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Insurer Claims It Should Not Have To Pay Penalties For Violating Consumer Protection Laws
November 13, 2009

The Texas Windstorm Insurance Association (TWIA), facing over 900 lawsuits stemming from hurricanes Ike, Dolly and Rita, wants to try to avoid paying penalties and other damages for violations of several consumer protection laws. In two separate lawsuits, TWIA has filed motions seeking immunity from paying penalties, policyholder attorneys' fees and other expenses for wrongfully denying claims. TWIA argues it's an instrument of a government agency, and as such is entitled to sovereign immunity that protects governments from some legal liability. While TWIA was created by the state, it is a privately run organization.

Lawyers for policyholders say the association is effectively a private company, and that immunity would let the insurer escape the consequences for its decisions to knowingly violate consumer protection laws and the rights of its customers. Attorneys for the policyholders point to the fact that the Legislature decided not to grant immunity to the insurer. In addition, attorneys for the policyholders also point out that TWIA previously took the position that it was not a state agency, that it was a private company. Specifically, following an "Open Records Request" by the Houston Chronicle in 2008, TWIA's general manger explained that it was not subject to Open Records Requests because it was not a state agency when it refused to produce requested documents to the Chronicle explaining, "TWIA is a private company that was set up by legislation. It is a nonprofit company." However, two opinions of the Texas Attorney General released earlier this month ruled the association is subject to the Public Information Act because it was created by lawmakers and is accountable to the state insurance commissioner.

In addition to trying to get their claims paid, nearly all of the lawsuits filed by policyholders against TWIA have asserted "extra-contractual" claims for punitive damages, attorney fees and penalties under the Texas Insurance Code.

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Internal Emails From Insurance Company Describe Intentional Wrongful Denials of Claims
November 13, 2009

A lawsuit filed in Galveston accuses the Texas Windstorm Insurance Association (TWIA) of using prices below market rate to under-pay claims by under-estimate damages its insureds sustained as a result of Hurricane Ike. In addition, the lawsuit claims that the insurance company unfairly limited the costs allowed on roof damage claims, and discouraged re-opening closed claims. The lawsuit is based in part on internal e-mails and documents from the insurance company.

After Hurricane Ike, TWIA used different insurance agencies to help handle the number of claims that were being made. One of those insurance agencies was USAA. Internal documents show that when USAA used software prices from industry software, TWIA paid more on those claims than it did when other agencies were required to use prices set by TWIA. When this trend was noticed, documents show a TWIA manager worried that USAA was paying more on losses than other adjusters. This could create a problem at TWIA in the long run if it is discovered that USAA was allowed to do something different than the other" adjusting firms, Reggie Warren, vice president of claims for TWIA, wrote in an e-mail to USAA. In the same e-mail, TWIA allowed USAA permission to use the industry software, but suggested that TWIA should rethink its contract with USAA.

The lawsuit also alleges the insurer told adjusters to base claims estimates on an internally developed price guide - with prices lower than market - instead of pricing software commonly used by the industry. For example, one adjusting firm reported the market rate for roof repairs was $230 to $255 per 100 square feet, but TWIA's price was $182, the lawsuit claims. In internal documents filed with the lawsuit, the association portrays its prices as just a guideline.

Another TWIA e-mail shows that TWIA may have knowingly wrongfully denied claims associated with Hurricane Ike. The claims of contractors for what is commonly referred to as"overhead and profit." or OH&P were denied by TWIA. However, TWIA knew insurance regulators required insurers to pay "overhead and profit" when estimating claims for damage that would likely require the use of a general contractor - even if homeowners oversee the work themselves. An email from the Vice-President of claims for TWIA stated, "... (We) need to add OH & P to arrive at the appropriate repair/replacement cost, regardless if a contractor is involved," Warren wrote in June 2008." Despite this email acknowledging that TWIA was required to pay "overhead and profit", the lawsuit alleges TWIA denied those payments on Ike claims involving roofs, fences, floors and some other trades..

Attorney Steve Mostyn, the attorney for the homeowner that filed the lawsuit claims that documents obtained through discovery show, "The game is rigged from the beginning. All the parts are designed for one purpose, which was to save [the insurance company] money and underpay these claims every way they can, not by accident nor incompetence but a systematic effort."

Other e-mails suggest TWIA engaged in unfair discrimination. According to Birny Birnbaum of the Center for Economic Justice a consumer advocate group commented that TWIA's practice "Sounds like if you're a reasonable consumer, you get screwed," he said. "If you're abrasive you get something out of it. That's the way insurance companies want to treat insureds, and then they complain about fraud."

In addition to other problems homeowners faced in trying to get their claims paid in a timely and proper manner, the Vice-President of claims for TWIA wrote in an email that many of the adjusters that the insurance company used were inexperienced and were "not getting the job done." If adjusters had done a better job the first time they visited a site, there would be fewer files to reopen, he noted. However, when homeowners tried to get their claims re-opened, the Vice-President of Claims for TWIA told adjusters in a memo that homeowners had to have credible evidence to force the reopening of a claim, and that an estimate from a public adjuster - independent adjusters hired by homeowners - was not enough.

The lawsuit also references that in late 2008 TWIA restructured how it paid adjusters for re-inspections, effectively discouraging them from looking for more damage. After December 1, adjusting firms earned $105 plus time and expenses if they denied a claim, according to the litigation. If they found more damage, they risked not getting paid at all if TWIA determined an adjuster erred during the first inspection, according to the lawsuit.

Sen. Rodney Ellis, (Democrat) from Houston indicated that the "The documents demonstrated a callous attitude toward insured families of the Texas coast. These documents demonstrate a pattern of deception resulting in wrongful underpayment and denial of Hurricane Ike claims by TWIA." The scope of the problem may be enormous since Policyholders filed more than 90,000 claims after Ike. As a result, Senator Ellis has called for an investigation of the insurer and its oversight by the Texas Department of Insurance.

While not every denial of a claim by an insurance company is wrongful, the emails referenced in this lawsuit show that the insurance companies have a distinct advantage over their insureds, and the insurance companies are not afraid to take advantage of their customers. In some situations, insurance companies understand the power and leverage they have over their customers to settle claims for less than is owed, and that when the insurance company believes it can get away with under-paying a claim, it will do so. Insurance companies will issue orders to their adjusters on what to pay on a claim and how much is allowed to be paid on a certain type of claim. Even if the adjusters disagree with the insurance company's policies, the adjusters are put in a position of losing their job if they try to treat the customer fairly. In some cases, the adjuster runs the risk of being disciplined or receiving a negative performance review if the adjuster refuses to follow illegal orders from the insurance company.

If you find yourself in a situation where you feel you are being treated unfairly by an insurance company, you should contact an attorney. Call Rachel Montes or Tom Herald at Montes Herald Law Group, LLP (214) 522-9401 to discuss your case. We handle all different types of insurance claims from homeowners claims, commercial claims, to Uninsured/Underinsured Motorist claims. You deserve to be treated fairly. You pay for that right.

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