Todd Hunter asks a good question

Todd Hunter at a recent town hall meeting on windstorm insurance

Todd Hunter at a recent town hall meeting on windstorm insurance

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of directors of TWIA or its officers during the critical 2008-2009 time period after Hurricane Ike and before HB 4409 repealed a statute under which TWIA might have issued further assessments against member insurers to shore up its finances.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

TWIA Cash Position Not Improving

 $443 million in cash and short term assets

In a recent blog entry, I attempted to estimate the amount of cash the Texas Windstorm Insurance Association had in its operating account.  I said TWIA’s cash position was likely to be between $400 million to $700 million after the recent Ike settlement of $135 million was taken into account. Thanks to a public information request from Fox 26 TV’s Greg Groogan we now have a better fix.  If anything, I was a little optimistic.

TWIA has $443,453,000 in cash and short term investments, little changed from its position at the start of the year.  Its assets are down to $444,342,000.  But those figures are before  consideration of the $135 million Ike settlement, the so-called “Mostyn settlement.” They are also before TWIA spends an anticipated $100 million or so (in cash) on reinsurance, The figures are both from the end of April, 2013. If funding of the Ike settlements comes from operating funds or TWIA succeeds in obtaining reinsurance, that figure will likely be lower shortly.  If the Ike settlement instead comes from the Catastrophe Reserve Trust Fund, that $180 million fund will be significantly depleted.

The rest of the story on the TWIA cash position and finances

There are at least two other pieces of information that will be useful in assessing TWIA’s position as hurricane season moves forward. They may also help Governor Perry get from “certainly possible” to “yes” in considering requests that he convene a special session of the Texas legislature to address windstorm insurance reform.  What happened to the effort to spend $100 million or so on reinsurance?  Did they acquire it and on what terms?  Second, what has happened to the effort to prepare for post-event bonding now that former Commissioner Eleanor Kitzman authorized TWIA to do so?  Unless both of those efforts are particularly successful, however, I stand by my assertion that TWIA may well have little more than $1 billion in actual cash to pay claims on $80 billion worth of exposure. Moreover, the reinsurance doesn’t do as much good as it could, if TWIA can’t sell all of its authorized post-event bonds.

So, in this case, no news — or no new news — is bad news. If something like Hurricane Ike hit — a Category 2 storm in a populated area — TWIA policyholders might get only 40 cents or so for each dollar of legitimate claims. There would be no protection from the Texas Property & Casualty Guaranty Association. There would be no lawful obligation of the state to help out. Instead Texas would be left with a hope.  Perhaps the state legislature would meet swiftly and agree on a plan (with a 2/3 majority) to come up with billions of dollars  to help bail out a devastated coast.  As I recently said to reporter Groogan in response to Senator Larry Taylor’s understandable expression of such a hope:  “Good Luck.”

Footnote 1: Say what one will about TWIA and its history, I have again found them to be responsive over the past year to public information requests.  That helps build some trust.

Footnote 2: Remember State Representative Craig Eiland’s claims that TWIA could and should assess insurers today for Hurricane Ike losses and buttress in Catastrophe Reserve Trust Fund?  I’ve found a longer statement of his position here.  It’s such a mixed picture.  On the one hand,  outgoing Representative Eiland has great information on the timeline. He presents a forceful case that TWIA had the information that would have justified a larger assessment on the insurers for Ike under the old law before a 2009 law took effect.  He is right that TWIA would look a lot stronger today with $780 million in its CRTF rather than the $180 million it has today. What Representative Eiland still lacks, however, is any legal theory under which such an assessment could occur today.  As has been discussed here at length, the law under which assessments were authorized was repealed — Representative Eiland sadly joining others who voted to do so.