GAO United States 

General Accounting Office 

Washington, D.C. 20548 

Resources, Community, and 

Economic Development Division 

B-2574 13 

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-based paint have 

received considerable national attention. Lead poisoning 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 15 percent of all children under the age of 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, and window sashes. 

Because the nation’s housing stock, both public and private, is a major 

source of lead paint hazards, the Congress passed the Residential 

bead-Based Paint Hazard Reduction Act of 1992, which mandates a 

comprehensive effort to deal with 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, as well as health-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-Based Paint Hazard Reduction Act of 1992, among other things, amended the 

Lead-3ased Paint Poisoning Prevention Act of 1971. 
8-267413 

As an additional part of that mandate, the act requires that we address the 

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 agreed to 

examine 

Results in Brief 

9 the risks facing property owners because of 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 and the federal government for increasing 

the availability of liability insurance for lead-based paint 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 have already 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 made toward 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 a growing 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 

Page 2 GAO/RCED-94-231 Lead-Based Paint Hazard Inmuance 
B-267413 

property insurance is regulated. For example, Massachusetts and 

Maryland require that insurance companies offer insurance, provided that 

property owners reduce lead hazards to meet certain abatement standards. 

Industry officials told us that 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 1990s that protected housing authorities and their 

contractors against claims as a result of lead testing and abatement 

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 a legislatively mandated task force that is studying the 

problem of lead-based paint and plans to report in early 1995 on a wide 

array of issues. 

Background Lead poisoning is the most common environmental health problem 

affecting young children in the United States, according to the Centers for 

Disease Control. Although lead was banned from residential paint in 1978, 

more than half of the housing stock-an estimated 57 million older 

homes-still contains lead-based paint. To combat this health threat, the 

Congress enacted the Residential Lead-Based Paint Hazard Reduction Act 

of 1992 (known as title 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-based paint hazards in all housing as 

expeditiously as possible.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-Based Paint 

Hazard Reduction and Financing to recommend efforts to reduce 

lead-based paint hazards in privately owned housing. 

%tle X defines a lead-based paint hazard as any condition that causes exposure to lead from 

leadcontaminated dust, leadcontaminated soil, or lead-contaminated paint that is deteriorated or 

present in accessible surfaces, friction surfaces, or impact surfaces and that would result in adverse 

human health effects. 

Page 3 GAO/WED-94-231 Lead-Based Paint Hazard Insurance 
B-267413 

Limited Availability of 

Insurance Places 

Property Owners at 

Risk 

Insurance is a system in which a person transfers the financial 

consequences of loss exposures to an insurer who covers the insured for 

losses and provides for sharing financial losses among aJl of those insured. 

The insurers choose the risks they plan to cover by a process called 

underwriting, which identifies and evaluates risks and sets the 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 as lead-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 and the 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-based paint 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 a necessary 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 1,500 cases pending. 

Although insurance company officials said that they have seen an 

increasing number of lead poisoning claims in the last few years, they did 

not have enough data to establish a clear trend. Some insurers expect that 

lead poisoning claims will increase significantly over the next few years. 

One reason 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. 

Page 4 GAOIRCED-94-231 Lead-Based Paint Hazard Insurance 
B-257413 

The settlements and verdicts in lead poisoning cases have reached millions 

of dollars. In New York City, for example, a child who was poisoned by 

lead in a city-owned apartment recently won a $10 million verdict against 

the city. In Washington, D-C., a jury 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 

$2.7 million in damages. Such awards, however, are the exception, not the 

rule. Still, the costs are substantial. A 1993 study by The National Center 

for Lead-Safe Housing estimated that most lead poisoning cases in Boston 

and Baltimore are settled for amounts from $50,000 to $400,000. Because 

of the expensive litigation costs and the potential for jury awards in 

millions of dollars, an insurer told us that 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 has developed guidelines on testing procedures 

Pose a Dilemma for and abatement techniques for lead-based paint, the guidance applies 

Property Owners specifically to public housing and may not be practical for use in privately 

owned properties (although the guidance could provide a model for 

property owners who wish to fully abate their 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 has recently 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 a list of cost-effective steps that property owners can take in 

lieu of total lead-based paint abatement. 

Developing standards for use by contractors in performing lead-based 

paint inspection, hazard mitigation, and full abatement activities in 

privately owned residences is the responsibility of EPA. These standards 

are generally more technical than HUD'S guidelines for property owners. 

However, as we reported in May 1994, EPA has been delayed in developing 

these standards because of the time needed to 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 use of 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). 

Page 6 GAO/RCED-94-231 Lend-Based Paint Hazard Imurance 
B-267413 

hazards in the private sector has been further 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 is part 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 aIso were 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 some cases, exceed the rental income generated 

from the property, or even exceed the value of the property. According to 

a recent study,4 the costs of fulI abatement of all lead-based paint in a 

housing unit can range from $7,500 to $40,000. In 1990, HUD estimated that 

the total cost of testing for and removing lead-based paint from a 

residence was about $8,000 and that the total of such costs for aII pre-1980 

privately owned housing was about $500 bilhon over a lo-year period. 

Individuals representing a property owner organization and an insurance 

company told us that the supply of low-income housing will decrease if 

expensive abatement measures are required across the country. However, 

according to HUD officials, HUD recently estimated that under its proposed 

hazard reduction guidelines for alI housing, the costs to mitigate or 

contain lead hazards with new paint and minor repairs would range from 

$2,000 to 2,500 per unit for pi-e-1978 multifamily housing and rise to about 

$3,500 for pre-1960 single-family housing. 

Lack of Abatement 

Standards and Other 

Uncertainties Threaten 

Availability of Insurance 

The increasing number of claims and the uncertainties involving lead 

hazard mitigation are causing many insurance companies to withdraw 

from the market for lead liability coverage. In addition, many insurers have 

taken the position that lead-based paint 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 companies to eliminate 

or reduce their coverage of lead hazards. For exampIe, as of March 1993 

the New York State Insurance Department granted 21 insurance 

companies the right to exclude lead poisoning from the coverage that they 

offer property owners. Later, New York officials became so concerned 

about the consequences of granting the exclusions that they placed a 

%ea&Basd Paint Hazards and the Comprehensive Housing Affordability Strategy (The National 

Center for Lead-Safe Housing, 1993). 

Page 6 GAO/RCED-94-231 Lead-Based Paint Hazard Insurance 
B-267413 

moratorium on them. While the exclusions are in effect, the property 

owners covered by these policies are liable for any lead poisoning claims 

made against them. 

Insurance companies and other knowledgeable individuals whom we 

spoke with gave the following primary reasons for citing lead as an 

uninsurable risk and for causing insurance companies to seek lead 

exclusions from general liability policies? 

l The medical and legal communities are uncertain as to what constitutes 

lead poisoning in children. 

l No nationally recognized lead abatement standards exist for property 

owners to follow that will lead to reducing lead hazards, limiting the 

number of poisoning claims, and creating some predictability in the size 

and timing of the stream of payments that the insurance companies will 

need to cover the smaller number of expected losses. 

l The insurance companies do not have enough data about past losses to 

confidently predict future losses and to assess premiums. Insurance 

officials also said that 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 and the 

public’s increased awareness of the causes of lead paint poisoning are 

likely to result in increased lead paint litigation. 

4 The perception is #at many landlords cannot afford or have little 

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 us that rather than face the expense of 

abatement ($7,500 to $40,000) or the threat of claims (which have reached 

$10 million) from poisoned children, some property owners may abandon 

their properties. 

Insurance Is Part of a Insurance has emerged as a key component in the search for a solution 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 the joint efforts 

of government and housing experts as well as the insurance industry. They 

believe that insurance is critical but that a unified effort involving not only 

sA significant source for thii material is Lead Liability Insurance for the Private Owners of Low to 

Moderate Income Rental Housing: Is Adequate, Affordable Coverage Available? (The National Center 

for Lead-Safe Housing, Aug. 1993). 

Page 7 GAO/RCED-94-231 Lead-Based Paint Hazard Insurance 
B-257413 

government and housing policymakers but also property owners and 

residents, under a comprehensive plan, will be necessary to effectively 

reduce lead hazards. For insurance to be part of the solution, insurance 

officials want to see limits placed on the property owners’ liability after 

lead hazards in rental properties have been 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 the very least, acceptable standards must address deteriorated 

lead-based paint that is chipping, flaking, or peeling. The development of 

abatement standards depends on the ongoing research on removal 

methods and the growth of technology. Although manufacturers are racing 

to produce testing and abatement technology, the experts we spoke with 

questioned the reliability of the most predominant testing method and 

therefore the precision and accuracy of the equipment. In the absence of 

dependable methods and equipment, insurance officials believe that 

educating the public about lead exposure and protective measures will go 

a long way toward enabling residents to protect themselves against the 

health risks posed by lead. 

Once abatement standards are in place, insurers will be more likely to 

require owners of rental housing to reduce lead-based paint hazards as a 

condition for obtaining coverage. For example, an insurer could require 

owners to conform to minimum standards of maintenance or to abate 

existing lead-based paint. Likewise, insurers could charge different 

premiums for different abatement levels. In addition to providing the 

incentive to reduce existing lead hazards, insurance provides the means to 

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 coverage for lead 

hazards could grow, as did asbestos abatement coverage, because the two 

hazards are similar. Insurance for asbestos abatement contractors was 

scarce during the mid-1980s but standards for asbestos removal that were 

developed by EPA helped to increase the availability of insurance, 

Page 8 GAO/WED-94831 Lead-Eased Paint Hazard Insurance 
B-257413 

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

Small Contractors Is contractors, small contractors will have problems obtaining insurance to 

Limited cover the risks associated with testing for and abating lead hazards 

because covering these contractors is perceived as a high risk and the cost 

of coverage for them is therefore high. These officials further said that the 

lack of abatement standards and the 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, W ithout such standards, the property owners who hire the 

contractors have no assurance that hazards in their units are properly 

abated, and contractors risk being held liable for the harm incurred by 

children during the abatement process. In cases in which some coverage is 

provided, several insurance firms cited typical premiums ranging from 

$60,000 to $70,000 for the minimum insurance offered (typically, 

$1 million)+ An abatement consultant told us that high insurance premiums 

are passed on to the consumer, thereby increasing abatement costs and 

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 some ways and are often carried 

out by the same contractors; 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 asbestos and lead 

removal and that abatement of both, if conducted improperly, may 

actually increase rather than reduce hazards. A recent lead poisoning case 

settled in W isconsin required an insurance company to pay $1.5 million to 

a child who was poisoned when the landlord removed the lead-based paint 

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, asbestos dust will spread through the air if 

asbestos is improperly abated. However, differences exist in the effects of 

the hazards. W ith asbestos injuries, which primarily affect adults, decades 

usually pass before the damage becomes evident. In contrast, lead injuries 

to children are manifested much more quickly. In addition, most asbestos 

removal work has been done primarily in remote areas of commercial 

buildings, such as basements, whereas lead abatement occurs in millions 

of homes where children are likely to live. 

During the 198Os, insurance for asbestos contractors was generally 

unavailable, but it became more obtainable after federal abatement 

standards were developed. The regulations issued under the Asbestos 

Page 9 GAWRCED-94-231 Lead-Based Paint Haza.rd Insurance 
B-257413 

Hazard Emergency Response Act of 1986 established requirements for 

training and accrediting contractors and for the monitoring methods they 

used. These regulations increased the availability of asbestos liability 

insurance for abatement contractors. We believe that the recent increase 

in the availability of insurance for asbestos removal contractors may be a 

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 

Several states and the 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 because they 

regulate the insurance offered in their states. Massachusetts, Maryland, 

and New York have been 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 and for 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 

assisted public housing authorities in obtaining a master insurance policy 

to protect the authorities and their contractors against claims for bodily 

injury occurring as a result of the work being done during testing and 

abatement. Also, recent legislation charged a task force with identifying a 

comprehensive approach to reduce lead hazards in residential housing. As 

part of that approach, the task force plans to 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 steps to reduce hazards or pay 

an additional premium. The state’s experience with lead hazard liability 

dates to 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-based paint from walls and 

windows up to 4 feet from the floor. In 1990, the insurance industry sought 

the state’s approval to exclude lead liability coverage from policies, and 

the state acquiesced. Beginning in 1991, Massachusetts approved a limited 

exclusion provided that insurance companies offer property owners with 

unabated rental units the opportunity to purchase lead liability coverage 

Page 10 GAO/RCED-94-231 Lead-Based Paint Hazard Insurance 
B-257413 

for an additional premium of $340 per 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 and thereby reduce their 

liability. The procedures call for the Massachusetts Department of Health 

to promulgate regulations to establish a program of interim control 

measures to reduce lead hazards. The state will give property owners who 

perform some abatement measures a letter certifying for up to 2 years that 

the property is safe from hazards but not lead-free. After 2 such years, the 

property owner must take further abatement measures, according to the 

state’s speciiications. Once these measures have been taken, 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 a powerful incentive to property owners to control 

lead hazards. 

Moving in a direction 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 and take certain abatement measures prescribed by 

the state. In return, property owners facing lead poisoning suits will be 

liable for a maximum of $17,000 in damages. Insurance industry officials 

told us that 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 a voluntary reinsurance pool. Because few insurers expressed 

interest in this approach, it was not adopted. Second, the state proposed 

that all companies be required to provide lead hazard coverage for all 

homes by participating in a joint underwriting association. During public 

hearings held in May 1993, insurance officials opposed the joint 

underwriting proposal and reiterated their belief that lead hazards are 

uninsurable. They also maintained that the proposed requirement would 

6The National Association of Insurance Commissioners told us that of 26 states answeting a survey, 

Massachusetts was 1 of only 3 that require insurance companies to offer property ownem the option to 

pm-chase the excluded coverage. 

Page 11 GAO/RCED-94-231 Lead-Based Paint Hazard Insurance 
B-257413 I I 

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 a comprehensive solution was 

needed to address the problem. 

Federal Efforts Include 

EPAk Development of 

Standards and HUD’s Aid 

to Housing Authorities 

Title X of the Housing and Community Development Act of 1992 required 

that EPA, in consultation with other agencies including HUD, develop 

work-practice standards for lead inspection and abatement activities. Title 

X also requires EPA to develop health-based standards for lead-based paint 

hazards and lead-contaminated dust and soil. Abatement contractors will 

use such standards to ensure that lead hazards are identified and 

eliminated in the safest and most effective manner. The standards also will 

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 

has provided housing authorities with guidance on a variety of strategies 

and methods aimed at reducing lead-based paint hazards. HUD has also 

funded the housing authorities’ lead testing and abatement activities. 

Approximately 400,000 children reside in the 1.3 million public housing 

units. Roughly 60 percent of the units were built before 1978 and may 

contain lead-based paint, 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-based paint hazards. 

Insurers contended that such clams were excludable under the provisions 

of their policies, which would necessitate litigation before insurance 

companies would cover these claims. HUD officials considered alternative 

measures to at least protect the authorities and their contractors from 

liability claims arising from their lead testing and abatement work; 

however, these measures would not cover lead poisoning occurring in the 

normal course of a person’s occupying a unit 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 

Page 12 GAO/RCED-94-231 Lead-Based Paint Hazard Insurance y 
B-257413 

their contractors. Approximately 900 housing authorities took advantage 

of the master policy to insure their lead testing 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 have to 

find a new insurer. Second, the HUD Inspector General concluded in 

September 199 1 that HUD’s involvement in contracting for the master 

policy was not warranted. Finally, because of the passage of title X, it was 

expected that contractors performing testing and abatement work would 

need insurance while working for entities other than housing authorities, 

and a master 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 use in obtaining coverage for lead 

hazards. 

Other means of insurance are also available, including self-insurance and 

group insurance. For example, of the 20 housing authorities we contacted, 

2 that 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 said that 

because of the number of settlements, the authority no longer has 

commercial liability insurance and must now self-insure. For example, 

during 1991 the New Orleans Housing Authority settled over 60 lawsuits 

that cost over $1 million in claims and attorneys’ fees. Having no 

insurance, the authority recently requested and received an additional 

$340,000 from HUD to pay these claims.7 The 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 coverage to 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-Based Paint Hazard Reduction and Financing and charged 

EPA Ways to Reduce Lead it with identifying a comprehensive 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 changes to both standards and 

regulations. The issues that title X mandates the task force to address are 

‘Lead-Based Paint Poisoning: Children in Public Housing AR Not Adequakly Protected 

(GAWRCED-93-138, Sept. 17, 1993). 

Page 13 GAOIRCED-94-231 Lqead-Based Paint Hazard hsurance 
B-25 7413 

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 as the 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 a comprehensive set of 

measures to control lead hazards in private housing and will explore 

questions such as the following: How are hazards identied and 

controlled? 

. Revising guidelines and regulations issued by HUD and other 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’s purpose of eliminating lead hazards, the task 

force comprises a broad range of government and insurance 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, and workable time frames 

for reducing lead hazards. 

Conclusions The financial risks for multifamily property owners, even those who want 

to reduce lead hazards, have increased as insurance companies continue 

to exclude lead coverage from their general liability policies. If insurance 

for lead follows the same path as asbestos, then coverage for 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, as mandated 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 hazards in all homes are 

expected to become finaI by December 1994. Once this occurs, the states 

may be more inclined to implement the national standards by enacting 

legislation requiring that insurance companies provide coverage for lead 

hazards. Reasonable standards wiIl encourage insurers to offer coverage, 

Page 14 GAO/RCED-94-231 Lead-Based Paint Hazard insurance 

I 

I 
B-257413 

- 

which, in turn, will provide owners with an incentive to reduce the lead 

hazards in their properties 

Through title X of the Housing and Community Development Act, the 

Congress has set the stage for a comprehensive approach to identifying 

and reducing lead-based paint hazards in residential housing. If the 

legislatively mandated Task Force on Lead-Based Paint Hazard Reduction 

and Financing is successful in addressing the questions it has identified, it 

will be in a position to make practical 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 Senate Committee on Banking, Housing and Urban Affairs requested 

Comrnents 

and the House Committee on Banking, Finance and Urban Affairs agreed 

that we not obtain written agency comments on a draft of this report. We 

did, however, provide a complete 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-Based Paint Hazard 

Reduction and Financing for review and oral comment. Subsequently, we 

obtained comments on the draft from officials of HUD'S Offkes of 

Lead-Based Paint Abatement and Poisoning and Prevention and Public and 

Indian Housing; EPA'S Office of Prevention, Pesticides and Toxic 

Substances, Chemical Management Division; the National Center for 

Lead-Safe Housing; and the American Association of Insurance 

Companies. These officials generally agreed with the information 

presented in the report and provided us with updated information and 

suggested changes that would enhance the report’s completeness and 

Clarity. 

HUD officials noted that I-KJD is drafting new guidelines for the evaluation 

and control of lead-based paint hazards that will identify cost-effective 

measures for all property owners to reduce or control lead hazards. Also, 

as EPA officials suggested, we clarified the role that insurance can play 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-based paint liability insurance to housing authorities. 

Scope md 

Methodology 

We obtained information for this report from officials of 10 insurance 

companies, 7 state insurance departments, 2 insurance brokers, 5 

Page15 GAWRCED-94-231Lea&Based PaintHazard t~~urance 
B-257413 

contractors, and 4 properly owner associations. We also 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 20 large and 

small public housing authorities to determine their experiences in abating 

lead paint hazards and obtaining liability insurance. We conducted our 

review between July 1993 and June 1994 in accordance with generally 

accepted government auditing standards. 

We are sending copies of this report to the appropriate congressional 

committees and subcommittees, the Secretary of HUD, the Administrator of 

EPA, and the Director of the Office of Management and Budget. We wilI 

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 end of the report. 

Judy A. England-Joseph 

Director, Housing and Community 

Development Issues 

Page 16 GAOIRCED-94-231 Lead-Based Paint Hazard Insurance 
Page 17 GAO/RCED-94-231 Lead-Based Paint Hated Insurance 
Appendix I 

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 GAO Products 

(38C380) 

Lead-Based Paint Poisoning: Children in Section 8 Tenant-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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