Hail, Windstorm & TWIA

In September 2008, Hurricane Ike made landfall on Galveston Island, causing billions of dollars in property damage. Many of the structures damaged by the hurricane were insured by TWIA, a statutorily created arm of state government that insures many properties in Texas’ coastal counties. At the time, TWIA was funded partly through premiums paid by policyholders and partly by assessments on private insurers doing business in Texas. If that funding was insufficient, Texas taxpayers were left holding the bill for the difference.

Following Hurricane Ike, TWIA was unprepared for the volume of claims it received and did a poor job servicing its customers, providing an opening for storm-chasing lawyers to file lawsuits under Texas’ consumer protection laws (see Consumer Protection). Ultimately, a small group of lawyers filed thousands of lawsuits alleging that TWIA failed to pay claims fully and on time. Many of the lawsuits were filed years after the storm and alleged damages that had never before been reported to TWIA. This lawyer-driven litigation cost TWIA billions of dollars—far more than it should have paid for legitimate claims—nearly bankrupting TWIA.

In 2011, the Texas Legislature passed legislation to save TWIA. House Bill 3 both revamped the funding mechanism for TWIA and created a new process to resolve disputed claims. This new process was designed as a disincentive to stop lawyers from recruiting clients to sue TWIA after a future hurricane. The 2011 TWIA reform bill includes the following elements:

• Requiring a policyholder to file a claim with TWIA no later than one year after the date the property damage occurred. This deadline may be extended for 180 days by the commissioner of the Texas Department of Insurance if the claimant shows a good reason the deadline should be extended.
• Requiring TWIA to respond to a policyholder’s claim within 60 days, in most instances, and to inform the policy holder within that deadline whether TWIA will pay the claim in whole or part.
• Requiring a TWIA policyholder to participate in an appraisal process using a neutral expert as the ultimate decision maker when the policyholder believes TWIA failed to pay a claim fully or on time.
• Allowing the policyholder to file a lawsuit if the appraisal process fails to resolve the dispute.

Several of the same lawyers who pursued abusive TWIA lawsuits after Hurricane Ike turned their attention to private insurers in late 2012, using the TWIA litigation model after large-scale weather events like hailstorms and windstorms. The litigation model followed a cookie-cutter pattern:

• aggressive client recruitment through advertising and door-to-door solicitation by third parties, like roofers and public adjusters (see also Attorneys);
• long delays before filing the lawsuits to allow alleged damages and interest to accumulate;
• filing lawsuits based on alleged damages that were never reported to the insurer;
• vastly inflating the cost of repairs;
• suing individuals who helped the insurance company deal with the policyholder’s claim, like adjusters and administrative staff, in order to ratchet up the cost and stress of litigation; and
• bundling multiple clients’ claims for settlement.

Using this litigation model over a five-year period, storm-chasing lawyers filed nearly 40,000 lawsuits in Texas. The Texas Department of Insurance reported a 1,400 percent increase in weather-related lawsuits from 2012 to 2016.

In 2015, the Texas Legislature took a modest step toward addressing this problem by passing Senate Bill 1060, which prohibited public insurance adjusters from soliciting clients for lawyers. But even with this bill, abusive lawsuits continued.

In 2017, the Legislature passed House Bill 1774, which gives insurance companies a chance to resolve a disputed claim before a lawsuit is filed. The law requires policyholders to give insurers notice explaining the nature of their dispute at least 60 days before filing a lawsuit. The law also limits the fees policyholders’ lawyers may collect from the insurance company through the lawsuit if the lawyer fails to give the 60-day pre-suit notice or makes an excessive demand on the client’s behalf. HB 1774 helps protect Texans from storm-chasing lawyers who seek to profit from their misfortune, while providing policyholders with substantial remedies against insurance companies that fail to pay claims on time and in full.