Legislative Changes Aim to Limit Texas Windstorm Lawsuits

Legislative changes to the operation of Texas’ primary property insurer in coastal areas that go into effect Sept. 28, 2011, include an increased focus on mediation and arbitration of disputed windstorm claims and a limit to the window of time in which policyholders may file claims against company.

Except for Tropical Storm Don, which fizzled out along the Texas-Mexico border after making landfall on July 29, the Atlantic storm season has been a quiet one so far this year for Texas. There’s no guarantee that pattern will continue, however, and state lawmakers hope to avoid a repeat of the claims fiascos that beset the Texas Windstorm Insurance Association following Hurricane Ike in 2008.

During a special session of the legislature in June, legislators passed House Bill 3, aiming to limit the number of lawsuits brought against TWIA in the future.

“Texas lawmakers came up with legislation that will greatly reduce the number of lawsuits following a hurricane,” said Mark Hanna, a spokesman for the Insurance Council of Texas.

If there is a dispute on whether hurricane damage was the result of wind or water, such as in a storm surge, a new expert panel will be appointed by the insurance commissioner to make recommendations on how those claims should be handled. In addition, under the new law TWIA policyholders will have only one year after a loss to file a claim.

If a future hurricane causes $2.5 billion in insured losses to TWIA, the claims will be paid through a multi-tier system of bonds and reinsurance. The bonds will be repaid by TWIA policyholders, surcharges to both homeowner and vehicle owner policyholders, and assessments against property and casualty insurers. The surcharges would take effect after a review by the Texas insurance commissioner.

A legislative committee will conduct an interim study to determine other alternatives to provide needed insurance coverage along the Texas coast and whether TWIA should be changed or eliminated.