December 11, 2008
HURRICANE IKE INSURANCE CLAIM & LITIGATION UPDATE- SIXTH SPECIAL EDITION
This Sixth Special Edition of the Texas Insurance Law Newsbrief continues to provide our readers with brief updates related to coverage, claim, and litigation issues regarding damages caused by Hurricane Ike in the Texas Gulf Coast region. Our intent is to keep you apprised of legal issues we see coming as the carriers of the state deal with numerous new legal and regulatory issues. We will continue to provide more detailed updates in future issues of our Newsbrief regarding Ike-related claims and when lawsuits are filed we will analyze and report the issues which gave rise to the litigation.
JEFFERSON COUNTY CLERK “BRACES FOR SECOND COMING OF HURRICANE IKE”
Last week, Jefferson County District Clerk Lolita Ramos made a statement to The Southeast Texas Record regarding her anticipation that Jefferson County is expecting Hurricane Ike lawsuits against insurers to eclipse Hurricane Rita-related lawsuits, noting that attorneys who did not capitalize on Hurricane Rita litigation are posturing to get such cases by running television and radio commercials, buying newspaper ads and billboards and holding community meetings aimed at policyholders disgruntled with their insurers. Ramos commented that an “onslaught” of Hurricane Ike claim lawsuits are expected, but offered her opinion that the insurance companies wouldn’t have to face such an onslaught of litigation if they simply paid claims. In her opinion, “There’s going to be some big payoffs. We’re going to see (a lot) of lawsuits.” Ramos further added her belief that perhaps insurance companies preferred to litigate (in lieu of settlement) because it may be more cost efficient. [Editor’s Note: the Clerk’s comments are troubling for multiple reasons, but her reported opinions do accurately reflect the degree of market saturation being achieved by aggressive plaintiff lawyers looking for Ike insurance work in Southeast Texas.]
SURGE OF MEDIA PUBLICITY REGARDING PROPERTY OWNERS’ BATTLES WITH INSURERS
As we near the third-month anniversary since Ike made landfall, many property owners are now publically expressing their frustration with the insurance claims process and perceived underpayments. The local press across Southeast Texas has within the last 10 days increased the media attention on the complaints of some disgruntled insureds, interviewing homeowners who are still dealing with the damage
caused by Ike, and the realities of dealing with insurance companies, construction companies and mortgage companies as the repair process progresses. Many complaints relate to depreciation holdback from replacement cost estimates, a very common contractual provision. The depreciation is often recoverable after the repairs have been completed. Some contractors, however, refuse to complete repairs until the full repair cost is paid upfront. If the homeowner is reluctant or unable to proceed, the repairs don’t get done. Other property owners are voicing their complaints regarding vastly differing assessments of their damage—the insurance company’s evaluation versus their contractor’s evaluation. Still other homeowners who experience these same difficulties are finding those issues compounded by their mortgage company’s refusal to release some or all of the insurance repair funds until the repairs are completed to the mortgage company’s satisfaction, which can pose further hardship on those property owners who cannot “front” the repair costs. In response to these complaints regarding mortgage companies holding the funds, the Texas Department of Insurance has issued a reminder to insurance companies that they may not issue payments solely to the mortgage companies, and has also issued reminders to mortgage companies that they must provide the insured property owner with their requirements for release of the funds within 10 days after the proceeds are received, and once those requirements are met, the mortgage company must release those funds within 10 days.
POLICYHOLDER COMPLAINT DATA PROVIDED BY TEXAS DEPARTMENT OF INSURANCE
The Texas Department of Insurance provided complaint data through mid-November which reveals that out of an estimated 530,000 claims filed in 33 Texas counties in the wake of Hurricane Ike, the number of complaints received from policyholders related to Hurricane Ike numbered 1,757. As compared to Hurricane Rita, the Texas Department of insurance received around 2,000 complaints in total. The most common complaints related to delays, unsatisfactory offers, denials, and customer service complaints. Of those complaints, 775 had been resolved but 982 remained pending. So far, 206 of those complaints have been found to be justified by the Texas Department of Insurance. Complaints against the National Flood Insurance Program are also being lodged with the Federal Emergency Management Agency (FEMA), but FEMA denies that the complaints are a widespread issue. According to local media reports, insurance agents are also acknowledging complaints filed by policyholders against the Texas Windstorm Insurance Association’s claim handlers, and it appears that the small percentage of policyholders with properties insured through the Texas Fair Plan are complaining of red-tape snafus causing delays in getting claims processed as well.
WHAT IS LEFT OF IKE ALONG THE TEXAS GULF COAST?
Thousands of homes in the Texas Gulf Coast region remain “blue-tarped,” a sign that Hurricane Ike and the economic recovery from its damage remains a significant issue in Southeast Texas. Roofers and contractors are still booked solid, insurance claims are still being processed, and property owners are trying to fund repairs. Many local signs of Ike’s fury remain unrepaired: signs, billboards and fences are still down in many areas. Still closer to the coast, another sign that recovery from Ike is a slow and difficult process is visible. Near Smith Point, Texas, a 30 mile-long debris pile stands as silent testament to the sluggish response by federal, state and private entities to the storm clean-up efforts. Only one hundred yards of the 30 mile-long debris pile has been cleaned up to date. Millions of dollars remain to be released from FEMA to Chambers County, and Chambers County recently went public with its plea
for more funds to pay for the clean up project. Many rural counties claim to be on the verge of economic collapse as a result of being overwhelmed by the cost of Ike’s aftermath. Businesses are facing similar economic pressures as well, with business interruption claims impacting operating income, and many businesses reporting difficulty in finding short-term loans in the interim due to the economic crises. The local press in Houston over the last week has run multiple reports of businesses and individuals who asserting economic detriment claims with their property damage claims against insurers for alleged damage to credit, damage to business relationships, and foreclosures resulting from alleged delays in claim handling. Now that the 90 day prohibition on foreclosure of Ike-damaged properties is about to be lifted, we anticipate more of these types of claims will be alleged in the weeks to come as Ike claims continue to be processed.
KATRINA FLOOD RULING IN MISSISSIPPI CASE: A SIGN OF THE TIMES
Last week, the Fifth Circuit Court of Appeals, which also sits over Texas federal court system, issued a ruling that homeowners who had not purchased flood insurance could potentially have a cause of action against their mortgage lender’s data verification company for failing to inform them that their home was situated in a federal flood-hazard area. Paul v. Landsafe Flood Determination, Inc., 2008 WL 5061629 (5th Cir. Miss., Dec. 2, 2008). Hurricane Katrina caused substantial flood damage to the home, but no flood insurance was in place because such insurance was not required by the mortgage company in light of its allegedly erroneous determination that the property was not in a flood-prone area. The court noted that the National Flood Insurance Act requires a lender to notify a purchaser of flood hazards in writing of special flood hazards before the sale transaction occurs, but the mortgage company’s selected flood determination company may have erred. Also noting that the lack of contractual privity between the homeowners and the flood determination company did not preclude the company’s liability to the homeowners, the court reversed the trial court’s summary judgment in favor of the homeowners and remanded the case for further proceedings.
IKE BAD FAITH SUITS INCREASING, SLOWLY
Bad faith lawsuits against property insurers arising out of Ike claims have increased over the last two weeks, but they seem to be hitting the courthouse very slowly at this time. We have tracked one dozen new Ike suits in three counties over the last 10 days which is a significant percentage increase over the prior 10 days. But, they are still being filed sporadically by different lawyers in different jurisdictions. It is anticipated that some lawyers will file more suits in the last two weeks of December in an effort to get a 2008 filing date, which can later make a difference in how fast the case gets set for trial. As such, we anticipate an increase in filings over the remainder of this month. We will continue to track the new filings and will report on any perceived trends. If you do NOT want to receive any future of issues of our Hurricane Ike Newsbrief, or if others in your office DO want to receive all future issues of our Hurricane Ike Newsbrief, please send an email requesting to be added or deleted to our Hurricane Ike Newsbrief to tin@mdjwlaw.com