There is at least one thing Representative Todd Hunter (Corpus Christi, Texas) and I agree on: I am not a member of his fan club. This blog has frequently criticized Representative Hunter for what I regard as his misguided views on windstorm insurance. Frankly, neither he nor I appear to appreciate each other’s “style.” But, give credit where credit is due. He has now actually asked a very good question.
In a letter last Friday to Texas Attorney General Greg Abbott, Representative Hunter asked for an opinion stating whether a failure by the Texas Windstorm Insurance Association to assess private insurance companies fees to shore up its ability to pay claims amounts to negligence. I raised the same issue several months ago in a prior blog post. Were the Attorney General to opine positively, it could open the door to legal action against the board of directors of TWIA or its officers during the critical 2008-2009 time period after Hurricane Ike and before HB 4409 repealed a statute under which TWIA might have issued further assessments against member insurers to shore up its finances. If it were to turn out either that any of the board members or officers has significant funds or if anyone responsible for any of their misdeeds either by operation of law or through an insurance contract has money, it could ultimately help bring some desperately needed additional funds into the largest windstorm on the Texas coast.
The problem with the preceding paragraph, however, is the number of “ifs” it contains. First, the Texas Attorney General would need to opine positively. I’m not saying it couldn’t happen. But he might well opine that this was a factual question on which he had no legal opinion. He might opine that he lacked the facts on which to render an opinion. He might remind Representative Hunter (who obviously knows this point) that negligence is not the same thing as strict liability. A realization in hindsight that the assessments were too low is not the same thing as a failure to make assessments that were plainly reasonable at the time such a decision would have been made. Defendants in such a lawsuit would surely argue that making such an assessment and increasing the size of the Ike pie would just have made TWIA a stronger lawsuit magnet and left no more money for future claims. None of these responses would be particularly helpful to Representative Hunter.
Second, to make such a lawsuit more than a show trial or truth commission, someone needs to have actual money. I don’t know for sure, but it would strike me as unlikely that any of the board members or officers have $400 million in assets upon which execution is practical. And while some of the large corporate entities affiliated with the board members would likely have that kind of cash, tagging the corporation for any sins of these board members will be a challenge. TWIA probably has some form of liability insurance to protect its board of directors, but until we see the policy it is hard to know what it covers or how much protection it would offer. In any event, no defendant is likely to write a check right away to the plaintiff in such a lawsuit . In any money ever comes in, it will likely be years from now — a long time for claimants against an insolvent TWIA to wait for payment that repairs their hurricane-damaged roof.
Third, one should expect to see defenses of statutory immunity and the statute of limitations raised. Under section 2210.106 of the Texas Insurance Code, officers and directors have at least some immunity from damage lawsuits for many forms of ordinary negligence. And the statute of limitations for breach of fiduciary duty in Texas is four years. If that statute runs from the time of the original assessment, a lawsuit now is too late. If it runs from the date that section 44 of HB 3 was signed into law and eliminated TWIA’s former ability to assess, the deadline would appear to be July 19, 2013, leaving precious little time in which to file such suit. (Hint, hint?)
It will be interesting to see how Attorney General Abbott responds to this request. As I have suggested, the matter is not an open and shut case and bad decisions in hindsight does not negligence make. Still, there has always been something troubling about the process and chronology here. TWIA, over which insurers have had substantial control, making assessments against insurers that are lower than that requested by its managers and that turned out to be low all the while watching or, more troublingly yet, possibly participating in, a statute that cuts off the ability of TWIA to assess for Ike. Representative Hunter deserves credit for asking the Attorney General to take a look at the legality of actions that are in part responsible for the predicament in which TWIA and its policyholders now find themselves.
Here’s a link to the letter from Representative Hunter. AG Opinion Request