Texas expecting Katrina-like wind v water litigation after Ike

Sop’s great new link to Insurance Law Hawaii brings legal issues full circle from Katrina to Ike with Is damage from Ike caused by flood or wind.

The battle has begun on whether the Hurricane Ike’s damage to the Texas coast was a result of flood or wind…Since the storm, Texas legislators have suggested that the Texas Windstorm Insurance Association pay claims for damages resulting from storm surge.  This Association has taken on coverage for many coastal homeowners after private insurers withdrew from the market…The Fifth Circuit, which includes Texas, has developed a body of law on the flood/wind dichotomy in homeowners’ policies.  Although it would seem many of the issues decided after Hurricane Katrina would apply to coverage issues after Hurricane Ike, it will be interesting to follow how the litigation develops.

Everyone but Ike knows you don’t mess with Texas, and, the Texas Monthly has its eye on the slabbed according to the post linked to ILH.

Texas Watch today wrote coastal and Harris County legislators and members of the appropriate legislative committees asking lawmakers to consider a proposal by state Senator Rodney Ellis to “explicitly direct insurers to cover storm surge losses.”

This [correspondence] came after the Texas Windstorm Insurance Association (TWIA) annnounced earlier today that it would not pay claims for damages resulting from storm surge. Calling this position “ludicrous,” Texas Watch makes the point that “storm surge is a phenomenon peculiar to windstorms.” (emphasis added)

Being from Galveston, I am sympathetic with this argument. Storm surge is indeed the result of strong winds that pile up water in the right-front quadrant of a hurricane. Nevertheless, TWIA’s decision not to pay for storm surge damage is far from ludicrous; it is, in fact, long-settled practice. The insurance industry distinguishes windstorm damage from flood damage. Windstorm policies typically exclude losses incurred from rising water. They cover damage caused by wind and by wind-driven rain. (emphasis added)

A homeowner who wants to protect his property against flooding can purchase federal flood insurance. Indeed, without such insurance, no substantial development could take place on the Texas coast.

One can reasonably ask whether the federal government ought to be subsidizing development in hurricane-prone areas that suffer devastating losses from storm surges, something that is sure to happen over and over again — each time requiring taxpayers to pay for damages for the next generation of condos and expensive residences. Windstorm coverage can also have an impact on the budget. As I have pointed out in a previous post, if the coast is hit by a big storm that requires large payouts from insurers, the companies can take a credit against their payment of insurance premium taxes. This comes straight out of general revenue. (emphasis added)

In the aftermath of Hurricane Katrina, the Broussard family, which lost their home in Mississippi, filed a claim with their insurer, State Farm. State Farm claimed that flooding, which was explicitly excluded from the company’s policies, had caused the damage…

This was the high-water mark, so to speak, for the position urged by Texas Watch. On appeal, the Fifth Circuit reversed the case and sent it back for a new trial on the grounds that there was a triable fact issue about whether the house was destroyed by wind or water. The appellate court further tossed out the punitive damages award.

Will there be further litigation of this sort after Broussard? I suspect so, because the ultimate cause of catastrophic property damage will often be elusive. High winds can propel heavy objects like tree limbs into a house, opening a gaping hole through which water can enter to do its destructive work. If the house is reduced to rubble, which is then dispersed by rising water, determining the cause will be almost impossible. Perhaps Texas Watch is right that protection should extend to all types of damage, but the cost to consumers (or taxpayers) will be very high, and insurers will surely resist any change from current law. (emphasis added)

Looks as if the folks at Texas Monthly can explain the five and a half feet of water that undisputedly flooded the inside of the McIntoshes’ waterfront home without much of a problem.  Wonder why State Farm thinks the Rigsbys can not?

The blog comments also indicate there’s support in Texas for Congressman Taylor’s legislation.

  1. texun Says:
    September 17th, 2008 at 9:58 pm Why should homeowners and taxpayers over the whole state pay to compensate homeowners on the Gulf for bad decisions they made when they built on highly exposed property?
  2. paulburka Says:
    September 18th, 2008 at 12:52 am To Texun:Houston is an economic powerhouse. That “highly exposed property” includes the land for one of the nation’s largest ports. It is an immense economic engine. They don’t build ports in Lubbock, you may have noticed. I haven’t seen miles and miles of petrochemical plants and oil refineries in Amarillo. Yes, once every ten years or so, the area will get hit by a tropical storm and there will be flooding. In the meantime, Houston’s contribution to the state’s economy dwarfs the cost of recovery from the occasional big storm. Ike was the first hurricane to cause widespread damage in the Galveston Bay area in 47 years, since Carla in 1961. (Alicia in 1983 was a much smaller storm.) State leaders ought to be looking for a way to provide more protection to people and businesses that have been investing in Houston, rather than listening to texun and other whiners. (emphasis added)
  3. anonymous1 Says:
    September 18th, 2008 at 8:03 am People everywhere should watch this discussion for the obvious reasons but also because it is instructive about insurance in other areas.Texun asks a good question, and the easy, admittedly flip, answer to it is, why not? We already do it in several other areas of life. Rephrasing his question may illustrate this:

    Why should consumers and taxpayers over the whole state pay to compensate people for bad lifestyle decisions (tobacco use, poor nutrition, and lack of physical activity) which account for roughly 75% of all health care costs for the resulting disease, disability and death? (Testimony by CDC official before the Senate Committee on Appropriations, Subcommittee on Labor, HHS, Education and Related Agencies, Jan. 17, 2003)

    Accordingly, why shouldn’t homeowners on the Gulf Coast enjoy the same entitlement of their property losses being subsidized by the rest of us? (emphasis added)

A big SLABBED welcome to the wind and water debate!

2 thoughts on “Texas expecting Katrina-like wind v water litigation after Ike”

  1. Every, while it may be cumbersome to read, is written with very specific exclusions. The first thing people need to do is read and understand them-after all, why keep paying for something without knowing what you’re paying for? The fact is, there is no Homeowner policy written in this country that included coverage for flooding of any kind-period. Also, those policies cover for ‘direct physical loss’ by insured losses. Those losses are listed in polices, such as Wind, Fire, Hail, etc..-Flood is explicitly excluded. Direct physical loss means, the item that you’re insured against is what caused your loss DIRECTLY. Just because high winds cause storm surge doesn’t mean that the wind is what washed your house away.
    Another point that people overlook is that people with flood insurance collect for storm surge losses. That’s because flood caused the loss. Your flood insurance will not pay if the wind blows your roof off, so why should your wind policy pay if a flood washes your house away. We won’t have these problems if people are smart enough to insure their properties properly. If you live in a flood plain, or below sea level, you must have flood insurance-if you don’t, you’re rolling the dice and if you lose, suck it up and move on!

  2. That is the point Sainnt, when your wind insurance won’t pay for your roof because of sham blanket denials of any wind coverage because you also flooded then the wind policy is not worth the piece of paper it is written upon. Policyholders win these cases precisely because they are entitled to policy benefits wrongfully denied them by insurers.

    Despite insurance industry spin and pr this is not about people expecting their wind policy to pay for flood damage. Rather it is about making their wind policy pay for covered wind damage.

    Thanks for stopping in and commenting with us.

    sop

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