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this lawsuit will face is that the statute that would have authorized TWIA to make the assessment was unquestionably repealed by the legislature in 2009.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is that in section 44(2) of H.B. 4409, the legislature in 2009, with knowledge that claims for Ike were still pending repealed sections 2210.058 and 2210.059, the provisions of the former law that would have authorized an assessment.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.

 

 

Return of the Vampire Argument

One of the amazing things about debates over the Texas Windstorm Insurance Association is the extent to which, like vampires, some arguments never die. It doesn’t matter how meritless the argument is, it doesn’t matter how thoroughly it has been beaten back in the past by logic or legislation. It just keeps being brought out of its grave when needed by advocates.  Many of these arguments are pernicious because they distract from the real issues facing Texas and because they divert attention from study of the real solutions.  They provide red meat for zealots but do absolutely nothing to solve their problems. Until, however, coastal residents drive a stake through the heart of them by driving their proponents out of office, they are likely to persist.

One of the more amazing of these vampire arguments is that the Texas Windstorm Insurance Association can make an assessment today against Texas insurers for damages caused by Hurricane Ike based on a statute that was repealed in 2009.  And yet, according to the Corpus Christi Caller, coastal legislators such as Corpus Christi’s Todd Hunter are again casting about looking for someone in authority who might believe this particular fantasy. This time the argument has been hurled at the new Teas Insurance Commissioner, Julia Rathgeber. According to a Corpus Christi Caller article of July 3, “[c]oastal lawmakers again are reaching out to Texas Insurance Commissioner Julia Rathgeber to seek about $400 million in assessments for insurance companies to help replace funds paid for claims in the wake of Hurricane Ike.”  I will be stunned if Commissioner Rathgeber does anything other than send of a polite message that she does not believe such an assessment to be possible. It hardly creates the business friendly environment that her boss, Governor Perry, desires when businesses can be threatened with arbitrarily having hundreds of millions of dollars taken away from them based on the ghost of a former statute. A swift and unambiguous “no” from the Commissioner will be at least put the vampire back in its coffin for a while and permit more serious approaches to TWIA’s insolvency to be examined.

Why do I use such strong language in denigrating the argument.  Mostly because I can read. There is no statute today authorizing assessments against TWIA member insurers unless a post-event bond has been issued.  That hasn’t happened. Government can’t just come in and take private property  — even the money of insurance companies — unless there’s a constitutional law that justifies the taking. That’s one of the things that separates us from a tyranny. So the only conceivable basis in for an assessment is the old law, former section 2210.058 of the Insurance Code, which was used back in 2008 to assess insurers for Hurricane Ike.

The problem is that this law was repealed by section 44 of H.B. 4409, which was enacted in 2009 after Hurricane Ike basically destroyed TWIA. Here it is:

Section 44 of HB 4409

SECTION 44.  The following laws are repealed:

(1) subdivisions (5) and (12), Section 2210.003, Insurance Code;

(2) Sections 2210.058 and 2210.059, Insurance Code;

(3) Sections 2210.205 and 2210.206, Insurance Code;

(4) Sections 2210.356, 2210.360, and 2210.363, Insurance Code; and

(6) Subchapter G, Chapter 2210, Insurance Code.

There it is in black and white.  I’m not sure how it could be any clearer.

So the only argument coastal legislators might have left to keep this vampire out of its coffin is that, somehow, the word “repeal” doesn’t really mean repeal. And the only sliver of hope in that regard would appear to be section 311.031 of the Government Code. It reads

Sec. 311.031.  SAVING PROVISIONS. (a) Except as provided by Subsection (b), the reenactment, revision, amendment, or repeal of a statute does not affect:…

(2)  any validation, cure, right, privilege, obligation, or liability previously acquired, accrued, accorded, or incurred under it.

I suppose the legislators’ argument is that the “assessment” was an obligation or liability previously acquired, accrued, accorded or incurred.” But this argument, which a law professor might briefly admire for its creativity, fails because the possibility that TWIA might assess insurers more for Ike is not a liability or obligation. The fact that TWIA might have made an assessment is no more an “obligation” or a “liability” than a tax that the legislature might have but did not impose or a penalty that a court might have but did not impose. Thus, if Allstate had not paid its assessment under the 2008 assessment, the fact that the statute permitting assessments was repealed would not relieve Allstate of its obligation to pay the pre-existing assessment.  It would, however, prevent TWIA from creating new liabilities for Allstate to pay.

Moreover, think about it. If the legislature wanted to preserve TWIA’s ability to assess after 2009 for storms that occurred before that time but not afterwards, you would not repeal the statute.  Instead, it would far more direct and far clearer simply to amend the statute to limit the set of storms for which assessments would be permitted.

Now, perhaps the strategy of coastal legislators such as Todd Hunter is to keep asking Commissioner Rathgeber for lots of things in the hopes that she will, as a compromise, give them the one thing that might possibly make sense, a pre-event bond. But, really,  pre-event bonds should rise or fall on their own merits. Granting them or not should not depend on legislators asking for things that are plainly illegal, such as confiscating the property of insurers.

I understand why coastal legislators are upset.  Their strategies in the 83rd legislature failed. It is, despite the protestations of some to the contrary who want to pro-development illusion that the band can keep playing on, a “crisis situation.” Although they are not the only parties at fault, these legislators have contributed to the horrible risk now confronting their constituents. And Governor Perry has thus far resisted calling a special session of the legislature to repair the damage. These legislators likely will (and should) be held responsible by their constituents if a tropical cyclone bankrupts TWIA. And, they are right that, with the benefit of hindsight, TWIA policyholders would be better off if TWIA had issued a greater assessment for Ike while its statutory authority to do so was still in force.

The bottom line, however, is that TWIA did not make an extra assessment for Ike and the time to have done so has long run out. And even if the 1% chance materialized that a court would ultimately order insurers to pay based on a new Ike assessment, the lengthy court fight involved would delay receipt of funds well into the next legislative session.  Honestly, all that bringing this vampire argument out of the coffin again accomplishes is to diminish the credibility of those who will need every ounce of it if they are persuade fellow legislators to engage in sensible, needed reform of the Texas Windstorm Insurance Association.