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Refusal To Pay Claims Casts Doubt On Texas Windstorm Insurer

Staff Sgt. James L. Harper Jr., U.S. Air Force via
Galveston Island in 2008 after Hurricane Ike. Lawsuits over damages are the latest challenge for the Texas Windstorm Insurance Association.

A refusal to pay losses caused by Hurricane Ike has again thrust the bedraggled Texas Windstorm Insurance Association (TWIA) into the courthouse, while raising doubts over the agency’s process for resolving claims.

The city of Galveston sued TWIA Friday. It claims the agency is refusing to pay almost $14 million for damage caused by the storm, even after agency and city appraisers agreed on the cost.

League City is also suing TWIA over $3.4 million in unpaid damages it says the agency agreed it would pay.

TWIA declined to comment on the lawsuits. State Rep. Craig Eiland, D-Galveston, is representing the city of Galveston. Houston trial lawyer Steve Mostyn, who has secured millions for TWIA policyholders, is representing League City.

The lawsuits are the latest challenge for TWIA, the state’s wind insurer of last resort for the 14 counties along the coast. TWIA provides insurance for residents that private insurers deem too risky to take on.

The agency was left in shambles after Hurricane Ike. It paid almost $2.7 billion in claims, leaving approximately $500 million in its accounts as of October. TWIA’s has about $80 billion out in insurance policies.

Eiland said TWIA’s refusal to pay claims indicates there are problems with how the association is enforcing the law for resolving claims. However, other lawmakers say TWIA might finally be forcing policyholders to prove their case instead of just paying them to avoid conflict. Either way, the lawsuit is another blow to the embattled agency.

After TWIA was flooded with lawsuits after Hurricane Ike, in 2011 the Legislature passed HB 3. The law makes it harder for people to sue TWIA.

“Is that what all policyholders will have to expect now?” Eiland, who has worked for years to fix TWIA in the Legislature, says. “An appraisal is supposed to replace litigation, not be the start of litigation.”

HB 3 only applies to policies sold or renewed after January 2012. Since Galveston filed its claim before then, its claim does not fall under the purview of HB 3, Eiland says. Both cities had already previously settled claims with TWIA. Eiland and Mostyn say the current claims and lawsuits are for damages left unaddressed.

Galveston is claiming damage for more than 100 items, including $3.9 million for City Hall, $1.1 million for a police substation, $1.2 million for public safety and $466,822 for the airport, among other claims.

Mostyn said TWIA has not given him a reason for not paying what it agreed to pay and does not expect the case to stand up in court. He said TWIA would have to prove that the three parties involved in the appraisal – the city appraiser, the TWIA appraiser and  an "umpire" that oversees both parties' appraisals – committed fraud in order to win the case.

“The reason it is frustrating and concerning to me is this is supposedly the new management, but they’re making the same old decisions,” Mostyn says. “I think there’s something in the water cooler over there.”

Mostyn said the reason this lawsuit comes years after Hurricane Ike is because League City tried to work with TWIA on getting money for damages but did not get anywhere. He said many buildings affected by Hurricane Ike are still in disrepair.

League City is suing for an agreed $3.4 million from TWIA, including $3.2 million for structures, $82,143 for fencing and $143,177 for contents, according appraisal documents.

But others say the situation could indicate that TWIA is actually doing its job. State Sen. Larry Taylor, R-Friendswood, has been one of the loudest and most fervent advocates for TWIA reform in the Legislature. Taylor said the cases are unique and that the appraisal process is not the problem.

Taylor said the cities possibly just want to get more money out of TWIA since they’re filing for damage years after Hurricane Ike.

“If they have real damage, I want them to get paid. If they don’t have real damage, I don’t want them to get a dime,” Taylor says. “TWIA is finally putting their foot down and making these lawyers prove up cases.”

But Taylor is not one to defend TWIA. He readily admits that it “is one screwed up place” and that he wants to get rid of it or get someone else to run it. And he said he does not know whether they carried out the appraisal process correctly.

TWIA’s Board of Directors is set to meet on Dec. 10 in Corpus Christi to discuss its financial condition. Many, including Taylor, say TWIA does not have enough in its coffers to handle a big storm.

“I don’t want to defend where they are right now because I don’t know where they are,” Taylor says. “Knowing TWIA, they probably screwed it up.”

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