental housing to reduce lead-basedpaint hazardsasa condition for obtaining coverage. For example, an insurer could require owners to conform to minimum standards of maintenance or to abate existing lead-basedpaint. Likewise, insurers could charge different premiums for different abatement levels. In addition to providing the incentive to reduce existing lead hazards,insurance provides the meansto adequately compensate the victims of lead hazards,although preventing lead poisoning is always preferable to compensating victims, regardless of how serious the harm.



# Insurance for Lead Abatement Contractors Also Is Limited Liability coverage is generally not available for small, inexperienced lead abatement contractors. Ilowever, the availability of coveragefor lead hazards could grow, asdid asbestosabatement coverage,becausethe two hazards are similar. Insurance for asbestosabatement contractors was scarce during the mid-1980s but standards for asbestosremoval that were developed by EPA helped to increase the availability of insurance,

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### Availability of Coverage for According to officials of insurance companies and lead abatement 

### Small Contractors Is contractors, small contractors will haveproblems obtaining insurance to 

### Limited cover the risks associated with testing for and abating lead hazards becausecovering these contractors is perceived asahigh risk andthe cost of coverage for them istherefore high. Theseofficials further saidthat the lack of abatement standards andthe potential for numerous claims for which verdicts and settlements can reach millions of dollars are reasons why coverage for the contractors performing residential abatement is limited, Without such standards, the property owners who hire the contractors have no assurancethat hazards in their units areproperly abated, and contractors risk being held liable for the harm incurred by children during the abatement process. In casesin which somecoverage is provided, several insurance firms cited typical premiums ranging from $60,000to $70,000for the minimum insurance offered (typically, $1million)+ An abatement consultant told usthat high insurance premiums are passedon to the consumer, thereby increasing abatement costsand possibly increasing the presence of cheaper but uninsured contractors who may possibly create liability problems for proper@ owners.



### Lessons Learned From Asbestos Removal May Enhance Availability of Lead Insurance Asbestos and lead removal are alike in someways andare often carried out by the samecontractors; however, they are different in ways that affect the availability of liability insurance. For example, one insurance official told us that similar methods are used for asbestosand lead removal and that abatement of both, if conducted improperly, may actually increase rather than reduce hazards.A recent lead poisoning case settled in Wisconsin required aninsurance company to pay $1.5million to achild who was poisoned when the landlord removed the lead-basedpaint by scraping it off the walls. This method of lead abatement actually spread lead dust throughout the home,which increased the level of lead in the child’s blood. Similarly, asbestosdust will spread through the air if asbestosis improperly abated. However, differences exist in the effects of the hazards. With asbestosinjuries, which primarily affect adults, decades usually passbefore the damagebecomes evident. In contrast, lead injuries to children are manifested much more quickly. In addition, most asbestos removal work hasbeen done primarily in remote areasof commercial buildings, such asbasements,whereas lead abatement occurs in millions of homeswhere children are likely to live. During the 198Os,

insurance for asbestoscontractors was generally unavailable, but it became more obtainable after federal abatement standards were developed. The regulations issued under the Asbestos

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Hazard Emergency ResponseAct of 1986established requirements for training and accrediting contractors and for the monitoring methods they used.Theseregulations increased the availability of asbestosliability insurance for abatement contractors. Webelieve that the recent increase in the availability of insurance for asbestosremoval contractors maybea harbinger of similar developments in the lead removal business if similar standards are developed.



## State and Federal Governments Seek Viable Means to Increase Availability of Insurance

States Have Had Mixed Success in 

## Offering Lead Coverage Severalstatesandthe federal government have recently initiated efforts to increase the availability of insurance for lead hazards. The states play an important role in determining the availability of insurance becausethey regulate the insurance offered in their states. Massachusetts, Maryland, and New York havebeen particularly active in seeking ways to make insurance more widely available.

. At the federal level, EPA is developing standards for lead hazard inspection and abatement andfor contractor certification, licensing, and training programs to provide a basis or guidance for the states’programs, contractors, and property owners. In addition, during the early 1990s HUD assistedpublic housing authorities in obtaining a master insurance policy to protect the authorities andtheir contractors against claims for bodily injury occurring asa result of the work being done during testing and abatement. Also, recent legislation charged atask force with identifying a comprehensive approach to reduce lead hazards in residential housing.As part of that approach, the task force plansto provide specific guidance, along with reasonable time frames for taking action, to EPA and HUD.

Massachusetts requires insurance companies to offer lead hazard coverage provided that property owners either take stepsto reduce hazards or pay an additional premium. The state’sexperience with lead hazard liability datesto the 197Os,

when property owners were made strictly liable for claims arising from lead-poisoned children living in their properties. The law required that property owners remove lead-basedpaint from walls and windows up to 4feet from the floor. In 1990,the insurance industry sought the state’sapproval to exclude lead liability coverage from policies, and the stateacquiesced. Beginning in 1991,Massachusettsapproved alimited exclusion provided that insurance companies offer property owners with unabated rental units the opportunity to purchase lead liability coverage

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for an additional premium of $340per rental unit6 Properly owners who have abated lead hazards according to the state’s standards, however, must be offered coverage by insurance companies at no additional charge. Recently, Massachusetts developed new procedures to help make insurance more available to property owners andthereby reduce their liability. The procedures call for the Massachusetts Department of Health to promulgate regulations to establish aprogram of interim control measures to reduce lead hazards. The state will give property owners who perform some abatement measures aletter certifying for up to 2years that the property is safefrom hazards but not lead-free. After 2such years, the property owner must take further abatement measures, according to the state’s speciiications. Once these measures havebeentaken, insurance must be made available and the owner’s liability is reduced. The position of the Massachusetts Childhood Lead Poisoning Prevention Program is that the combination of liability insurance, abatement measures, and education will provide apowerful incentive to property owners to control lead hazards. Moving in adirection similar to that taken by Massachusetts, Maryland recently enacted legislation requiring that insurance companies provide liability coverage for lead hazards once property owners notify tenants of the presence of lead andtake certain abatement measures prescribed by the state. In return, property owners facing lead poisoning suits will be liable for amaximum of $17,000in damages.Insurance industry officials told usthat reducing the risk and limiting the property owners’ future liability are necessary before they can reasonably offer lead liability coverage.
The New York State Insurance Department also has sought to increase the availability of general liability insurance for property owners by proposing two options to insurance companies. First, the state asked insurance companies if they were willing to underwrite coverage for lead hazards through avoluntary reinsurance pool. Becausefew insurers expressed interest in this approach, it was not adopted. Second,the state proposed that all companies berequired to provide lead hazard coverage for all homes by participating in ajoint underwriting association. During public hearings held in May 1993,insurance officials opposed thejoint underwriting proposal and reiterated their belief that lead hazards are uninsurable. They also maintained that the proposed requirement would

6TheNational Association of Insurance Commissioners told usthat of 26statesansweting asurvey, Massachusetts was 1of only 3that require insurance companies to offer property ownem the option to pm-chasethe excluded coverage.

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provide little incentive for owners to reduce lead hazards in their properties. The insurance companies were unalterably opposed to the proposal, citing their concern that mandating lead liability coverage in the absence of abatement could not only increase the cost of coverage but also reduce its availability. These results, they stated, could thwart the achievement of the primary goal: sparing children from the effects of exposure to lead hazards.The state insurance department decided not to mandate the programs after concluding that acomprehensive solution was needed to addressthe problem.



### Federal Efforts Include EPAk Development of Standards and HUD’s Aid to Housing Authorities Title Xof the Housing and Community Development Act of 1992required that EPA, in consultation with other agenciesincluding HUD, develop work-practice standards for lead inspection andabatement activities. Title X also requires EPAto develop health-based standards for lead-basedpaint hazards and lead-contaminated dust and soil. Abatement contractors will usesuch standards to ensure that lead hazardsare identified and eliminated in the safestand most effective manner.The standards alsowill play an important role in increasing the availability of liability insurance for lead hazards.

For years,public housing authorities have had difficulty obtaining lead liability insurance. They differ from private property owners in that HUD hasprovided housing authorities with guidance on avariety of strategies and methods aimed at reducing lead-basedpaint hazards. HUD hasalso funded the housing authorities’ leadtesting andabatement activities. Approximately 400,000children reside in the 1.3million public housing units. Roughly 60percent of the units were built before 1978and may contain lead-basedpaint, thereby putting the children living in these units at risk.

In 1989,HUD officials became concerned that public housing authorities’ liability insurance might not cover claims for lead-basedpaint hazards. Insurers contended that such clamswere excludable under the provisions of their policies, which would necessitate litigation before insurance companies would cover these claims. HUD officials considered alternative measuresto at least protect the authorities andtheir contractors from liability claims arising from their lead testing and abatement work; however, these measureswould not cover leadpoisoning occurring in the normal course of aperson’s occupying aunit where lead had not been abated. In 1990,HUD sought to remedy this situation by assisting housing authorities in obtaining a master insurance policy to protect them and

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their contractors. Approximately 900housing authorities took advantage of the master policy to insure their leadtesting and abatement activities.

When the master policy expired on October 1,1993, HUD did not renew it for several reasons, First, the insurance company issuing the policy notified HUD that it would not renew the policy; thus, HUD would haveto find anew insurer. Second,the HUD Inspector General concluded in September 1991that HUD’s involvement in contracting for the master policy was not warranted. Finally, because of the passageof title X,it was expected that contractors performing testing and abatement work would need insurance while working for entities other than housing authorities, and amaster policy insuring them only while working for the authorities would not be practical. HUD is now drafting final regulations setting forth criteria for housing authorities to usein obtaining coveragefor lead hazards.
Other meansof insurance are also available, including self-insurance and group insurance. For example, of the 20housing authorities we contacted, 2that have self-insured against claims from residents for pre-existing lead hazards-New Orleans and Chicago-have also received the largest number of claims. A New Orleans Housing Authority official saidthat because of the number of settlements, the authority no longer has commercial liability insurance and must now self-insure. For example, during 1991the New Orleans Housing Authority settled over 60lawsuits that cost over $1million in claims and attorneys’ fees. Having no insurance, the authority recently requested and received an additional $340,000from HUD to pay these claims.7The Housing Authority Risk Retention Group, started in 1987,is an alternative insurer that insures many of the larger housing authorities that maintain their properties in

“lead-safe” condition. The group also offers coverageto members engaged in lead abatement activities.



### Task Force Will In addition to requiring EPA to develop standards, title X created the Task 

### Recommend to HUD and Force on Lead-BasedPaint Hazard Reduction and Financing and charged 

### EPA Ways to Reduce Lead it with identifying acomprehensive approach to evaluate and reduce lead 

### Hazards hazards in privately owned residential housing. Title X mandates that the task force recommend to HUD and EPA methods for preventing lead poisoning through comprehensive changesto both standards and regulations. The issuesthat title X mandatesthe task force to addressare

‘Lead-BasedPaint Poisoning: Children in Public HousingAR NotAdequakly Protected (GAWRCED-93-138,Sept. 17,1993).

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broader than the regulatory standards being developed by EPA and include the following:

l Increasing the availability of insurance for owners of rental housing and contractors. Under this issue, the task force intends to explore such questions asthe following: How can insurance encourage reductions in lead hazards?What factors affect the type of insurance available and its cost? Is insurance covering lead-based paint currently available to rental property owners and abatement contractors?

l Clarifying standards for lead hazard control by landlords and lenders. Under this issue,the task force is seeking to define acomprehensive setof measures to control lead hazards in private housing andwill explore questions such asthe following: How are hazards identied and controlled?

. Revising guidelines and regulations issued by HUD andother federal agencies for preventing lead-based paint poisoning. Questions that the task force will address under this issue include the following: What is a lead-based paint risk assessment (hazard evaluation)? What are the barriers to increasing hazard evaluations in private housing?

To help accomplish title X’spurpose of eliminating lead hazards,the task force comprises a broad range of government andinsurance industry officials, members of public interest groups, property owners, and the scientific community. Our work shows that the housing community is looking forward to the work of the task force to develop a national strategy, specific actions for federal agencies, andworkable time frames for reducing lead hazards.



## Conclusions The financial risks for multifamily property owners, eventhose who want to reduce lead hazards, have increased asinsurance companies continue to exclude lead coveragefrom their general liability policies. If insurance for lead follows the samepath asasbestos,then coveragefor abatement contractors may increase in the future. However, little progress toward providing insurance for property owners or abatement contractors will be made until EPA develops, asmandated by law, reasonable standards for the inspection and abatement of lead hazards. HUD'S proposed guidelines for the evaluation and control of lead-based paint hazardsin all homes are expected to become finaI by December 1994.Oncethis occurs, the states may be more inclined to implement the national standards by enacting legislation requiring that insurance companies provide coverage for lead hazards. Reasonablestandards wiIl encourage insurers to offer coverage,

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- which, in turn, will provide owners with anincentive to reduce the lead hazards in their properties Through title X of the Housing and Community Development Act, the Congresshassetthe stagefor acomprehensive approach to identifying and reducing lead-based paint hazards in residential housing. If the legislatively mandated Task Force on Lead-BasedPaint Hazard Reduction and Financing is successful in addressing the questions it hasidentified, it will be in aposition to makepractical recommendations to HUD and EPA for reducing lead hazards and establishing new or improving existing abatement standards. In this way, the task force will have contributed to the wider availability of insurance.


## Agency and Industry The SenateCommittee on Banking, Housing and Urban Affairs requested 

## Comrnents andthe House Committee on Banking, Finance and Urban Affairs agreed that we not obtain written agencycomments on adraft of this report. We did, however, provide acomplete draft of this report to HUD, EPA, the American Insurance Association, the National Center for Lead-Safe Housing, and members of the Task Force on Lead-BasedPaint Hazard Reduction and Financing for review and oral comment. Subsequently,we obtained comments on the draft from officials of HUD'S Offkes of Lead-BasedPaint Abatement and Poisoning and Prevention and Public and Indian Housing; EPA'S Office of Prevention, Pesticidesand Toxic Substances,Chemical Management Division; the National Center for Lead-SafeHousing; and the American Association of Insurance Companies.Theseofficials generally agreedwith the information presented in the report andprovided uswith updated information and suggestedchangesthat would enhancethe report’s completenessand Clarity.

HUD officials noted that I-KJDis drafting new guidelines for the evaluation and control of lead-basedpaint hazardsthat will identify cost-effective measuresfor all property owners to reduce or control lead hazards.Also,

as EPA officials suggested,we clarified the role that insurance canplay in motivating property owners to reduce the lead hazards in their properties, and we explained the role of the Housing Authority Risk Retention Group in offering lead-basedpaint liability insurance to housing authorities.


## Scope md Methodology Weobtained information for this report from officials of 10insurance companies, 7state insurance departments, 2insurance brokers, 5

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contractors, and 4properly owner associations. Wealso discussed insurance issues with HUD and EPA officials and analyzed data on housing and lead paint that they provided to us. In addition, we discussed the availability of insurance and the implications of a lack of insurance with various members of the Task Force on Lead-Based Paint Hazard Reduction and Financing. Finally, we contacted by telephone 20large and small public housing authorities to determine their experiences in abating lead paint hazards and obtaining liability insurance. Weconducted our review between July 1993andJune 1994in accordance with generally accepted government auditing standards.

Weare sending copies of this report to the appropriate congressional committees and subcommittees, the Secretary of HUD, theAdministrator of EPA, andthe Director of the Office of Management and Budget. WewilI aIso make copies available to others on request.
If you would like additional inform&ion on this report, please call me at (202) 512-7631.Major contributors to this report are listed in appendix I.A list of related GAO products appears at the endof the report.

Judy A. England-Joseph Director, Housing and Community Development Issues

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# Major Contributors to This Report

Resources, Eric Marts, Assistant Director 

## Community, and Erin Beckles-Young, Evaluator-in-Charge Me’Shae L. Brooks-Rolling, Staff Evaluator I 

## Economic Jay S.Henry, Staff Evaluator 

## Development Thomas A. Repasch,Jr., Senior Evaluator 1 

## Division, Washington, I D.C. I

i

1 I

Page 18 GAO/WED-94-231 Lead-Based Paint Hazard Insurance :Page 19 GAOIRCED-94-231 Lead-Based Paint Hazard Insurance i

# Related GAOProducts

(38C380) Lead-Based Paint Poisoning: Children in Section 8Tenant-Based Housing Not Adequately Protected From Lead Poisoning (GAOmCED-94-137, May 13, 1994).

Toxic Substances:Status of EPA’S Efforts to Develop Lead Hazard Standards (GAOIRCED-94-114, May 16, 19%). 

### r Lead-Based Paint Poisoning: Children Not Fully Protected When Federal Agencies Sell Homes to Public (GAOtRCED-93-38, Apr. 15, 1993).

Lead-Based Paint Poisoning: Children in Public Housing Are Not Adequately Protected (GAOmED-93138, Sept. 17,1!%3).

Page 20 GAOiRCED-94-231 Lead-Based Paint Hazard Insurance. ,.

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