windstorm Archives

Reinsurance expert: Biggest challenge in Texas is legal fraud, says HB 1774 a ‘fantastic step in the right direction’

By: David Yates

Everything is bigger in Texas, including the legal fraud that ensues after every hailstorm or hurricane it seems.

The Insurance Council of Texas recently held its 26th annual symposium, a gathering of professionals and industry experts who explored topics ranging from current issues to future challenges for those in attendance.

One of the events at the symposium included a roundtable discussion featuring three global reinsurance experts, a prominent panel that included James Mitchell, senior vice president of RenaissanceRe Syndicate 1458 at Lloyds of London.

For the past 25 years, RenaissanceRe, which specializes in risk mitigation, has researched and modeled atmospheric hazards and the economic impact of catastrophic storms.

And when it comes to the Lone Star State, apparently “Texas is one of the most challenging states to quantify,” according to Mitchell.

“The biggest challenge in Texas is legal fraud,” Mitchell said, pointing to the mass reopening of claims following storm strikes.

The roots of mass storm litigation against Texas insurers can be traced back to 2005 after Hurricane Rita. Following Hurricane Ike in 2008, trial lawyer advertised heavily for potential clients and thousands of lawsuits were filed as a result.

Four years later, two hailstorms pounded the Hidalgo County area, providing a new opportunity to employ the hurricane model. From that time on, reports began surfacing of roofers and adjusters going door-to-door to solicit clients for attorneys after every hailstorm strike within the state.

From 2012 to 2016, the Texas Department of Insurance reported a 1,400 percent increase in weather-related lawsuits. Over the five-year period, storm-chasing lawyers filed nearly 40,000 lawsuits in Texas, according to Texans for Lawsuit Reform.

Many of the suits filed were brought two years after the property owner made a claim for hail damage — sneaking the lawsuit in under the statute of limitations.

Mitchell said it’s important that insureds are compensated accordingly and that the money goes toward repairing damage and not to legal fees.

Trial lawyers work on a contingency fee basis, taking anywhere from 30 to 40 percent of settlement proceeds from a hail lawsuit, plus expenses.

To stop the abuse, the Texas Legislature passed House Bill 1774 last year, giving insurers a chance to resolve a disputed claim before a lawsuit is filed.

Mitchell called HB 1774 a “fantastic step in right in direction.”

Hartwell Dew, an executive at Guy Carpenter who moderated the discussion, said more time was needed to measure the true impact of the bill but that initial results were encouraging.

“The verdict’s still out,” Dew said. “But so far so good.”

One symposium attendee says HB 1774 has already had a “tremendous impact.”

Abraham Padron, who runs the Safe Guard Insurance Agency in Hidalgo County, told the Record that prior to 2012, a homeowner had a choice between 10 to 15 insurance agencies.

“Post 2012, that number dropped to one or two … with rates tripling in some cases,” Padron said. “Since the bill, a lot of companies have come back, not all of them, but a lot. More players means more competitive rates.”

After the 2012 hailstorms, Padron said storm-chasing lawyers swopped in and targeted the less affluent members of the community, setting up shop at flea markets and grocery stores.

Last month, Kent Livesay, a former attorney from the Hidalgo County area, was sentenced to five years in prison for paying roofers and adjusters to sign up hail victims for his firm.

While the impact of HB 1774 still may not be quantifiable yet, there is another possible measure that may help reduce litigation against insurers – the plain language initiative.

To kickoff the symposium, opening remarks were given by Texas Insurance Commissioner Kent Sullivan, who told attendees clear plain language in insurance policies would help insurers defend themselves in court.

Sullivan, who has 35 years of legal experience, said technical language “creates a deep hole in the courtroom,” and that more “user friendly” language could possibly increase consumer awareness and satisfaction.

“I’m not saying I have all the answers, but this ought to be the start of a new discussion,” Sullivan said, adding that new tools are needed so consumers can better navigate their policies.

ICT’s Property & Casualty Insurance Symposium began July 12 and ended the next day.

Attendees also heard from experts on the Texas market, digital insurance and even a historical look at the Texas Windstorm Insurance Association and the FAIR plan.

“The symposium serves several purposes,” said Mark Hanna, an ICT spokesperson. “It’s a great networking event because every company doing business in Texas is represented.

“And if you want to know what is going on in the Texas insurance marketplace, the list of speakers at the symposium provides it.”

The Imperfect Storm: Harvey Litigation Will Be Fought Under Hailstorm Bill’s Rules, While ‘Menchaca’ Looms in the Background

By: Stephen Pate

When Hurricane Harvey made landfall in late August 2017, it was the first major hurricane to hit Texas since Hurricane Ike, nine years before, which spawned a wealth of litigation against carriers.

Most of these cases have been resolved by 2017, leaving many policyholder and carrier attorneys with extra time on their hands. Harvey litigation undoubtedly means these lawyers will be back in business, but several other significant events mean they now operate on a much different playing field than before.

One event was arguably good for carriers. This was the passage of the so-called “Hailstorm Bill,” an act designed to curb the actions of “storm chaser” attorneys, and applicable to Hurricane claims. The statute took effect Sept. 1, 2017—shortly after Harvey had finished its destruction.

Another event was arguably good for the policyholder: the Texas Supreme Court’s April 2017 decision in USAA Texas Lloyds v. Menchaca ,which, seemingly meant that bad faith causes of action were revived in Texas. This article examines the Hailstorm Bill’s and Menchaca’s impact on Harvey litigation. Finally, It addresses a third issue—the flood exclusion, the “elephant in the room” for Harvey litigation.

“Hailstorm Bill”, Chapter 542A of the Texas Insurance Code, has already impacted Harvey litigation. It has several new requirements that policyholder’s attorneys find rigorous. An important requirement that the policyholder, in his demand letter, must state that he will allow a carrier the opportunity to inspect his property if request to do so is made within 30 days of the demand letter. This “sleeper” requirement is especially fruitful for Harvey claims. Harvey was a massive catastrophe. Many so-called “Stormtroopers” were called in from all over the country to quickly adjust an overwhelming amount of claims. Many times, some things were missed—by the carrier, or by the policyholder. The inspection allows any missed damages to be adjusted and paid if covered. Lawsuits can be avoided. Consumers and carriers both win. Only lawyers—from both sides—lose out on fees.

Another important provision allows for carriers to indemnify adjusters if they are sued. A typical tactic for policyholder’s attorneys was to sue an in-state adjuster in order to defeat removal to Federal Court. This provision puts a stop to improper joinder and should mean federal courts will see more Harvey suits. Realistically, though, it may mean that less suits are filed. Policyholder attorneys who cannot maintain a case in a state court unfavorable to carriers may settle cases rather than see them removed.

There are many changes regarding attorney fees in the new statute with sliding scales regarding their recovery, designed to prevent the award of huge amounts on small claims. There is another “sleeper” provision here: under the new statute, policyholder attorneys must supply a statement justifying their attorney fee with “contemporaneous time records.” Plaintiffs attorneys do not like to keep time sheets and are not used to doing so. When asked for statements, they cannot produce them. Additionally, the interest rate has gone from 18 to 10 percent as the Prompt Payment Act penalty.

Still, despite the Hailstorm Bill, policyholder’s attorneys are heartened by the Texas Supreme Court’s decision in USAA Texas Lloyds v. Menchaca (2018) on bad faith. The case was first decided in April 2017. Upon motion for rehearing, a deeply divided court issued a new opinion April 13 2018. In Menchaca, a Hurricane Ike case, a jury found that USAA did not breach its contract with Menchaca. However, the jury did award Menchaca $11, 500 (equal to her contract claim), for a bad faith failure to perform a reasonable investigation. The trial court upheld that finding. In the past, the absence of a breach of contract finding would mean no recovery. Now, while the Texas Supreme Court has remanded the case for a new trial, the language in its opinion indicates that it would support a recovery for bad faith in the absence of a breach of contract.

Much has been written and much will be written about Menchaca. This article is about its legal ramifications. Policyholder’s attorneys had been discouraged for years about Texas Appellate Courts limiting or eliminating bad faith awards. Now they argue Menchaca means that bad faith is back, and that bad faith should be a serious component of a first party lawsuit.

So, while there is something good for both the policyholder and for the carrier in recent statutes and rulings impacting Harvey litigation, it remains to be seen whether the volume of Harvey litigation will reach Hurricane Ike levels. However, there is one immutable factor that would argue against it: Harvey is noted as a “flood event” rather than a “wind event,” at least in the vast metropolis of Houston. Many policies—both homeowners and commercial—exclude flood loss. Innovative policyholder attorneys are scratching their heads to come up with ways around the flood exclusion; but many will admit that it cannot be done.

There will be claims that what is said to be flood damage is actually wind damage—but that will be a hard sell. Instead, there are now lawsuits being filed against agents and brokers for failing to inform policyholders that they needed flood insurance. Yet, without actual misrepresentations, the agents and brokers may have no liability. Probably, the real Harvey battles will be fought over covered losses where the issue of quantum will be the main one—in other words, how much is owed? These battles will be fought under the Hailstorm Bill’s rules, and with Menchaca looming in the background.

Climate Alarmists May Inherit the Wind

By: Phelim McAleer

Five American oil companies find themselves in a San Francisco courtroom. California v. Chevron is a civil action brought by the city attorneys of San Francisco and Oakland, who accuse the defendants of creating a “public nuisance” by contributing to climate change and of conspiring to cover it up so they could continue to profit.

No trial date has been set, but on March 21 the litigants gathered for a “climate change tutorial” ordered by Judge William Alsup —a prospect that thrilled climate-change alarmists. Excited spectators gathered outside the courtroom at 6 a.m., urged on by advocates such as the website Grist, which declared “Buckle up, polluters! You’re in for it now,” and likened the proceeding to the 1925 Scopes Monkey Trial.

In the event, the hearing did not go well for the plaintiffs—and not for lack of legal talent. Steve W. Berman, who represented the cities, is a star trial lawyer who has made a career and a fortune suing corporations for large settlements, including the $200 billion-plus tobacco settlement in 1998.

“Until now, fossil fuel companies have been able to talk about climate science in political and media arenas where there is far less accountability to the truth,” Michael Burger of the Sabin Center for Climate Change Law at Columbia University told Grist. The hearing did mark a shift toward accountability—but perhaps not in the way activists would have liked.

Judge Alsup started quietly. He flattered the plaintiffs’ first witness, Oxford physicist Myles Allen, by calling him a “genius,” but he also reprimanded Mr. Allen for using a misleading illustration to represent carbon dioxide in the atmosphere and a graph ostensibly about temperature rise that did not actually show rising temperatures.

Then the pointed questions began. Gary Griggs, an oceanographer at the University of California, Santa Cruz, struggled with the judge’s simple query: “What do you think caused the last Ice Age?”

The professor talked at length about a wobble in the earth’s orbit and went on to describe a period “before there were humans on the planet,” which “we call hothouse Earth.” That was when “all the ice melted. We had fossils of palm trees and alligators in the Arctic,” Mr. Griggs told the court. He added that at one time the sea level was 20 to 30 feet higher than today.

Mr. Griggs then recounted “a period called ‘snow ballers,’ ” when scientists “think the entire Earth was frozen due to changes in things like methane released from the ocean.”

Bear in mind these accounts of two apocalyptic climate events that occurred naturally came from a witness for plaintiffs looking to prove American oil companies are responsible for small changes in present-day climate.

The defendants’ lawyer, Theodore J. Boutrous Jr. , emphasized the little-discussed but huge uncertainties in reports from the United Nations Intergovernmental Panel on Climate Change and the failure of worst-case climate models to pan out in reality. Or as Judge Alsup put it: “Instead of doom and gloom, it’s just gloom.”

Mr. Boutrous also noted that the city of San Francisco—in court claiming that rising sea levels imperil its future—recently issued a 20-year bond, whose prospectus asserted the city was “unable to predict whether sea level rise or other impacts of climate change or flooding from a major storm will occur.”

Judge Alsup was particularly scathing about the conspiracy claim. The plaintiffs alleged that the oil companies were in possession of “smoking gun” documents that would prove their liability; Mr. Boutrous said this was simply an internal summary of the publicly available 1995 IPCC report.

The judge said he read the lawsuit’s allegations to mean “that there was a conspiratorial document within the defendants about how they knew good and well that global warming was right around the corner. And I said: ‘OK, that’s going to be a big thing. I want to see it.’ Well, it turned out it wasn’t quite that. What it was, was a slide show that somebody had gone to the IPCC and was reporting on what the IPCC had reported, and that was it. Nothing more. So they were on notice of what in IPCC said from that document, but it’s hard to say that they were secretly aware. By that point they knew. Everybody knew everything in the IPCC,” he stated.

Judge Alsup then turned to Mr. Berman: “If you want to respond, I’ll let you respond. . . . Anything you want to say?”

“No,” said the counsel to the plaintiffs. Whereupon Judge Alsup adjourned the proceedings.

Until now, environmentalists and friendly academics have found a receptive audience in journalists and politicians who don’t understand science and are happy to defer to experts. Perhaps this is why the plaintiffs seemed so ill-prepared for their first court outings with tough questions from an informed and inquisitive judge.

Activists have long claimed they want their day in court so that the truth can be revealed. Given last week’s poor performance, they may be the ones who inherit the wind.

Mr. McAleer is a journalist, playwright and filmmaker. He is currently writing a play about Chevron Corp.’s legal fight over alleged pollution in Ecuador.

Oakland Would Pay 23.5% Of Recovery From Its Global Warming Lawsuit To Private Lawyers

By: John O’Brien

The City of Oakland – one of eight California governments going big-game hunting by suing the energy industry over climate change – will pay private lawyers almost one-quarter of any recovery and says it does not have to disclose any communication with the firm it hired.

In response to a Legal Newsline request under the California Public Records Act, the city says it is prohibited from releasing “communications between an attorney and his or her clients.”

What Oakland did disclose was a contingency fee agreement that provides for 23.5% of the net recovery to be paid to the firm Hagens Berman Sobol Shapiro. Oakland City Attorney Barbara Parker and Steve Berman signed the document on Sept. 8.

“The defendants include some of the world’s largest corporations and are well-funded adversaries with histories of a willingness to engage in costly and protracted litigation,” the agreement says.

“The defendants have resources superior to the City’s resources, in terms of financing and the number of lawyers experienced in complex civil litigation available to them.”

Those defendants include Chevron, ExxonMobil and BP – companies blamed for impending disasters that are now crafting legal defenses.

In Texas, Exxon is seeking to depose many public officials and a Hagens Berman attorney over why these lawsuits allege disasters that will cause damage to the cities and counties, but why those officials didn’t disclose that to potential investors in bond offerings.

Legal Newsline has sent similar requests to the other cities and counties filing suit, as has the Manufacturers’ Accountability Project.

For example, San Mateo County’s complaint says it is “particularly vulnerable to sea level rise” and that there is a 93% chance the county experiences a “devastating” flood before 2050.

However, bond offerings in 2014 and 2016 noted that the county “is unable to predict whether sea-level rise or other impacts of climate change or flooding from a major storm will occur.”

Chevron has devised its own strategy, filing a third-party complaint against Norway’s state-owned oil company, Statoil. If it should have to pay for the effects of climate change, so should everyone else, the company appears to be saying.

A finding that Chevron and other fossil fuel companies are liable would implicate others, the company says, like promoters (the makers of automobiles, aircraft, farm equipment and heating equipment); emitters (individuals around the world who consume and burn fossil fuels); and the plaintiffs themselves.

“This third-party complaint is one of many that Chevron expects to file should this case proceed past motions to dismiss,” Chevron said.

Oakland’s lawsuit was filed in 2017, as were cases filed by the counties of Marin, Santa Cruz and San Mateo and the cities of San Francisco, Santa Cruz and Imperial Beach.

This year, Richmond, CA, and New York City have filed lawsuits, and Boulder, CO, is planning one.