Lawsuit filed against TWIA for failure to assess fully for Ike

A policyholder of the Texas Windstorm Insurance Association has filed a lawsuit against that state-created entity and its current board of directors as a result of the failure of TWIA following Hurricane Ike to assess Texas insurers more fully under the law as it existed at the time. The lawsuit, filed in a state district court in Travis County (copy of lawsuit here), seeks a court order directing the current directors to assess TWIA member insurers for up to $600 million and to pay damages to the policyholder, Ramiro “Gamby” Gamboa of Corpus Christi, Texas. It is very unlikely, however, that the case will succeed in making any more money available for current policyholders of the deeply troubled largest insurer of windstorm risk on the Texas coast.

Mark Kincaid

Mark Kincaid

The plaintiff is represented in the action by Texas “Super-Lawyer” Mark Kincaid, a former head of the office of Public Insurance Counsel in Texas. The lawsuit is the latest in a series of steps by coastal interests, most visibly led by Corpus Christi State Representative Todd Hunter to find ways of buttressing the desperate finances of the Texas coast’s largest windstorm insurer. TWIA will likely respond to the lawsuit in the next three weeks or so. The members of the board of directors who have been sued will likely be notifying their Directors and Offices Liability Insurer of the suit, assuming TWIA procured such coverage for the current year, and requesting that they provide a legal defense to the claims. Whether or how Texas insurers who would be liable for the assessment in the event the lawsuit succeeds will intervene in the proceedings is not yet clear.

The major issue this lawsuit will face is that the statute that would have authorized TWIA to make the assessment was unquestionably repealed by the legislature in 2009. This blog has analyzed this issue extensively (see here and here) and concluded that the problem is likely insuperable. The short version is that in section 44(2) of H.B. 4409, the legislature in 2009, with knowledge that claims for Ike were still pending repealed sections 2210.058 and 2210.059, the provisions of the former law that would have authorized an assessment. That repeal without saving the right to assess for prior storms may have been foolish or it may have been part of some political deal involving insurers and coastal interests.  It may simply have been prophetic drafting by legislators who place a high value on the interests of Texas insurers. Unless some argument can be made that the repeal, if interpreted in the fashion I believe is required by section 311.031 of the Government Code, violates policyholder rights under the United States or Texas Constitution, or unless attorney Kincaid has some extremely clever argument up his sleeve, would appear to end the matter. I guess we shall see. In a formal opinion, the Texas Attorney General, Gregg Abbott, has rejected the argument made in the Gamboa complaint that there was anything unlawful about TWIA using premiums from years after Hurricane Ike to pay for claims arising out of that storm.

Conceivably, some lawsuit might have been filed against the then-directors of TWIA at the time it failed to assess for Ike fully but that claim does not appear to exist in this lawsuit nor have the right individuals been sued.  Moreover, such a lawsuit based on actions in 2008 and 2009 would now run into statute of limitations issues since the claims are based on alleged failures that took place more than four years ago. The absence of such a claim is, in some sense a pity for TWIA historians, since those directors had at least constructive knowledge that the time for an assessment was about to expire and might possibly have known that the $430 million assessment they did issue was going to prove woefully low to pay for Ike claims and would thus burden current and future policyholders. If the Gamboa lawsuit survives motions to dismiss and discovery proceeds, however, the just-filed lawsuit  may bring some of those issues to light. The Texas Attorney General has previously declined to respond to a request from State Representative Todd Hunter that the failure to assess was negligent.

 

 

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