At least two home insurers in Florida have begun dropping policyholders who filed claims for property damage linked to drywall imported from China.

Disputes with insurance companies are increasing as a growing number of homeowners file claims for property damage they say is caused by defective Chinese drywall. Insurers are fighting the claims and in some instances using the information in them to drop the policies.

The Chinese drywall, also known as gypsum or wallboard, is under investigation by federal and state agencies, including the Consumer Product Safety Commission, for emitting sulfide fumes suspected of causing corrosion of electrical wires and plumbing.

Many affected families also have reported health symptoms, including skin irritation and respiratory difficulties, to the CPSC and state health agencies. As many as 100,000 houses across the country, most built in 2006 and 2007, may be affected based on estimates of the amount of drywall imported into the U.S. during the period.

Citizens Property Insurance Corp., a state-created, nonprofit corporation in Tallahassee that is the largest home insurer in Florida, confirmed that it has notified some policyholders who recently had filed claims for damage linked to Chinese drywall that their policies won’t be renewed if the damage isn’t repaired within six months of the date of notice. Citizens also holds the position that the claims aren’t covered.

Citizens spokesman John Kuczwanski said the insurer hasn’t paid any damage claims for Chinese drywall, citing policy exclusions for pollution and builder defects. He said it is standard procedure to require homeowners to repair conditions that could lead to further property damages and additional claims. “Corrosion leads to a likely future claim for a covered peril such as fire or a water leak,” which the insurer would be responsible for covering, he said.

Replacing drywall and corroded components in a house of average size costs $80,000 to $100,000, according to builders’ estimates.

Universal North America, a unit of Universal Group Inc. in Puerto Rico, sent a notice of cancellation, which is more serious than a nonrenewal, to at least one policyholder in Hallandale Beach, Fla., who asked not to be identified. The letter, dated Sept. 24, 2009, states that the reason for the action is an “unacceptable condition — the dwelling was built with Chinese drywall, which has been shown to have adverse long-term effects on the plumbing and other dwelling components.”

The Universal homeowner policy was effective July 20, 2009, and had been scheduled to continue until July 20, 2010. But the notice states that the cancellation is effective Oct. 19 at 12:01 a.m. Universal has about 105,000 home-insurance policies in the state, according to the Florida Office of Insurance Regulation.

Universal, the 12th largest insurer in Florida, didn’t return repeated calls seeking comment.

In August, one major manufacturer of Chinese drywall, Knauf Plasterboard Tianjin Co., said its tests indicate that its drywall isn’t harmful. Carbon disulfide and carbonyl sulfide are being emitted by some of its drywall, but not at levels that would damage health, said Phillip T. Goad, principal toxicologist and partner at the Center for Toxicology and Environmental Health in North Little Rock, Ark. The center is a private company hired by Knauf Tianjin that consults for corporations and government agencies.

In July, Lennar Corp. said it had identified 400 houses in Florida with confirmed problems with defective Chinese drywall and set aside $39.8 million to repair the homes. Several other large home builders also have set aside funds to repair homes with imported drywall from China from a number of manufacturers.

An attorney for both the Citizens and Universal policyholders, David Durkee of Coral Gables, Fla., said that “if you go ahead and disclose and do the honest thing you are subject to possible cancellation or nonrenewal. It is truly a cruel predicament.”

Write to M.P. McQueen at mp.mcqueen@wsj.com

When Bill Morgan, a retired policeman, moved into his newly built dream home in Williamsburg, Va., three years ago, his hopes were quickly dashed.

His wife and daughter suffered constant nosebleeds and headaches. A persistent foul odor filled the house. Every piece of metal indoors corroded or turned black.

In short order, Mr. Morgan moved out. The headaches and nosebleeds stopped, but the ensuing financial problems pushed him into personal bankruptcy.

“My house is not worth the land it’s built on,” said Mr. Morgan, who could not maintain the mortgage payments on his $383,000 home in a Williamsburg subdivision called Wellington Estates and the costs of a rental property where his family decamped.

Mr. Morgan, like many other American homebuyers who tell similar tales of woe, is blaming the drywall in his new home — specifically, drywall from China, imported during the housing boom to meet heavy demand — that he says is contaminated with various sulfur compounds.

Hundreds of lawsuits are piling up in state and federal courts, and a consolidated class action is moving forward in Louisiana before Judge Eldon E. Fallon of Federal District Court, who will begin hearing cases in January.

Three hundred cases have been filed in Louisiana alone, many with similar complaints from homeowners — a noxious smell, recurrent headaches and difficulty breathing. In Florida, the health department has received over 500 complaints with such symptoms.

In addition, these suits say, metal objects in homes corrode quickly, causing kitchen appliances, air-conditioners, televisions and plumbing to fail.

“There could be 60,000 to 100,000 homes that are worthless and have to be ripped completely down and rebuilt,” said Arnold Levin, a Philadelphia lawyer and co-chairman of the plaintiffs’ steering committee.

While tainted Chinese imports like toothpaste, pet food and baby formula have been quickly removed from store shelves, drywall is installed throughout homes and does not lend itself to a quick fix.

This month, the Consumer Product Safety Commission, whose investigation into Chinese drywall is the largest in its history, will release the results of a study to determine why the drywall is causing the problem, and what kind of remediation programs might be effective.

Already, the commission has sent six investigators to Chinese gypsum mines and to meet with the government there. The Chinese government’s counterpart to the federal safety commission sent two of its experts here to inspect affected homes.

The commission is also making sure that no more Chinese drywall comes into the country.

“Our ports are on alert,” said Inez Tenenbaum, chairwoman of the commission. “They are not letting any in. The market, too, has corrected. No one wants Chinese drywall.”

Even President Obama is being pressed by members of Congress to raise the issue on his November trip to China — the loudest cry coming from Senator Bill Nelson, Democrat of Florida, who has traveled to China on his own to learn more about the drywall problems.

Investigators are finding that getting scientific data, establishing legal accountability and following a supply chain is difficult when so many drywall sheets — millions in all were brought into the United States — were simply marked “Made in China,” providing no clues to their actual source. The drywall was brought in because United States supplies ran low, not as a cost-saving measure for builders.

One target of the lawsuits is Knauf Plasterboard Tianjin, a German company with manufacturing plants in China that supplied about 20 percent of the Chinese drywall brought into the United States.

Don Hayden, the company’s lawyer, said that its own toxicology tests from affected homes showed that the drywall presented no health problems. Even so, he said his company was cooperating with American government investigations.

“Unlike other Chinese manufacturers, we are the only one to come to the United States to address this problem,” said Mr. Hayden. “We’ve spent considerable time and energy and hope that we can provide a workable solution to U. S. homeowners.”

One puzzle is why problems have surfaced in the United States and not Asia, where drywall was also sold. According to a safety commission official who declined to be named because of the delicacy of the issue, a theory offered by Chinese officials during their visit to the United States was that American homes are more tightly built, with less ventilation than homes in China.

One drywall manufacturer, the Taishan Gypsum Company, which is controlled by the Chinese government, was found to be in preliminary default last week by a federal judge after the company failed to show up in court.

But whether the Florida builders who brought the class-action lawsuit could ever collect on any future judgment remains unclear, because of the difficulty of gaining jurisdiction and enforcing rulings against foreign companies, especially in China. In other cases, many of the Chinese companies cannot be found or have disbanded.

Homeowners, insurers, home builders, drywall suppliers and Chinese manufacturers, if they can be identified, are often suing each other. Drywall installers and suppliers are also expected to be targets of the next wave of litigation. Many lawsuits need to be translated into Mandarin and follow rules of international law, adding layers of difficulty.

Among the homeowners filing suit are the lieutenant governor of Florida, Jeff Kottkamp; and Sean Payton, head coach of the New Orleans Saints, who has moved out of his Mandeville, La., home.

The product safety commission has received more than 1,300 complaints from 26 states, but the bulk are from Florida, Louisiana and Virginia, where hurricanes led to an unprecedented housing boom in 2006 and 2007.

In 2006 alone, nearly seven million sheets of drywall were imported from China. The federal court in the Eastern District of Louisiana has identified 26 brands of drywall, but 11 others had no markings other than variations of “Made in China.”

Insurance companies, in particular, have become a popular target of lawsuits over their refusal to pay claims filed by homeowners and home builders, stating that their policies do not cover problems caused by pollutants.

There are estimates that it costs $100,000 to $150,000 per home to rip out and replace tainted drywall and the electrical equipment attached to it. In these cases, homes are being stripped down to the studs and new drywall is installed.

Some home builders, worried about their reputations, are doing just that. The Lennar Corporation has set aside $40 million for home repairs, while it tries to collect from its insurance company and sues several Chinese suppliers and American middlemen. Lennar declined to comment.

But many smaller home builders, hoping to survive the downturn, do not have such deep pockets. “This couldn’t have come at a worse time for the industry,” said Jenna Hamilton, assistant vice president of government affairs at the National Association of Home Builders.

For that reason, some members of Congress hope the federal government will provide financial assistance for their constituents, just as it does after natural disasters.

There may be local relief, too. Broward County, Fla., has cut property assessments as much as 20 percent in some affected areas and Miami-Dade is considering a similar tax break. “Florida is hypersensitive to hurricanes and this is like a silent hurricane,” said Representative Robert Wexler, Democrat of Florida. “Whole neighborhoods are being wiped out in terms of property values and people’s ability to remain in their homes.”

Help could not come soon enough for Mr. Morgan’s Virginia dream home.

“Every piece of drywall in the house except for four pieces is Chinese,” said Mr. Morgan. ”We built our home to be safe from floods, and for three years we’ve been breathing this stuff.”

Mr. Morgan said that metal fixtures in his house turned black. His air-conditioner and electrical outlets failed. Lamps and mirrors tarnished immediately. Neighbors, too, had similar problems..

Mr. Morgan bought his house in 2006 after his family spent two years living in a trailer provided by the Federal Emergency Management Agency when their previous home was destroyed in 2003 by Hurricane Isabel. Mr. Morgan has lost the equity in his home, but he still drops by to cut the grass.

“When I drive by my house, it breaks my heart,” he said.

By AMY SCHATZ and MIGUEL BUSTILLO

WASHINGTON — The government wants to make it a little harder for bloggers to shill products online for fun and profit.

New guidelines released by the Federal Trade Commission say bloggers must disclose any money or freebies they receive in exchange for writing product reviews, a fast-growing and loosely regulated way for companies to market everything from diapers to movies. The move is an effort to apply the same rules that already cover broadcast stations, newspapers and magazines to the Wild West marketplace of the World Wide Web.

Separately, the FTC also updated its guidelines for celebrity endorsements, saying that celebrities must “disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media.”

It also eliminated one loophole used in many diet and fitness ads, which allowed marketers to tout massive weight loss by some subjects as long as they included the disclaimer that the “results not typical.” In the future, the FTC said, those testimonial ads will also have to include some information about what the typical weight loss might be.

The question of how and whether bloggers should divulge their relationships with companies has been hotly debated in recent months. It is a particularly controversial issue online, where the traditional division between editorial and advertising found in newspapers and magazines is harder to maintain.

As blogging has grown, more users are opining on topics ranging from their jobs to their dinner on social-networking and other Web sites. Big companies are increasingly using these forums to build buzz, sending bloggers products to review or even helping them host parties to encourage others to try their wares.

The new FTC guidelines represent the latest in a series of efforts by the government to respond to the needs of consumers who increasingly spend time online. Congress is mulling new legislation to regulate targeted advertising online. Meanwhile, the Federal Communications Commission is looking at how to adapt its children’s TV rules to cover online videos.

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Bloomberg NewsThe FTC, under Chairman Jon Leibowitz, aims to police blogger freebies.

“We look at it from the perspective of the consumer and the principle being that a consumer has the right to know when they’re being pitched a product,” said Richard Cleland, assistant director of FTC’s advertising practices division. “It doesn’t matter whether it’s an email or Twitter or someone standing on a street corner.”

Some First Amendment advocates worry that the guidelines could represent a restriction of free speech. They point out that, while the FTC has long regulated advertising claims in traditional media, the agency generally has allowed publications to police themselves when it comes to editorial content. For instance, newspapers generally prohibit reporters from accepting gifts from a company they write about to protect their credibility with readers.

It is “good journalism” to fully disclose your potential influences, “but that is not the government’s business to regulate,” said Gregg Leslie, the legal defense director for the nonprofit Reporters Committee for Freedom of the Press. “It is a matter of ethics, not a matter of law.”

The agency, which last updated its endorsement guidelines nearly 30 years ago, said it doesn’t seek to regulate all online reviews or discussion of products — only bloggers acting on behalf of advertisers or agents. The guidelines are supposed to offer advertisers clarity about what they must disclose to consumers.

The new guidelines are a response to complaints about bloggers writing positive reviews of freebies they have received from corporations, including Wal-Mart Stores Inc., Ford Motor Co. and Microsoft Corp., which came under scrutiny a few years ago for giving away free laptops to potential reviewers.

Bloggers and others who are paid or give freebies to promote products online will be required to offer some sort of written disclosure for readers, the FTC said, or face possible fines of as much as $11,000 per violation.

The guidelines reaffirm that making false and misleading claims about products in print, broadcast or on the Internet violate federal laws. They also clarify that advertisers and publishers can be held liable if a sponsored blogger makes false or misleading statements about a product.

The FTC’s decision is likely to be a boon for companies that sell Internet advertising and the agencies that advise them, giving them a shot at money that was previously going directly to bloggers.

Sarah Hofstetter, senior vice president of emerging media for 360i, a digital-advertising agency, praised the decision for restoring “common sense to a nascent form of marketing.”

Ted Murphy, founder of IZEA Inc., a business that connects bloggers and corporations for the purpose of paid “sponsored posts”, said the guidelines could have the most impact on public-relations firms and companies who giving bloggers free merchandise.

“This is surely pretty scary for some brands or PR agencies, but I think it is actually going to be a good thing for the industry,” said Mr. Murphy, whose clients have included Sears Holdings Corp. “Disclosure and transparency are key to making this social media space sustainable.”

The FTC regulations target such bloggers as Christine Young of California, who parlayed a personal Web site detailing her experiences home-schooling her six children into a significant commercial enterprise. She is one of the Elevenmoms, a cadre of bloggers organized by Wal-Mart Stores Inc., which receives free merchandise from the retailer’s suppliers, and has been flown to special events by Frito Lay, Johnson & Johnson and other companies.

Ms. Young said she has toughened her standards and discloses the relationship when she writes about the items.

“The brands and companies directly working with bloggers need to be held accountable,” she said. “While some companies may choose not to work with us now, I would much rather work with companies that wanted us to be open in the first place.”

The new guidelines “can only assist bloggers” in convincing readers they are trustworthy, said Tricia Haas, the 31-year-old owner of blog site Momdot.com. She said she always discloses receipt of free products from companies, adding that freebies don’t affect her reviews. Ms. Haas noted that she posted a negative review Monday for a cake-making machine a company had sent her.

Ed Morrissey, a conservative blogger, questioned how far the FTC’s rules would extend. “If I get a free tube of toothpaste in the mail and say nice things about it on Twitter, Facebook, or in a PTA meeting, do I have to disclose it as a freebie or pay the $11,000 fine the FTC imposes?” he wrote. “What kind of disclosure can one fit into a 140-character Twitter message, anyway?”

Enforcing the guidelines could be difficult, because the agency has limited authority and staff. With a broad mission to protect consumers from deceptive trade and anti-competitive business practices, the FTC investigations generally originate with consumer complaints.

—Jessica E. Vascellaro, Geoffrey A. Fowler and Nomaan Merchant contributed to this article.

Write to Amy Schatz at Amy.Schatz@wsj.com and Miguel Bustillo at miguel.bustillo@wsj.com

WASHINGTON – Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that’s happened since the 1980s.

The deficits — $10 billion in 2010 and $9 billion in 2011 — won’t affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn’t expect the increase to be so large.

What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security.

“A lot of people who in better times would have continued working are opting to retire,” said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. “If they were younger, we would call them unemployed.”

Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can’t afford to retire, especially after the financial collapse demolished their nest eggs.

Some have no choice.

Marylyn Kish turns 62 in December, making her eligible for early benefits. She wants to put off applying for Social Security until she is at least 67 because the longer you wait, the larger your monthly check.

But she first needs to find a job.

Kish lives in tiny Concord Township in Lake County, Ohio, northeast of Cleveland. The region, like many others, has been hit hard by the recession.

She was laid off about a year ago from her job as an office manager at an employment agency and now spends hours each morning scouring job sites on the Internet. Neither she nor her husband, Raymond, has health insurance.

“I want to work,” she said. “I have a brain and I want to use it.”

Kish is far from alone. The share of U.S. residents in their 60s either working or looking for work has climbed steadily since the mid-1990s, according to data from the Bureau of Labor Statistics. This year, more than 55 percent of people age 60 to 64 are still in the labor force, compared with about 46 percent a decade ago.

Kish said her husband already gets early benefits. She will have to apply, too, if she doesn’t soon find a job.

“We won’t starve,” she said. “But I want more than that. I want to be able to do more than just pay my bills.”

Nearly 2.2 million people applied for Social Security retirement benefits from start of the budget year in October through July, compared with just under 1.8 million in the same period last year.

The increase in early retirements is hurting Social Security’s short-term finances, already strained from the loss of 6.9 million U.S. jobs. Social Security is funded through payroll taxes, which are down because of so many lost jobs.

The Congressional Budget Office is projecting that Social Security will pay out more in benefits than it collects in taxes next year and in 2011, a first since the early 1980s, when Congress last overhauled Social Security.

Social Security is projected to start generating surpluses again in 2012 before permanently returning to deficits in 2016 unless Congress acts again to shore up the program. Without a new fix, the $2.5 trillion in Social Security’s trust funds will be exhausted in 2037. Those funds have actually been spent over the years on other government programs. They are now represented by government bonds, or IOUs, that will have to be repaid as Social Security draws down its trust fund.

President Barack Obama has said he would like to tackle Social Security next year.

“The thing to keep in mind is that it’s unlikely we are going to pull out (of the recession) with a strong recovery,” said Kent Smetters, an associate professor at the University of Pennsylvania’s Wharton School. “These deficits may last longer than a year or two.”

About 43 million retirees and their dependents receive Social Security benefits. An additional 9.5 million receive disability benefits. The average monthly benefit for retirees is $1,100 while the average disability benefit is about $920.

The recession is also fueling applications for disability benefits, said Stephen C. Goss, the Social Security Administration‘s chief actuary. In a typical year, about 2.5 million people apply for disability benefits, including Supplemental Security Income. Applications are on pace to reach 3 million in the budget year that ends this month and even more are expected next year, Goss said.

A lot of people who had been working despite their disabilities are applying for benefits after losing their jobs. “When there’s a bad recession and we lose 6 million jobs, people of all types are going to be part of that,” Goss said.

Nancy Rhoades said she dreads applying for disability benefits because of her multiple sclerosis. Rhoades, who lives in Orange, Va., about 75 miles northwest of Richmond, said her illness is physically draining, but she takes pride in working and caring for herself.

In June, however, her hours were cut in half — to just 10 a week — at a community services organization. She lost her health benefits, though she is able to buy insurance through work, for about $530 a month.

“I’ve had to go into my retirement annuity for medical costs,” she said.

Her husband, Wayne, turned 62 on Sunday, and has applied for early Social Security benefits. He still works part time.

Nancy Rhoades is just 56, so she won’t be eligible for retirement benefits for six more years. She’s pretty confident she would qualify for disability benefits, but would rather work.

“You don’t think of things like this happening to you,” she said. “You want to be in a position to work until retirement, and even after retirement.”