Filed Under:Risk Management, Weather Risk

War on hail declared in Texas as insurers fight extreme weather claims

A motorist sits in a truck partially buried in slushy hail near Amarillo, Texas on April 11, 2012. (AP Photo/Courtesy of Amarillo/Potter/Randall Office of Emergency Management)
A motorist sits in a truck partially buried in slushy hail near Amarillo, Texas on April 11, 2012. (AP Photo/Courtesy of Amarillo/Potter/Randall Office of Emergency Management)

(Bloomberg) -- The vestiges of twin hailstorms that ravaged the south Texas coast in 2012 are now blowing through the halls of the Capitol in Austin.

Two of the state’s most-powerful lobbies, the insurance industry and trial lawyers, are gearing up for a fight over a push to ease penalties against companies that deny homeowners their hail-damage claims.

“The litigation is just off the scale,” said Mark Hanna, a spokesman for the Insurance Council of Texas, an Austin trade group that represents firms including Allstate Corp. and Nationwide Mutual Insurance Co. “We’ve had insurance companies say we can’t take this anymore.”

In Texas, home to some of the nation’s most severe weather, no scourge is more costly to homeowners than the baseball-sized pellets that fall from the sky, toppling fences, shattering windows and ripping through roofs. Hail storms caused $10.4 billion in damage to homes from 1999 to 2011, more than hurricanes, thunderstorms and tornadoes combined, according to the Texas Department of Insurance.

Allstate spokeswoman Kristen Freis and Nationwide spokeswoman Elizabeth Stelzer declined to comment.

Extreme weather has made Texas the third-most-expensive market for insurance premiums, behind Florida and Louisiana, according to the National Association of Insurance Commissioners in Kansas City, Missouri. It’s also left insurers and policyholders battling in court over what type of damage gets paid and when.

Lawsuit Blitz

The legal aftermath of the hailstorms three years ago, which left behind $330 million in residential damage, gave the insurance industry pause.

In Hidalgo County, which sits along the Mexican border inland from the Gulf Coast, 6,700 lawsuits have been filed since the 2012 storms, according to data from the county clerk’s office. Hidalgo, which includes the city of McAllen, has a population of 816,000, more than a third of whom live in poverty.

“There are enough hailstorm cases that they could constitute their own court,” said Laura Hinojosa, the county clerk.

The insurance industry says the flood of lawsuits is directly tied to lawyers who flocked to Hidalgo County to cajole storm-weary policyholders to sue, increasing the odds that they could collect damage awards and fees.

“This whole process is not about ensuring that people get their hail-damaged roofs paid for,” said Steven Badger, a Dallas-based attorney with Zelle Hofmann Voelbel & Mason LLP who represents commercial property insurers. “It’s about people making money and pocketing money at the expense of the insurance industry.”

Stonewalling Homeowners

Consumer advocates and the trial lawyers, many of whom contribute to Democrats, say policyholders are asserting their rights.

“If those claims don’t have underlying merit, then the courts will shake that out,” said Bryan Blevins, president of the Texas Trial Lawyers Association.

“Hidalgo had what I call a Biblical hail storm,” said J. Steve Mostyn, a Houston trial attorney and Democratic Party donor who filed 13% of the county’s cases. “You had hail drifts that would stack up along houses six feet tall.”

Mostyn said he had never filed any hail lawsuits before the storm. He did so only after hearing stories of people stonewalled by their insurance companies.

“The conduct I have seen toward the people in the Rio Grande Valley has been rather horrific,” he said.

Austin Statehouse

In the Austin statehouse, the insurance industry wants to make it harder for trial lawyers to profit from catastrophic weather. In January, R Street Institute, a Washington-based nonprofit, wrote a report titled “Come Hail or High Water: Texas’ Litigation Explosion.” The group, whose five-person board includes State Farm Insurance vice president Steve McManus, advocates changing the law to prevent “legal gamesmanship” after catastrophic weather events like hail. Gary Stephenson, a State Farm spokesman, declined to comment.

Lawmakers are acting on the advice. Republican state Senator Larry Taylor plans to introduce legislation that would ease an 18% annual penalty on insurance companies that don’t pay claims within 60 days.

Pocketing Fees

Attorneys pocket those fines, critics say.

“They’re incentivized to drag these claims out,” said Taylor, who owns the Truman Taylor Insurance Agency in Friendswood, a Houston suburb. “I don’t know of any savings account that offers 18%. There’s too much of an incentive for abuse.”

Taylor said he plans to frame the legislation as a “consumer-bill-of-rights type bill” because the costs of litigation could cause insurers to increase their premiums.

Texas homeowners already pay an average of $1,661 a year for the most commonly sold policy, 60% more than the national average, according to the National Association of Insurance Commissioners. Residents of Florida, the most-expensive state, pay an average of $2,084.

Consumer protection advocates balk at the notion that consumers will be helped.

“It looks like what they want to do is roll back meaningful protections designed to ensure that policyholders are paid,” said N. Alex Winslow, executive director of Texas Watch, a consumer advocacy group in Austin. “Policyholders are especially vulnerable after a widespread loss like a hail storm when a lot of people are filing claims. This is when we need insurance. We paid our premiums. Now it’s their turn to pay claims.”

’Junk Lawsuits’

The legislation will be the latest turn in a decades-long Republican push to curb Texans’ ability to profit from lawsuits.

In his 1994 run for governor, George W. Bush campaigned on stopping “junk lawsuits.” Once in office, the future president signed laws that capped punitive damage awards and raised the bar to prove negligence.

His successor, Rick Perry, a Republican, went on to enact laws making it harder to sue for medical malpractice and asbestos-related illnesses, among other things. Texans for Lawsuit Reform, based in Houston, called Perry “the most effective tort reformer in our nation’s history.”

The insurance industry won protections, too. After Hurricane Ike struck the Texas coast, leaving thousands homeless, insurers were on the hook for $12 billion of losses, making it the single costliest Texas storm since 1950, according to the Insurance Council of Texas. Courts were deluged by disputed claims.

In 2011, Texas lawmakers passed legislation that made it more difficult for coastal dwellers to sue after hurricanes.

“Now we’re hearing about hail,” said Blevins, of the trial attorneys group. “I guess we’ll be hearing about tornado claims in a couple of years.”

Copyright 2017 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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