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									                        Special Advertising Supplement



                       MAY 11, 2009 • VOL. 25 • NO. 6
                                                   Special Advertising Supplement
                                                            Insurance Law, Post-HurrIcane Ike
                                                 insurance, Hurricane Ike claims, due to        for a long time. Pirtle and I are trying to

            urricane Ike arrived in Sep-         the fact that we lost both our Galveston       figure out who can sound more from East
            tember 2008 and became               office and our Houston office as a result      Texas. He’s from Henderson. I’m from
            the third most destructive           of Hurricane Ike. And it was something         Whitehouse.
                                                 that really interested us. We wanted to        DAVID D. DISIERE, founding part-
  hurricane ever to make landfall in
                                                 help the people affected by the storm, and     ner, Martin, Disiere, Jefferson & Wis-
  the United States. It has been blamed          we think there are some interesting legal      dom, L.L.P., Houston: We practice in the
  for 194 deaths in Cuba, Haiti and the          issues involved in these cases, and we look    area of insurance coverage litigation and
  United States. Damages have been               forward to litigating those.                   defense, representing insurers. In talking
  estimated at more than $24 billion             THOMAS W. PIRTLE, partner, Lami-               about Texas, I’m a BOI Texan, born on
  in the United States alone. It made            nack, Pirtle & Martines L.L.P., Houston:       the island, Galveston, Texas. We started
                                                 In 2006 we spun off from a large law firm      our firm, Martin, Disiere, Jefferson and
  landfall in Galveston on Sept. 13 as
                                                 called O’Quinn, Laminack & Pirtle. We          Wisdom almost ten years ago, but our
  a Category 2 hurricane with winds of           try probably some of the biggest cases out     years of experience and expertise is much
  110 mph and left in its path massive           there, including pharmaceutical litigation,    greater. We have offices in Houston, Dal-
  destruction. With all this destruction         insurance bad faith, tobacco, you name it.     las and Austin. Our firm has successfully
  comes the issue of insurance. If you           And in 2006 we decided we were going to        defended many insurers in first party bad
  want a spirited debate in Texas, all           do our own thing. But before we did that,      faith cases. And we have a long line of pub-
                                                 when we were doing breast implants, we         lished decisions we’ve obtained for insur-
  you have to do is get people talking
                                                 also had an office in New Orleans. And we      ers, essentially defining insurance cover-
  about insurance. That’s what Texas             did breast implants and Fen-Phen down          age under homeowners’ and commercial
  Lawyer’s business department did               on Canal Street in New Orleans. I’ve tried     policies under Texas law. For example,
  when it hosted a roundtable in Hous-           quite a few cases down there. And, see, the    our firm had the privilege of defending
  ton to discuss the insurance issues            long and short of it is we lost our New        State Farm in the Fiess matter in which the
  arising out of Hurricane Ike. What             Orleans office lock, stock, and barrel. And    Texas Supreme Court concluded that the
                                                 that was in Katrina. So we have some           Texas HOB policy form did not provide
  follows is the discussion, edited for
                                                 friends down there. We got with them in a      coverage for mold. Some say we wrote the
  length and style.                              consortium of law firms and started doing      book on Texas insurance law, and we’re
                                                 this type of work and through Katrina and      still writing.
MIKE ANDROVETT, moderator,                       through Rita now into Ike. We just kind        ANDROVETT: Well, gentlemen, you’re
attorney and owner of Androvett Legal            of fell into it and thought that Ike would     living it, many of the folks in this room are
Media & Marketing, Dallas: Panelists, if         be good work to do, too. Then we would         living it, but for the record, to set the stage
you would, please introduce yourself and talk    see some of the same patterns develop in       for our discussion, Hurricane Ike arrived in
a little bit about the nature of your work.      litigation. Those insurance companies —        September of 2008 and eventually became
CHRIS LEAVITT, Associate, The Buz-               of course, I’m a plaintiff’s lawyer — tried    the third most destructive hurricane to ever
bee Law Firm, Houston: The Buzbee                everything in the world to keep from pay-      hit landfall in the U.S. On a personal note,
Law Firm specializes in contingency fee          ing in Katrina and Rita.                       do any of you have experiences with Ike that
cases involving commercial litigation,           J. STEVE MOSTYN, partner, Mostyn               you want to share before we start getting into
Jones Act and maritime matters, and              Law Firm, Houston: Our practice has            the weeds?
catastrophic injury. Our firm is led by          been for quite a while insurance litigation.   MOSTYN: I was out of my house, I guess,
Tony Buzbee, named one of the top five           David Disiere, who is to my right, is a        for 12 weeks. My wife wanted to know if
commercial litigators in the state, and          defense lawyer. He’s kind of like the coy-     I knew the saying the shoemaker’s kids go
one of the leading maritime attorneys in         ote and the sheep dogs are sitting up here.    without shoes. And can I bother to work
the U.S. Under his leadership, our firm          I plan to be the sheep dog. But we’ve been     on our claim for a little while instead of
has collected over $500 million in under         doing cases against each other for about       everybody else’s. I’ve told my clients that
five years. We’ve gotten involved in the         ten years. And this has been our bailiwick     I’ve seen the play 2000 times, but this is

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May 11, 2009                                                                                                                                 1
                                                                      Special Advertising Supplement
                                             Insurance Law, Post-HurrIcane Ike
                                           the first time I’ve been in it. So it wasn’t a   initial work in paying insureds for covered
                                           very pleasant experience. Our office and         repairs. Some insureds and homeowners
                                           I know y’all’s offices were damaged. And         are having trouble getting repairs done
                                           I know that gives us good perspective on         and putting contractors in place. So it’s
                                           cases.                                           taking time to get that done. Reinspec-
                                           PIRTLE: Yeah. And from my perspective,           tions are talking place and supplemental
                                           we lost a roof on our house in Memorial,         payments are being made. But we’re also
                                           believe it or not. And it rained down the        getting to a point where insurers are mak-
                                           middle of it. So we lost some stuff that         ing decisions on disputed claims. Every-
                                           we care about. And we lost part of the           thing is being paid that is owed under the
                                           roof on our building over on Montrose.           policy. But there may be some gray areas
                                           But, it was the personal stuff that mat-         where compromises are being made. And
                                           ters. And I think that’s one of the things       then there are some areas where there’s a
                                           that you can’t replace when you’re dealing       coverage dispute, specific exclusions in the
    David D. Disiere, a partner            with these people. You lose photographs          policy, for example wind versus flood. And
    in Martin, Disiere, Jefferson &        and stuff that you just can’t pay enough         whether there’s coverage for the loss or the
    Wisdom, L.L.P., is a leading           money.                                           part of the loss. We’re getting into some
                                           LEAVITT: Absolutely. Both my firm and            of the minutia of the claims under both
    practitioner in the area of com-       my family had losses as a result of Hurri-       the policy and in the facts. And we’re get-
    plex insurance coverage issues         cane Ike. Watching storm damage on TV            ting to the point to where demand letters
    and related litigation with over       is one thing, but you gain a totally dif-        are being sent, lawsuits are being filed, and
                                           ferent perspective when you are standing         there’s a lot of work being done in between.
    20 years experience. He is an
                                           in a FEMA line, waiting for bags of ice,         That’s where I’m doing a lot of my work
    Adjunct Professor of Property          and worrying about the damage to your            right now, assisting carriers in evaluating
    and Casualty Insurance Law at          home. It’s something we’re still dealing         claims, trying to resolve the claims and
    the University of Houston Law          with. Our offices are still being rebuilt. So    looking at creative solutions rather than
                                           this is something we take very personally,       jumping straight into litigation. I’ve heard
    Center. He holds an Associate in       and something that is helping us better          of claims counts in the range of 750,000
    Claims (AIC) designation from          represent our clients.                           to 900,000 or more claims. Even with a
    the American Institute for Char-       DISIERE: We had very minor dam-                  small percentage of lawsuits arising from
                                           age at home. Our office was without air          the storm, the numbers could prove
    tered Property Casualty Under-
                                           conditioning for a while, but many of            overwhelming for the court system. And
    writers. In addition to receiving      our partners, Dale Jefferson in particular,      that’s being addressed by the courts. For
    an AV Rating from Martindale-          took great pride in getting into the office,     example, the Galveston County courts
    Hubbell, Disiere was voted a           after church the Sunday after the storm,         have a standing abatement and mediation
                                           to serve our clients. But we have experi-        order in place. Perhaps we’ll talk about
    Texas Super Lawyer by Texas            enced it. And certainly there’s a lot of blue    that more. The Beaumont courts and
    Monthly Magazine for 2007 and          tarps still around the City of Houston and       Jefferson County have assigned specific
    2008 and was also recognized           throughout the state. I’ve had the oppor-        insurance companies to specific judges for
                                           tunity to drive up north, and you can see        discovery purposes. And in Houston they
    in H Texas Magazine as one of
                                           how widespread the damage is and repairs         had a meeting on Monday for the Harris
    Houston’s Top Lawyers in Insur-        are still on the way. No doubt, the storm        County courts. We’re still trying to work
    ance Coverage and Litigation in        has had a significant impact in Texas.           out some of those issues. So I think we’re at
    2007 and 2008. Lastly, he was          ANDROVETT: Can you give us a state               a point where creative solutions can come
                                           of things here at early April 2009? I would      into play in resolving claims. I’m working
    recognized as one of the leading
                                           imagine that, for example, while there have      with my clients in getting those settled
    lawyers in the U.S. in the field        been some lawsuits filed, maybe many more        that need to be settled and those where
    of Insurance and Reinsurance –         are on the horizon? I’ve read something that     coverage is or may be afforded. Or if it’s
    Natural Disasters by The Legal         says there have been over a half million         clearly a claim where coverage is excluded,
                                           claims filed. The everyday work that you do,     a dispute as to damages, the appropriate or
    500 US: Volume III (Litigation) 2007   what are you seeing in terms of response to      reasonable and necessary repairs etc. then
    and was selected by his peers for      Ike?                                             those may be claims that simply need to
    inclusion in the 2009 edition of       DISIERE: What we are seeing is that              be litigated, if we can’t get them resolved.
                                           initial inspections have been done. Insur-       MOSTYN: This is where David and
    The Best Lawyers in America® in the
                                           ance carriers have been out. And most of         I begin to disagree, as I checked in as a
    specialty of Insurance Law.            them have seen the houses and done the           sheep dog. People begin to realize that the

2                                                                                                                       May 11, 2009
                           Special Advertising Supplement
            Insurance Law, Post-HurrIcane Ike
little piece of payments that they receive        of the claim supervisors from TWIA, who
from the insurance companies don’t cover          was terminated, in my office for three days
the damage to their house as the contrac-         explaining the design process on how they
tor actually shows up to do the repairs.          were told not to do the right thing. Now,
They’re tired of dealing with their sixth         the commercial claims like Tom and them
or seventh adjuster. They’re tired of wait-       are working through, those processes do
ing. They’re tired of losing tenants under        work a little better. So try to get with your
their lease agreements that allow the ten-        adjusters and so forth. But on the residen-
ants to get out if after six months they’re       tial side and on the ones where there’s been
not able to get back in. And they’re now          denials, it’s clearly been underpaid or they
beginning to contact attorneys. David’s           haven’t paid you yet. They pay because
position, the carrier’s position, will always     they have to in a lawsuit, is my opinion.
be that it’s gray areas or concerns. I’ve got     And so they don’t pay you because they
people that testified Monday in the Sen-          like you, and that’s unfortunate. And that
ate who were still homeless because the           is the situation we are in. We have the         Chris Leavitt received his un-
insurance company refuses to pay them             highest homeowner rates in the country
                                                                                                  dergraduate degree with Honors
from Rita. And so the house is gone. I            in this state. Florida is lower than us. And
should have brought some pictures. That’s         they look like a jigsaw map puzzle when         from the University of Texas in
not a gray area. But it’s just the insurance      you look at the hurricanes. We have the
companies.                                        loosest regulation on insurance companies       2002 and is a 2005 graduate of
ANDROVETT: Tom, Chris, what are you               on the writing side. This is a predatory
seeing?                                           market for insurance companies.                 the University of Houston Law
PIRTLE: Well, right now, if you want to           ANDROVETT: Steve, I sense some frustra-         Center. During his time in law
talk about the way claims are progressing,        tion from you.
we’re dealing with adjusters. And, in fact,       MOSTYN: I’m tired. I was at the legis-          school, Chris completed clerk-
we’re dealing with adjusters right now on         lature until 1:30 last night. Came in, did
one of the bigger commercial claims we’ve         an interview on CNN. Our firm mediates          ships for the Harris County Dis-
got, because I looked over there and one          50 of these cases a month from Rita that
                                                                                                  trict Attorney, The Buzbee Law
of my guys is not here. So I know where           we’re still trying to get through. And you
he’s is. It’s this process of trying to get the   hear the same story over and over again.        Firm, and the Honorable Lynn H.
claims adjusted and trying to get their           And after a while when the 200th person
adjusters, which they switch off over and         tells you the same conduct, you begin to        Hughes, United States District
over. Again, I’m sure it’s for good reason.       think that might be bad.
And to see eye to eye with your adjuster.         ANDROVETT: Now, 750,000 claims?                 Judge, Southern District of Texas.
So we’re in that process right now. And           Is it unreasonable to believe that this is an   After graduating from law school,
we’re not to a point where we’re in full-         extraordinary event and maybe the process-
blown litigation, although Harris County          ing of claims goes a little slower and that     Leavitt went to work for one of
is fixing to consolidate.                         there’s not any hidden agenda on the part of
LEAVITT: I agree with Tom. The sense              the insurance companies?                        the largest commercial real estate
that I get from the people we’re dealing          DISIERE: As the lone defense attorney
                                                                                                  firms in the nation, where he ne-
with — and I was at a town hall meet-             up here, let me address a couple of things
ing last night in Texas City speaking with        and that question as well. Seven-hundred-       gotiated agreements for more than
homeowners — is that there is a lot of            and-fifty-thousand or more claims. If you
confusion out there. And people don’t             can imagine the magnitude and the claim         $2 billion in commercial real es-
understand exactly what their options             force that had to be put in force on short
                                                                                                  tate transactions. After deciding
are. People are still waiting to see if TWIA      notice, the catastrophe adjusters. They’re
and the other insurers are going to do the        on 24-hour notice. They’re called to leave      he wanted to pursue plaintiffs’
right thing and come up with adequate             their homes and families wherever they
sums of money to fix their homes. And I           are in the country, and you have an army        work in 2008, Leavitt joined The
think we’re still waiting for the onslaught       of adjusters flooding into an area within
of cases.                                         days after the storm. In fact, they’re en       Buzbee Law Firm, where he had
MOSTYN: After 12- to 1500 of these                route even before the storm is occurring,       been a Law Clerk in 2003. He was
cases in Rita, my experience was telling          heading this way toward the storm to start
me that after seven months, if they have          adjusting claims, trying to get claims paid     brought in to head the firm’s Hur-
not done the right thing, they are not            and handled. So one of the things about a
going to do the right thing. I’ve had one         house totally destroyed — we’ve all seen, I     ricane Ike Claims division.

May 11, 2009                                                                                                                           3
                                                                        Special Advertising Supplement
                                               Insurance Law, Post-HurrIcane Ike
                                             think it was on Boliver Peninsula, the one        ratios of any state, which means profit for
                                             house sitting alone. Why? Because it was          the insurance companies in Texas is one of
                                             elevated above the rest of the homes on           the highest.
                                             the peninsula. And when the surge came            PIRTLE: I agree with that. There are
                                             through, the flood waters came through,           750,000 claims. But they are collecting
                                             it wiped the rest of the houses off the pen-      750,000 policy payments, too. And that
                                             insula. So what you’ve got left in that one       was no problem processing. And I under-
                                             area is a house that withstood the wind,          stand that it’s easier to count money than
                                             but the rest of them couldn’t withstand the       it is to hand it out. But, you brought up
                                             surge or the flood. And in that instance          Boliver. And I was talking to a lot of you
                                             you have a coverage issue. Homeowners’            this morning about some people we’ve got
                                             policies exclude damage caused by flood           down on Boliver. And the insurance com-
                                             waters, essentially, the surge. And it’s a        pany comes in, and they offer 11.2 percent
                                             tough decision for those adjusters coming         of the face of the policy. The lady we’ve
    The Mostyn Law Firm has set itself       in short notice. I was an adjuster, by the        got that was one of the homeowners in the
    apart in the field of Plaintiff’s First   way. I handled claims by day and went to          homeowners association, she knows all
    Party Bad Faith Insurance litiga-        law school by night at the University of          the people that own the slabs left around
                                             Houston back in the late ‘80s. But it is the      here. And we started asking around, and
    tion. Its founder, Steve Mostyn,         easiest thing that an adjuster can do is to sit   they offered everybody within about a
    is from small-town Texas: grow-          down with the homeowner and write that            3-square-mile radius 11.2 percent of the
    ing up in Whitehouse, near Tyler.        check. They are happy, they smile, they           face value of the policy. Boy, that don’t
    After attending the University of        thank you and they bless you and your             take a lot of adjusting, does it?
                                             children and your children’s children. But        DISIERE: Was that the flood policy?
    Texas for his undergraduate degree,      it is a tough decision whenever you have          MOSTYN: It’s the TWIA policy. And we
    Mostyn graduated cum laude in            to look at the facts of the loss and apply it     can account for eyewitness testimony. Just
    1996 from South Texas College of         to the coverage afforded by the policy and        to give you an example of TWIA and Boli-
    Law. He immediately went to work         tell that insured, “I’m sorry. There’s just       ver and the exempted home insurers, right
                                             no coverage for your flood damage. I can          down on the coast they make TWIA do it,
    at a Houston plaintiff’s law firm,
                                             pay for this, but I can’t pay for the flood       so they don’t have to write risk coverage.
    but left in 1999 to start his own        damage.” That’s a tough position for both         Let’s talk about TWIA and Boliver.
    firm. The Mostyn Law Firm’s mis-          the insured and the adjuster to be in. The        ANDROVETT: And tell everyone what
    sion is to level the playing field for    people that I’ve worked with are trying to        TWIA is.
                                             do the right thing. And that’s why we’re          MOSTYN: Texas Windstorm Insurance
    individuals and businesses against
                                             always looking to these creative solutions.       Association.
    multi-national corporations and in-      Litigation, I think, if it’s premature, is        ANDROVETT: And they basically are
    surers. Mostyn has handled literally     counter-productive because there are still        insurer of last resort?
    thousands of first party insurance        things to be done and new adjusters com-          MOSTYN: Insurer of last resort on
                                             ing in. Why do you have five adjusters?           the coast. This year, the only possibility
    claims. The vast majority of these
                                             Because those people that came in on the          becoming very quickly, because if you’re
    cases resulted in extra-contractual      surge had to get back home to their fami-         an insurance company, why write what’s
    damages for his clients, going far       lies. Claims are returned to the normal           risky when you can just write the stuff
    beyond expectations. The Mostyn          claim units. And you get different, spe-          that’s not. So let the state association pick
    Law Firm represents families,            cialized people assigned to the remaining         that up. But if you’re with TWIA and
                                             tasks. Believe it or not there’s still an ongo-   you have lifted or torn shingles and you
    churches and businesses through-         ing effort by the carriers, at least those my     got your claim processed before Decem-
    out the State of Texas in first party     firm works with, to try to pay what they          ber the 18th, you got paid. If you’re with
    insurance litigation, a variety of       owe, nothing more, nothing less, because          TWIA and you were after December 18th
    commercial litigation disputes and       there is a duty to the other policyholders,       and you had lifted or torn shingles, you
                                             like Steve said. Premiums in Texas in this        did not. Why? Because they changed
    complex, serious personal injury         area are some of the highest in the coun-         the policy. Not your policy, “the” policy.
    cases. The Mostyn Law Firm has           try. And do we want to be paying claims           Why? Because it costs too much money.
    handled or is handling thousands         where no coverage is afforded and all of          That’s not a difference. That’s what’s going
    of Hurricane Rita claims and has         those other policyholders ultimately being        to come out in this litigation. So State
                                             responsible for higher premiums because           Farm, one of David’s clients, advertises
    already been retained on hundreds
                                             uncovered claims are being paid?                  in their television commercials that they
    of Hurricane Ike claims.                 MOSTYN: We also have the lowest loss              have 5,000 cat adjusters. Remember on

4                                                                                                                          May 11, 2009
                           Special Advertising Supplement
            Insurance Law, Post-HurrIcane Ike
Sunday while we’re all watching football;         for how Hurricane Ike will play out?
we had to watch State Farm advertise              PIRTLE: Well, if you look at what hap-
every game. And they’re telling you 5,000         pened, of course, obviously a devastating
cat adjusters. Come on. Trust me, if State        event for the City of New Orleans and
Farm had 200,000 claims, that is 40 each.         the whole south area down there. You’re
Seven months. Your insurance company              hearing some of the same stuff. The les-
owes you a duty before you make the               son we’ve got to work on whether or not it
claim to be adequately staffed and pre-           was wind or whether or not it was water.
pared to meet a disaster. They are in the         Now, that’s a pretty standard trick. And
hurricane business. It’s kind of like if we       in Katrina and Rita, that’s already been, I
got invaded and the military says, “Did           think, won. And you’ve got to watch what
anybody see those rifles? Because I didn’t        you’re doing or they’ll say it’s water when
know we were going to get invaded.” You           it’s really wind or rain coming in from
get prepared in case, and then they say           shingles on the roof.
like Tom said, “Oh, we didn’t know this           ANDROVETT: And explain — and I                     Thomas W. Pirtle, a partner
was coming.” Well, of course you knew.            know we’re going to talk a lot about this          in Laminack Pirtle & Martines,
That’s what you advertise. That’s the secu-       — but for someone perhaps reading Texas
                                                                                                     L.L.P., is a nationally recognized
rity you sold these people. TWIA told             Lawyer newspaper that is not conversant in
me that the other day in the mediation.           insurance law and this issue, what’s the big       trial lawyer who has won a num-
I said your symbol is a hurricane behind          deal about the difference between wind and         ber of ground-breaking verdicts in
the state of Texas. You didn’t know there         water?                                             cases involving defective medical
was a hurricane going to come? Come on            PIRTLE: It’s coverage. In most policies, if
guys. So we have very different views on          the water comes in your house because of           devices and pharmaceutical prod-
that. Don’t get me wrong, some claims             the flood, it’s not covered. But if the water      ucts. From 1990-2006 Pirtle was a
get paid. You’re going to have neighbors          comes in your house because your roof              senior litigator with the law firm
and friends who got paid fine. But what           is bad or from another defect up there,
we have seen is if your case got off in the       then it is covered. And so the pressure is,        of O’Quinn, Laminack & Pirtle.
ditch right at the start, if the first guy came   with the folks and what they tried to get          During his tenure at the O’Quinn
through who didn’t have the ladder and he         these adjusters to say, is that there’s a water    firm he worked in the firm’s mass
was supposed to get on your roof and he’s         intrusion, not wind driven water or water
standing on a bucket outside your house           driven by wind. So that’s one of the big           tort division which encompassed
looking up at the roof, and once it got in        ones. And we’ve got to determine whether           a number of medical device and
the ditch, there’s no process to get it out.      they’re covered.                                   pharmaceutical dockets where he
LEAVITT: Steve brought up a good                  AUDIENCE MEMBER: What’s the rela-
point. There’s actually an internal memo          tionship between the state of Texas and the        became a recognized leader in es-
circulated by TWIA that after a certain           Texas Windstorm Association? It’s my under-        tablishing corporate liability in
date they’re not replacing roofs unless it        standing it’s not really a private thing; it’s a   complex cases. Pirtle has served
has physical loss. And I’ve heard this fig-       governmental insurance entity. I don’t know
                                                                                                     as trial counsel in a number of
ure of 750,000 claims. And I do think             how much of these claim adjustment issues
TWIA has been totally overwhelmed.                are driven by government problems or pri-          ground-breaking    cases   includ-
And the adjusters they are sending out,           vate insurance company problems?                   ing some of the first jury verdicts
I’m sure like anything you have good and          MOSTYN: It’s not a government entity.
                                                                                                     awarding damages to women in-
bad adjusters. But, we’re finding that there      It may become one, but it was set up as
are adjusters going out to look at damaged        an insurance of last resort for windstorm.         jured by silicone breast implants
homes that have very little experience,           The TWIA system has funds. And then                and a record setting historical
who six months ago were selling home              after they go out of their funds, they tap
                                                                                                     verdict awarded to the family of a
mortgages or in the car business. So, it is a     into a secondary group, which is a drop
problem with the homeowner not getting            on the other carriers, and then they go            woman who died as a result of her
a fair adjustment. And this is not because        to reinsurance, and then they come back            ingestion of the “Fen-Phen” diet
the homeowner did anything wrong or               to the other carriers, who then get a tax
                                                                                                     drug combination. Pirtle received
wasn’t thorough enough, but because they          premium credit. TWIA can be sued. And
got a bad adjuster.                               my position — and we haven’t lost it —             a Bachelor of Science degree from
ANDROVETT: Tom, earlier you had                   is that they’re under the same laws as the         Stephen F. Austin University and
mentioned Katrina and Rita. The response          other carriers. The interesting thing about        graduated from South Texas Col-
among insurance companies, claimants, the         TWIA is that they drop on the other carri-
legislature and the courts, any lessons there     ers. Take Texas Farm Bureau, for instance,         lege of Law.

May 11, 2009                                                                                                                              5
                                                                         Special Advertising Supplement
                                                Insurance Law, Post-HurrIcane Ike
                                              Texas Farm Bureau has a 15-million-               coast. Then you have also the exclusion
                                              dollar retention policy. Before the wind          for flood because while these are risks that
                                              quit blowing, they were through their             insurers take, as a private entity, they are
                                              15-million-dollar retention. They went            not well suited to absorb that magnitude
                                              to reinsurance. These are local insurance         of a loss, the potential of these losses.
                                              companies. They’re at 161 million into            So that risk has to be underwritten and
                                              a billion dollar retention of reinsurance         shared by insurers rather than isolated
                                              policy. The very good news for those car-         homeowners getting that type of cover-
                                              riers is when they talk about losses, it’s        age through private insurers. The same
                                              really not their money. They went into            thing with the flood insurance under
                                              reinsurance. And when TWIA does a                 the FEMA program. If you have a flood
                                              draw on them to pay for the other claims          claim under the flood policy, that is actu-
                                              that is part of the deal is you don’t have        ally handled by “write your own” insurers,
                                              to write the cost but you’re going to have        insuring entities like State Farm or Farm-
    Mike Androvett is in business             to pay for it if we get above everything.         ers, are handling and paying claims. But
    to make sure that his lawyer clients      So when we do a draw up on these guys,            the actual money is coming from FEMA,
    get positive news coverage and their      it’s really coming from the reinsurers, but       through the national flood program. Any
    law firms are marketed effectively         they’re getting tax refunds from the state        they have limited immunity in relation to
    through advertising and public re-        of Texas. So it’s a pretty sweet deal. I’d like   extra-contractual claim handling related
    lations. Androvett is the founder of      to add I’ve thought maybe I should switch         claims. So there’s immunity for FEMA
                                              sides and I was going to call my company          and claim handling activities. You can’t
    Androvett Legal Media & Market-
                                              something like “horrific insurance.” Do           sue for state law tort claims, such as bad
    ing, the largest public relations and     some honesty in marketing.                        faith for FEMA for the handling or mis-
    advertising firm in the Southwest          LEAVITT: I think the TWIA v. Poole case           handling of a claim. And by the way, the
    exclusively devoted to lawyers and        which came out of the Amarillo appeals            FEMA guidelines, proof of loss, and those
    the legal profession. Established in      court in May of last year addresses what          types of things are very strict. So if you’re
    1995, Androvett Legal Media serves        you’re talking about. In that case it states      helping homeowners with that, be sure
    the specialized needs of law firms in      that TWIA is a government agency for              that you know what the policy requires
                                              private insurers. The private insurance           and make sure that the insureds comply,
    communications with outside audi-
                                              companies pick the officers, however, they        because you’re dealing with the federal
    ences, including news media cov-          are under the supervision of the Texas            government and a well established body
    erage, brochures and Web sites,           Department of Insurance. And basically            of law. There is a recent case, Campos v.
    and sophisticated advertising of all      that’s a private insurance business oper-         Allstate, which talks about an exception to
    kinds. Androvett’s firm assists law-       ating under a government cloak. Under             the tort immunity for negligent procure-
    yers in virtually all areas of practice   Chapter 2210 of the insurance code it             ment claims; that is the agent knew that
    while observing the highest ethical       states if you’re an aggrieved person you can      he was supposed to get the coverage or
                                              either go through their appeals process or        the carrier was supposed to get the flood
    standards. Lawyers and their clients
                                              a private action. And this case confirmed         coverage, and they failed to do it. That
    who receive media training from           that and said you do not have to exhaust          falls outside. So there are a few exceptions
    Androvett Legal Media are much            all your administrative remedies to bring         to that immunity. And I’m assuming the
    better prepared to deal with report-      an action against TWIA, even though               same thing exists with TWIA. I haven’t
    ers and TV camera crews. And, as a        it’s not your standard private insurance          done a lot of work with that, but certainly
    former chairman of the State Bar of       company with a registered agent, etc. It is       be aware of that flood coverage.
    Texas Advertising Review Commit-          available to be sued.                             MOSTYN: David brings a very good
                                              ANDROVETT: So TWIA is available to                point for the practitioners in the room.
    tee, his expertise and experience is
                                              be sued?                                          The flood policies, which are paid by
    essential to firms seeking to comply       MOSTYN: Sue them.                                 FEMA, have some extremely strict dead-
    with the state rules governing law-       DISIERE: Typically, what you have is              lines in them. And so those of us who are
    yer advertising. Androvett and his        TWIA and the National Flood Insurance             used to filing lawsuits within two years
    team take the mystery out of public       Program. They’re kind of similar. TWIA            have got to be very careful on submitting
    relations and advertising by recog-       on the state basis, the enabling legisla-         proof of loss, because the deadline has
    nizing law firms’ true goals and pro-      ture, as Chris mentioned, is in Chapter           been moved to June 8th. So the difference
                                              2210 of the Texas Insurance Code. And             is with TWIA, TWIA wants to be the fed-
    viding the know-how to make them
                                              that addresses windstorm. Windstorm is            eral program, but they’re not. So they can
    happen. He can be reached at 214-
                                              excluded under certain policies, typically        be sued. What difference does it make?
    559-4630 or             standard homeowners policies along the            Well, they are subject to the common law

6                                                                                                                           May 11, 2009
                                                   Special Advertising Supplement
                                                             Insurance Law, Post-HurrIcane Ike
tort of bad faith. They’re also subject to       members of the panel may agree with it, but        so they know you’ve got to buy the prod-
the statutory requirements underneath the        I feel it’s relevant. And that is in the current   uct. And so I don’t see the customer aspect
article insurance codes 541, 542. What           economic climate — AIG immediately comes           so much sometimes.
difference does that make? It means you          to mind — it’s reasonable to conclude that         DISIERE: Can I just respond real quickly?
get attorneys’ fees, penalties and interest,     many insurance companies are struggling            We’ve got TWIA and we’ve got FEMA,
and possibly travel. That’s the big differ-      due to their outside investments and the tie       which illustrates the fact private insurers
ence. They want to be. Believe me, they          up of credit. Does that have an impact on          are the preferred entities to protect our
talked to me all the time, but we’ve done        an insurance company’s desire to do what is        interests with limited protection from
quite a few cases against TWIA through           right by the premium payer or to slow things       FEMA and TWIA where risk from cata-
resolution, and they just don’t have those       down? How do you reconcile that?                   strophic losses arise. And if we can keep
protections. And I’m working with the            DISIERE: I just don’t think it does. And           private insurance available, it does relate
legislature right now making sure they           here’s why: Insurance companies are a              to a customer, but I’ve got to tell you, I
don’t get them.                                  business. Policyholders are customers. And         worked catastrophe duty as an adjuster
ANDROVETT: Can any of you describe               you can’t stay in business very long if you        when Hurricane Andrew hit Homestead,
how successful the process is to file a claim    cheat, lie, and steal from your customers.         Florida. It just missed Miami by a few
through TWIA, as opposed to through pri-         You have to pay claims that you owe, but           miles. Multiple insurers went into bank-
vate insurance companies? Any quicker? Any       you have to be prudent in that process. We         ruptcy. And I understand that for many
slower? Any particular nuance?                   have to look at the facts of the loss and          other carriers, any profit that had been
MOSTYN: Pirtle and I are like, you’re            the coverage afforded. It’s a contract with        earned from 20 years before up to the day
going to hire attack dogs. We’re not going       your insurance company called an insur-            that Hurricane Andrew hit Homestead,
to go through the administrative process.        ance policy. And if the facts of your loss fit     Florida, was wiped out. So anything that
I haven’t done the administrative process        within the policy, you should be afforded          was made over the past 20 years suddenly
with them. We generally go to private            coverage. They should take care of the             became zero or a loss. That’s a scary prop-
causes of action.                                customers. They should provide prompt,             osition whenever you’ve got homeowners
LEAVITT: There’s no question the admin-          fair claims service. I sound like I’m preach-      relying on their insurance carriers to pay
istrative process is a lot quicker. As soon as   ing, but I’ve done this myself. And I know         many other types of claims. You want car-
you receive notice, it’s generally scheduled     that that’s truly the goal, at least from my       riers to charge adequate premiums, not
within 30 days. So absolutely it’s faster. If    perspective, and the carriers that I work          excessive but reasonable, to be able to pay
it’s more beneficial to a homeowner, that’s      with.                                              those claims. And because of solvency,
a different story. We advise our clients to      MOSTYN: I would like to address the                there is a lot of money flowing into the
not elect the administrative process.            very good news that AIG and companies              area. There’s a lot of work being done.
MOSTYN: The reason I don’t do admin-             like that were never allowed to get their          There are some claims and I know there are
istrative process is if anybody wanted to        property insurance companies and so                disputes. But for the most part, efforts are
come to me, I can settle my entire docket        forth outside of state regulations. So the         being made and billions are being paid to
tomorrow for $500. Speed is not what my          state regulators kept these guys properly          people to restore the insured, to pay them
people are looking for. They’re looking to       reserved. American General, for example,           the amounts owed under the policies.
get their businesses and homes paid for,         which is owned by AIG is in very good              AUDIENCE MEMBER: I’m just curious.
and get back. So while I have not been           shape. It’s AIG, the parent on top, that           I heard on the news sometime not too long
through the TWIA administrative pro-             got in trouble. I think State Farm has got         ago that State Farm is actually no longer
cess, I have been through other adminis-         48 billion in assets last time I looked. For       writing homeowner policies in Florida, and
trative processes, which have not been full      example, when we got ready to try the first        that it was a business decision. Would you
recovery. I don’t believe the administrative     State Farm case after Katrina, Rita, and all       give your take?
process allows for penalties, interest and       the hurricanes that had hit the coast, State       DISIERE: I’m sorry. I just don’t know.
attorneys’ fees, to start with. So if you        Farm had still recorded a profit of 3.7 bil-       MOSTYN: I heard the threat. The dif-
need a hundred dollars to get your house         lion dollars. Now they like to go around           ference is the argument on our side has
fixed and you’ve got to pay me $25 of it,        saying they lost 1.3 billion, because they         gotten a lot better, particularly in the way
you’re still $25 short on your house.            projected five. But it’s still a very profit-      insurance companies deal with their prof-
PIRTLE: If you go through the process            able business. As for their customers, the         its, particularly AIG. In 2005 State Farm
and you can’t get a resolution, which you        problem with insurance and the reason              has the worst hurricane season we’ve seen
probably won’t get a resolution because          that it’s regulated is that it’s a mandatory       in 40 years and the CEO gets 11 million
they won’t be fair, you end up right back        purchase for most people. It’s like you reg-       dollars in profit. There’s no money left
the same place where you started, just a         ulate industries that’s a required purchase,       in the company. So that’s why you’ve got
little bit later. So I don’t like it either in   such as electrical. Most any homeowner             to regulate the hell out of them because
any way, shape or form.                          that has a mortgage is going to be required        they’re going to go and take it. The free
ANDROVETT: David, you might take                 to have insurance. And we have to have             market without any regulation has proven
issue with this question, and the other          insurance in case of fires and so forth. And       that those in charge will take the money

May 11, 2009                                                                                                                                  7
                                                    Special Advertising Supplement
    Insurance Law, Post-HurrIcane Ike
and go do something else with it. So that’s       so great insurance companies were leaving        the most part, and that is if there’s wind
much easier, from the litigation side, to         Texas, they were finally allowed to write        damage, they’ll pay for the wind damage.
stand in front of a jury and say that the         their own policies. It’s called file and use     If flood comes in, for example, you can see
insurance carriers didn’t do what they’re         and very few still use the HOB policy            a three foot waterline through the house,
supposed to do. And it’s a much more              form. So you have to understand that if          that flood damage is excluded or needs to
receptive audience than we used to have.          you’re reading the case law, there will be       be paid by the flood policy if the insured
PIRTLE: With the current national feel-           issues with different types of policies that     has one. Based on wind speed measure-
ings about corporate irresponsibility,            have different wording. You’ve got large         ments, the winds weren’t too severe. The
you’re going to see some massive jury             body case law interpreting the HOB pol-          surge or flood damage was much more
verdicts and awards come out. And if it’s         icy form, but now you have different poli-       devastating. Wind damage is usually
against these insurance companies that are        cies and they have different language. You       minor in this storm, with exceptions for
not doing what they’re supposed to do, so         mentioned the issue about wind versus            some tornadic activity and isolated gusts
be it. But as a whole trend, I think you’re       flood. Well, there’s a clear exclusion about     because the winds overall weren’t that
going to see juries more critical of corpo-       flood. But there is also, you’ll find in some    severe.
rate America because they see we’re losing        policies, something that you didn’t see in       MOSTYN: Did you go down there?
money. We’re losing money or we can’t             homeowners’ policies before, anti-concur-        PIRTLE: They were a hundred miles or
make ends meet. But now we pull back              rent cause clauses. There’s a doctrine of        more. They blew the whole roof off my
the curtain and look back there at what’s         concurrent causes in Texas. Let’s say it’s       house, and it was thrown.
going on. They’re all back there having           an all-risk insurance policy. Everything         DISIERE: I will say there are certain areas
a drunken orgy rolling all over money.            is covered except what’s excluded. Then          where, yes, there was some severe winds
And that’s what the people believe. And           you have a flood exclusion, and then you         and those claims should be paid under the
so these days when folks are talking about        have exceptions to the exclusion. And if         coverage afforded through TWIA or pri-
going to trial, I say, “Well, let’s go.” I want   a loss is caused by more than one cause,         vate insurance as applicable.
to put it in front of 12 people any and           e.g. wind and flood, that presents concur-       PIRTLE: Did y’all hear that, all this exclu-
every chance I can, because I believe that        rent cause issues. Two events may have           sion to the exclusion and exception to the
American is tired of this corporate greed,        caused the same damage. And it’s the             exclusion that he just talked about? How
this corporate irresponsibility and it bleeds     insurer’s duty to pay what’s covered and         in the world can the average homeowner
over into the insurance companies. What           deny what’s excluded. But what the poli-         stand a chance to try and get money out
we saw with Katrina and what we saw with          cies have in them now, are anti-concur-          of that? You’ve got to go help these people,
Rita, at least in the city of New Orleans         rent cause clauses that you have not seen        and I feel passionate about this. I didn’t
and Louisiana, was the judiciary in my            in homeowners’ policies before. And they         understand half the stuff. However, I’ve
view became friendlier to our causes, too,        typically provide a lead-in to the exclusion     had to get it going inside my head. It was
because they understand. These people are         that says, “We do not cover regardless of        going too fast.
hurting, and they’re getting mistreated in        whether before or after the loss or in any       DISIERE: So do we have insurers
a lot of regards. And they want to see the        sequence to the loss, the following causes       throw out the contract and simply pay
people compensated. And I believe you’re          of loss.” It doesn’t matter if there were two    everything?
going to see that in Texas, and I hope we         causes or events. If the excluded cause or       PIRTLE: No. But we get one that’s rea-
see it going up the appellate line.               event was an actual cause of the loss, the       sonable for folks to read that’s not negoti-
ANDROVETT: And what are going to be               entire loss is excluded — there’s a case,        ated on just one side.
those issues? We talked about wind versus         Wong v. Monticello, which talks about it         MOSTYN: Yes. The reason that the pol-
flood. What are the coverage issues that are      and upheld the exclusion under an anti-          icy is written the way it is — and it’s not
likely to take up the time and trouble in the     concurrent cause provision. But issues           quite that complicated — it is extremely
courts in the next few years?                     may still arise regarding coverage for the       complicated. But you have main perils.
DISIERE: I’ll start with that, but I want         loss even where you have an anti-concur-         And one of them is windstorm. So put it
to just respond by stating that the insur-        rent cause clause because the excluded           underneath windstorm. If you can’t find
ance industry in the state of Texas is one        event must actually be a cause of the loss.      an expert to put it under windstorm, I’ll
of the most tightly regulated industries in       So there’s a lot of coverage issues that are     send you one. But anyway, that’s a joke.
Texas. Insurance and perhaps banking. But         going to be coming out of these policies         The time we get to this particular policy
in terms of the coverage issues, I’d like to      and the courts will need to address them.        was deregulation in 2003 by the insurance
address some in the homeowners’ context.          ANDROVETT: David, in practice, does              market. They needed to exclude mold, but
Because for 20 years or more, in Texas, up        that mean if the wind comes in and blows         they excluded everything else, too. They
until this most recent decade, the hom-           off your roof then subsequent down the road      took a hatchet where a scalpel should have
eowners’ policy form was an HOB policy            there’s some water into the house, coverage is   been done. I’ve heard this low wind story
form, a state mandated policy form. And           excluded?                                        before. When we went to try that case
after the problems with the mold cover-           DISIERE: Well, in that event I under-            against State Farm, and one of David’s
age or mold claims, where the losses were         stand what carriers are typically doing for      clients, they actually flew an old boy

8                                                                                                                             May 11, 2009
                                                   Special Advertising Supplement
                                                             Insurance Law, Post-HurrIcane Ike
down from Lubbock who wrote a report,            after the hurricane and those things were        closely is the case that’s currently before
charged them $26,000 to write a report           there, the adjusters don’t want to take that     the Supreme Court, Johnson v. State Farm.
and say there was no hurricane. Finally          into account. Right? They said, “Well,           And it’s going to decide whether if your
they said there was no hurricane in Hur-         that must have been foundation settling.”        claim gets pulled into appraisal, what the
ricane Rita. I’ve got the local weatherman       Well, it wasn’t there before the hurricane.      appraisers, and essentially the umpire,
from CBS. He came out and said, “Yeah.           The house was fine. Then there’s a hurri-        might be able to decide. It is going to
There was a hurricane.” It just so hap-          cane, and then it’s damaged. And unless          determine whether the meaning of the
pens that the jury panel had actually been       they want to come in and call your client        term amount of loss includes the extent
through the hurricane. So it was a little        a fraud — in the first case we started was a     of loss. The original case is saying that the
easier to explain to them there was a hur-       doctor — and say they’re lying, then have        extent of damage is a part of the amount
ricane. Kind of like trying a bus rollover       at it. But if not, the best evidence that we     of loss. And so that is going to have a
case and all the jurors are from the first six   know that our engineers can go off of is         pretty big impact upon a lot of these cases
rows of the bus. It wasn’t that bad. It only     a lot of times what our clients, who are         because most of these claims are going to
flipped four times. So they went down            the only eyewitnesses before and after this      have issues such as one adjuster claiminga
and they tried to de-designate the expert.       claim.                                           wall that has a water stain on it can be fixed
They de-designated him because they              DISIERE: I want to go back to this               by paint and assign it a value for a paint
were scared I was going to say they hired        thought that I said “it wasn’t bad.” I hope I    job, and another adjuster might look at it
an expert that says that there wasn’t a hur-     didn’t say that. There were bad winds. But       and assign it a value to replace the sheet-
ricane. They tried to exclude me talking         they weren’t of the severity of winds that       rock. The extent of the damage could and
about them having an expert in the first         you had with Hurricane Andrew that hit           probably will have an enormous influence
place that said there wasn’t a hurricane.        Homestead. There were areas where winds          on the amount of loss. Also, you’re going
The problem was all their other experts          were very severe. There’s damage in those        to have, like David mentions, concurrent
and the lawyers relied on the one expert’s       areas. So it’s up to some experts or the         causes where part of it might be flood, part
report, so you can’t exclude them. So we         data, the information is there, to analyze       of it might be wind, and you’re going to
were going to beat the hell out of them          the claims on a case by case basis. Because      have an appraiser making coverage issues
on a no hurricane expert from Lubbock,           you can’t paint it with a broad brush. I live    when that’s something the courts have tra-
Texas, who had himself a very fancy com-         in Friendswood, which is right along the         ditionally done.
puter program. So that case settled. But         bay. I boarded up three sides of my house        ANDROVETT: Is that a good thing or a
that’s what we see. And God bless David          thinking I was looking at swirling winds         bad thing if the appraiser is making decisions
for being the only one up here from the          and the direction of the storm. It’s not         that courts used to make?
defense side. They do not believe the winds      scientific. I’m not an expert here. And I        MOSTYN: We have to see the outcome.
weren’t that bad. They were bad for those        thought it would hit the back side or a cer-     LEAVITT: I don’t feel comfortable with
of you that got damage. Folks, on the cov-       tain side. And what happened is the wind         an appraiser and the umpire, who are reg-
erage side, the biggest thing that I see —       whipped around and came from the front           ularly retained by an insurance company,
and there are differences in the policies.       of the house and the other part of my            making decisions on whether my house is
And it’s one thing you have to know these        home I didn’t have boarded up. I didn’t          going to get fixed.
policies — is wind driven rain. Some poli-       lose a window. I had some small trees that       MOSTYN: I’m not going to go to
cies will cover it. Some policies will cover     were blown over. I lost pieces of fence.         appraisal, but sometimes if the outcome
wind driven rain without what they call          There were large trees in the neighbor-          is good, we might be happy with it. But
an opening, and some won’t. The question         hood knocked down. But my home was               David and I actually agree with this. I agree
often becomes for me, if I set this sealed       fine. I bought a generator and was back          with the insurance company on the posi-
bottle of water here and I come back in          in my house the afternoon of the storm.          tion in the Johnson v. State Farm, which
four hours and it’s empty, does it have an       I was one of the fortunate ones. I know          is you’re not supposed to appraise cover-
opening? The adjusters take the approach         that there are people out there that had a       age issues. I don’t like appraisal. Appraisal,
they’ve got to see it with their eyes. My        lot of damage. And I know that there are         first of all, for the attorneys in the room,
position is if the shingles pulled back dur-     a lot of insurance companies and adjust-         it’s not arbitration. And that’s been kind
ing the storm and caused an opening but          ers out trying to do the right thing, pay        of the deal. It’s supposed to deal with the
then laid back down when the wind quits          the claims that they owe, take care of their     actual cost of a piece of sheet rock, not
blowing, there was an opening. That’s            customers, and provide the benefits the          whether it was damaged by the hurricane.
how the water got in. For your clients the       insureds secured or purchased through the        And so that’s been unfortunately in the
one thing that the insurance companies           insurance policy. But it is a contract. We       Johnson v. State Farm case, the plaintiff is
don’t want to deal with, is if you left your     can’t throw that contract out. As confusing      pushing the issue. I have seen appraisal
home, like I did, and you looked around          as some people may think it is, it’s not. It’s   used most often by the insurance compa-
your house and the ceiling hadn’t fallen in      a contract. And that’s what this country is      nies to try to block litigation. And so my
right before you left and the cracks and         founded upon, keeping your agreements.           position on those has been that most of
the water wasn’t there and you come back         LEAVITT: Another issue we’re watching            the time by the time they get to me, the

May 11, 2009                                                                                                                                  9
                                                 Special Advertising Supplement
 Insurance Law, Post-HurrIcane Ike
contract has been breached or I wouldn’t       to keep things moving so we can focus               and then an insurance company has got to
take the case.                                 to getting the claims paid that need to be          be able to protect itself against somebody that
DISIERE: The appraisal provision, inter-       paid, and litigating those where there’s a          says, “Okay. The damage is really this, but
estingly enough, there’s a well established    true dispute over coverage or causation.            I’m going to make it look like this?”
body of law going back to 1888 that talks      ANDROVETT: We hear the extremes.                    MOSTYN: If I had to deal with Pirtle to
about the appropriate use of the appraisal     Let’s see if we can find some middle ground.        cover my house in a hurricane, what is
clause and what’s not appropriate. The         Couple of just quick questions: Tom, you            hard about that?
clause itself provides that you can use the    made a very eloquent, persuasive argument           DISIERE: Caused by the hurricane or
provision whenever there is a dispute as       that the customer out there needs protection.       wasn’t caused by the hurricane?
to the amount of loss. As stated in the        These policies are obscurely written. They’re       PIRTLE: Did you see where Mostyn
Wells v. American States and other deci-       very hard to comprehend. But at some point          just wrote in an exclusion to this one-
sions, it’s not appropriate to use appraisal   that makes me a little uncomfortable that           line policy? It is not unreasonable and
whenever you’re dealing with causation or      I need a protector because I can’t read the         certainly not morally unreasonable for a
coverage issues. But here’s an interesting     policy myself and make decisions. David,            homeowner to understand the terms of
twist. In the Johnson decision that Chris      do you think that it’s reasonable that a cus-       the insurance policy. And what we just
mentioned, there was a dispute as to           tomer should be able to look at their policy        heard over here is, well, the law of the
what the cost to repair the roof would be.     and say, “I understand what’s covered and           state of Texas is, because it’s so biased for
State Farm estimated the cost would be         what’s not?”                                        the insurance companies, oh, the insured
$499.50 because it could be repaired. The      DISIERE: Well, interestingly, the law in            doesn’t have to understand. Well, that’s
homeowner says it’s going to cost $6,400       Texas is that a homeowner, once they have           not an argument they make in front of a
to replace my roof. Well, that’s if the roof   secured coverage, they’re deemed to know            jury. That’s an argument they make out-
is damaged and needs to be replaced. And       and are bound by the terms of their con-            side the presence of the jury in summary
following Ike we’ve seen minor damage          tract, whether they understand them or              judgment, which is wrong. I have business
where roofs can be easily repaired. And        not. The state of Texas, the Texas Depart-          owners that I represent that own business
we’ve seen areas where roofs need to be        ment of Insurance, regulates the policies.          interruption insurance. They needed help.
replaced. And there are efforts to submit      They approve or disapprove the policy               A lot of them don’t know what products
some of these disputes to appraisal. And       forms. They mandate language. And there             they’re getting. And the reason why the
when there are coverage issues, appraisal      are certainly insurance policies that are           things are 80 pages long is they have to
is inappropriate. Did other portions of a      challenging to read. But the law in Texas           write not what they will cover, but what
partially damaged roof sustain physical        is that a homeowner, once they have a               they won’t cover.
damage? Direct physical loss to covered        policy, they’re deemed to understand and            ANDROVETT: Well, what about the
property? And if there’s no damage, then       know the terms of the policy, and they’re           agent, should the agent be saying more to the
it’s not appropriate for appraisal. But let    bound by the terms of their contract.               customer about: “Now, I want you to look at
me go back. I mentioned creative solu-         MOSTYN: I think the question was more               this. Here’s the eight things that you need to
tions. The appraisal clause, if both sides     on a moral right or wrong. The question             know about this policy?”
are reserving the right to dispute cover-      becomes — and this is where we diverge.             MOSTYN: They should and not only
age to dispute causation, but want to find     And, at some point, the jury is going to say        that, they have an obligation to under the
out the costs of repair, appraisal may be      I’m going to go with the plaintiff. What            DTPA. If you’re in a position of superior
appropriate. I don’t think it’s appropri-      question do I need to answer? This state            knowledge and that information that you
ate in the Johnson case, but there may be      is the prime example of a state that’s been         have would affect the consumer’s decision,
instances where appraisal can at least limit   hijacked by insurance companies, mort-              you must inform them. The agents came to
those areas where there’s an “amount of        gage companies and bankers. So we’ve got            the legislature in 2005 and asked for pro-
loss” in dispute. Let’s say both agree the     the worst coverages, the worst policies,            tection, because the policies had gotten so
roof needs replacement. One says it is         the highest premiums, and a team of law-            crazy in 2003, they didn’t know what they
$5,000, the other says it’s $7,000. Well,      yers that defend these guys. And so abso-           were writing. Let me give you an example:
they disagree. They hire an umpire. They       lutely it doesn’t take 80 pages to say, “I’ll       I went to switch my homeowner’s coverage.
determine it is $6,000. There will be a        cover your house for a hurricane.” And it           And I called my independent agent. I said,
$6,000-dollar check that will be issued        shouldn’t take a contract.                          “Hey, I’d like to price this stuff out. Does
for the cost of repairs. That’s provided       PIRTLE: That won’t work with insurance              the policy you’re pricing cover wind driven
by the contract, the appraisal provision.      companies.                                          rain?” She said, “I don’t know.” I said,
There may be other areas and coverages         MOSTYN: We’ve got a deal? Tom, I’ll pay             “Well, send me the policy. This is what I
disputed, and certainly that might be bet-     you X dollars per year to cover my house            do.” She called me back and she said, “They
ter suited for litigation or mediation, dis-   unless it gets hit by a hurricane.                  won’t send you the policy unless I write it.
cussion, however you want to try to get        ANDROVETT: Isn’t that a little unrealis-            We had standard forms.” We had an A, a
it resolved. There are creative solutions.     tic? Isn’t it also that there are folks out there   B, and a C until 2003. Now, we’ve got 200
There are ways to get these things done,       who kind of know how to work the system             forms. File and use used to be preapproval,

10                                                                                                                              May 11, 2009
                                                  Special Advertising Supplement
                                                            Insurance Law, Post-HurrIcane Ike
approve it. Now it’s file and use it. And       case controls, the duties are twofold; one       so many in various aspects of my practice
they’re writing ridiculous things in these      to write, with few exceptions, to write the      going back to the days when you had
policies. One example: I had the commis-        requested coverage and let the insured           asbestosis and breast implants. So I think
sioner of insurance sitting in front of me at   know if they can’t. It’s that simple.            it helps the process and certainly keeps us
the table in front of the senate committee.     MOSTYN: The biggest problem is the               from having getting beat to death with
And all of a sudden I realized that this guy    agent probably doesn’t know what’s in the        discovery. And on the other side, it also
is going to answer my questions when I ask      policy. My agent didn’t know. She was talk-      helps the insurance companies from being
them right in front of the senators. And        ing to a lawyer so she said, “I don’t know.”     beat to death in discovery, too. I under-
so I began to question the commissioner         But if she says to the person, “Yeah, there’s    stand it’s being considered right now in
of insurance. And it became pretty clear        coverage” because she wants to make the          Harris County.
that some of these issues like: “How many       sale, she just made a misrepresentation          MOSTYN: My position — and I think
rate cases have you brought against com-        to the person. When there are 900,000            it came out of the Rita litigation — has
panies?” “Four.” “How have they gone?”          claims all of a sudden, these issues get         been pretty tied with the defense bar on
“Not so good.” So they’re allowed to set        flushed out, because there are suddenly a        this, actually, who have decided that we
their own rates, they’re allowed to write       severe number of these. There are also a         should consolidate for efficiency. Galves-
their own policies. And so a consumer has       lot of cases where the agent didn’t bother       ton has already consolidated. That order
no chance of knowing what’s in their policy     to forward the money and the check on,           was entered. Jefferson County has a con-
anymore. And if you’re a lawyer, you have       and the policy didn’t get written. Those         solidation order. Harris is going to have
no right telling somebody until you get         situations happen. And they’re highlighted       one. The consolidation I don’t appreciate
the policy what’s in there anymore. And         when we have this many claims.                   is the one multi-district litigation that was
so no one knows what they’ve got cover-         ANDROVETT: Chris, some lawsuits have             shifted to a judge in San Antonio. But
age for. We’ve got to go back to a standard     been filed. Is it fair to say that many more     that was a process that was done to, in my
form. We have a bill, by the way, by rep-       lawsuits are probably on the horizon?            opinion, to forum shop by the insurance
resentative Trey Martinez Fischer, who is       LEAVITT: I think a bunch are coming.             companies. Hopefully things like that will
the vice chair of insurance, who is also of     And an area where we can find common             be resolved. But consolidation inside the
counsel to our law firm, that says you must     ground is that some people, or a lot of          county, I’m for.
go back to a standard form. You can then        these people, have been put in impossible        DISIERE: The statutes, 541 under the
in clear language disclaim coverages you        situations. An example would be people           Texas Insurance Code, the unfair claims
don’t want to write and show them what          with TWIA claims who are being told by           practices act provide for tools and prompt
the discount is for that, and then in clear     the TWIA underwriting department that            mediation. Either party can compel medi-
language you have to offer them other cov-      they’re not going to get renewed for wind-       ation within the first 90 days after a suit
erage up front on the front of the sheet.       storm insurance until they get their certi-      is filed. There’s also the notice required to
And so what you’ve got here is if you’re        fication on the roof. And, the underwrit-        the insurance carrier, specific notice of the
an independent agent, you’re in trouble         ing department is saying we’re not going         nature of your complaint and the attorney
because a lot of times you told people they     to give you the TWIA certification unless        fees that you seek, that you’ve incurred
had windstorm coverage and they didn’t.         you get your roof replaced, just repairing       up to that date. Probably not a hundred
And the person thought they had it, and         is not enough. The TWIA claims depart-           thousand dollars, since you only wrote
now they’ve had a damaged home. There           ment is saying that you don’t need your          the letter, but if you send a demand let-
is a cause of action for that. They should      roof replaced. You can have it repaired,         ter, there’s a way to work through it. And
have disclosed that it’s not there. But we      and we’re not going to give you enough           I like the approach by Judge Criss in the
shouldn’t have to shift this burden to the      money to have the roof replaced. So              Galveston courts. But I have a few con-
agent. We should go back to some com-           they’re stuck in this position where it’s lose   cerns, and I perceive there may be some
mon sense. This isn’t reform. This is just a    little or lose big. And it’s really a problem,   traps in there that are going to have to
common sense solution to this.                  and it’s something that I think we’re going      be litigated in the future. For example,
DISIERE: I hate to keep referring back          to be dealing with a lot more, especially        the Court talks about within a hundred
to case law, but there is a case that deter-    with hurricane season on the horizon.            days you can do something to mediate
mines if an agent is sued. That’s the May       ANDROVETT: Now, the courts in these              the case, abatement of the case. But the
case. It says an agent’s duties in Texas are    affected counties — Galveston, Harris,           order specifically says that the statutory
essentially twofold, to place the requested     Jefferson — they’ve put into place some          deadlines and other items are not abated.
coverage if they can, and if they can’t,        streamlined measures to move the litiga-         So what happens if you fail to seek your
to let the insured know. Those are their        tion along. What’s your take on those mea-       abatement to get proper notice under
duties. Now some agents may take on             sures to streamline the litigation and what      the DTPA or insurance code that you’re
more than that. They may try to figure          substantive impact is it likely to have in the   entitled to under those statutes, proper
it out and make some representations or         litigation?                                      specific notice of the claims being made?
something to that extent. That can hap-         PIRTLE: Well, I’m a guy that likes con-          Do you waive the abatement? I’m not
pen. But, again, under Texas law, the May       solidation because I’ve been involved with       sure. You’re abated technically. Can you

May 11, 2009                                                                                                                              11
                                                  Special Advertising Supplement
  Insurance Law, Post-HurrIcane Ike
file a motion for abatement? Well, per-         reason it’s been entered is I think it pro-       have FEMA. I share the view that insur-
haps, but the order itself says that those      vides a fair process to get it to mediation.      ance companies are trying to abide by the
statutory deadlines continue to run. So I       We have some good news here. We came              terms of the contract and take care of their
would advise any defense attorneys, insur-      out of Rita, and we weren’t done with the         customers to keep them satisfied and pro-
ance carriers and others out there to read      Rita litigation. And so all the litigation        vide the coverages they have purchased.
those provisions carefully and be cautious      teams were still together on those carriers.      And they’ll continue to do that regardless
as you proceed. And still if you intend to      And so when Rita started, we thought the          of whether it’s a state mandated policy or
use the statutory defenses and solutions        war was on. For the first case we took 36         if they’re able to write their own. They just
you should make sure you preserve them.         depositions with State Farm. So that peace        need to be able to charge a fair premium
Again, these are creative solutions. Bring      process, it seems to have kind of carried on      for the coverage afforded.
these cases to mediation and get resolved       into Ike. And we will see, I’m sure. I don’t      PIRTLE: Well, maybe they ought to just
what can be resolved and litigate what          know how long the peaceful marriage will          nationalize them all, and everybody have
needs to be litigated.                          be. But right now the courts are trying to        universal coverage. That seems to be the
MOSTYN: I don’t suppose to speak for            set up ways to deal with these cases in an        trend these days.
Judge Criss, but here’s what would be an        expedited manner. Judge Criss is particu-         MOSTYN: The issue is always going to
appropriate response, David. All carriers’      larly interested in it because she managed        be: What is a fair premium? There was a
counsel were invited to several meetings        all the BP litigation, and she’s proud of the     lot of pressure on the insurance companies
in Galveston where this was hashed out.         record that she has on that.                      in the 2000s and in the ‘90s. They took
I didn’t see you at the meetings. I did see     LEAVITT: Anything that can bring our              the money they put in reserves and they
representatives from the clients that you       clients’ claims to a resolution the quickest      put it in bonds and they made money on
represent at the meetings. I specifically       and for the highest value is something we         it. It did well. The loss ratio is now in the
asked each attorney that represented each       approve of. Tony Buzbee was on the steer-         high 40s. So loss ratio is what they pay
carrier to state their name and the carrier     ing committee for the consolidation of the        out for every premium dollar taken in.
they represented on the record and say          BP Refinery Explosion cases in Texas City         You’ve got to understand they take also
whether or not they agreed to the order.        in Judge Criss’ court, and The Buzbee Law         the reserves and invest it in market and
So if one of the clients would like to go       Firm achieved very strong results for our         bonds. The market has gone down, but
back now and litigate a provision of Judge      clients in that process.                          they’re about 80 percent in bonds. They’re
Criss’s order, that is probably not a court     ANDROVETT: Now, Steve, you mentioned              making that money on the side. And their
you’d like to see again.                        this before, but by no means do I expect you      loss rate is 46 percent of their reinsuring
PIRTLE: I am familiar with Judge Criss,         to be the only one that answers this question.    moneys they lost. And that’s fine. You’re in
and she runs a pretty tight ship. And you       But looking forward in the legislative process,   it for profit. I’m for profit. But it’s out of
necessarily have to give up some things         can we reasonably expect any tinkering with       control. This state wants to go the oppo-
on both sides, by the way, when litigation      the insurance laws as they relate to hurricane    site direction from the rest of the coun-
is consolidated for expediency. You don’t       and disaster coverage, coming out of Ike.         try for some reason. But this is one of the
give up due process, you don’t give up          MOSTYN: You’re going to see some tin-             issues. And until we decide to address it,
your rights, but you’ve got to give up some     kering with TWIA depending on funding.            we’re going to suffer in this state. We’re
things and statutory notice may be one of       The coverages aren’t going to get changed.        going to suffer because our insurance on
the things. I know that in other consolida-     And the way the policies are being done           the coast is going to become so expensive
tions that hadn’t been really a problem.        probably will not get changed this time.          people are going to not come here when
MOSTYN: My point is that all of the             The public isn’t angry enough about it            they retire from up north. They’re going to
major carriers were there with counsel,         yet. There are too many damn lobbyists            go to Mississippi and Alabama and Flor-
and they all agreed to the order. So I think    in Austin.                                        ida. I’ve got a buddy of mine who is the
you’re going to have a hard time undoing        DISIERE: Insurance carriers are in the            biggest developer on the coast down there,
the effort.                                     risk business. There are contracts. There         and he’s about to leave. And so you’ve got
DISIERE: There’s not an effort to undo          are rules of law that help them understand        to decide are we going with insurance
it. It’s simply advice that if you want to be   what those risks are. Company under-              companies and banks and mortgage lend-
sure that you’ve protected statutory rights     writers assess a proper premium for that          ers or everybody else. And that’s what the
and defenses, you probably need to file         risk. If the insuring public in Texas wants       decision is going to have to be made. But
something to be sure that you’ve done so.       to cover everything — flood, hurricane,           those boys dug in. You go over there to the
MOSTYN: The only reason I’m touchy              natural, nuclear explosion, whatever it           legislature, and I swear to God, if you had
on it is that my firm spent probably a          may be — if we were to cover it, that’s           to shake the pockets of the lobbyists there
hundred hours preparing the agreement           fine. Insurance companies will do that. All       would be 4 million dollars right there on
and every time we’d get it scheduled for        they ask is that they’re able to charge a fair    the ground. They go eat dinner with these
Friday, somebody would object on Thurs-         premium for the coverage afforded by the          legislators every night, and they go and
day, and we’d all have to go back down          contract. And I think there’s a reason why        give them lots of money, and they forget
there and go around and around. And the         we have TWIA. There are reasons why we            the people they represent. They forgot

12                                                                                                                            May 11, 2009
                                                     Special Advertising Supplement
                                                               Insurance Law, Post-HurrIcane Ike
about the business owners and they for-            estimates are just that, they’re estimates.      got to have the right people looking at it.
got about the people. Until we get mad as          Supplements can be written. And some-            And that’s still going on right now. I’ll give
hell and take it back, they’re going to keep       times there are things missed or there’s         you a great example. You’ve got a building
doing it. The sad thing is other states have       hidden damage or additional damage               that loses electricity. Maybe the business is
figured this out already.                          that comes up. It goes back to basic good        a laboratory. Their policy doesn’t cover the
PIRTLE: We let them, or at least the peo-          communication between a customer and             damage to the laboratory if the power loss
ple who are supposed to be watching the            the company that they’re dealing with.           is because of damage to the building. And
gate let this happen to some extent. And           Sometimes there’s a breakdown in the             so there’s a lot of things you’ve got to sort
we’re obligated, I believe, to change it.          communication. Sometimes you have                out, and you’ve just got to stay on top of it.
And it’s going to take time, and it’s going        to work to make sure that the insureds’          The other thing is for the individual hom-
to take money.                                     points are getting across. The demand let-       eowners and stuff, documentation — in
ANDROVETT: With the knowledge that                 ter that gives proper notice that you failed     addition to the experts — and if possible
maybe 15 years ago people would look at            to pay for the roof. This is an area where       pictures will help these guys pay. It may
Texas and their spin was the state has really      we think coverage should be provided.            be a little bit late for that, but if you’ve got
let the trial lawyers just take control and cor-   Please pay this within the next 60 days,         pictures of your loss of your contents, it
porations are not going to come to Texas. My       otherwise, we’ll have to file suit. That’s all   helps. And it also helps your adjusters.
point is these arguments are very compelling       part of that. And there’s that window of         LEAVITT: My advice to the insureds,
and persuasive, but I think I’ve heard them        opportunity provided by the statutes and         as he mentioned earlier, is if the insur-
before on the other side.                          appraisal provisions where appropriate.          ers haven’t done something in six, seven
MOSTYN: Sure. And what happens is                  All of these things that are available before    months, the odds are, it’s not going to
the rubber band snaps too far the other            we get these things locked up in the Court       happen. And looking at Katrina as an
way.                                               system and the battle lines are drawn.           example, State Farm turned potentially
ANDROVETT: In the last couple of min-              They may be drawn some day. And we’re            a 40-billion-dollar exposure into 12 bil-
utes we have, what I’m really striving for         going to have disagreements and those            lion dollars by delaying people for three
is an understanding and perhaps you’ll tell        things will have to be resolved by a jury of     years and causing people to have to settle.
me that the horse has already run out of the       12 people. And I respect that. I trust our       People couldn’t hold out forever when
barn, but for the insured, be it a homeowner       court system and our firm is very comfort-       they’re dealing with their homes. And they
— and we haven’t had a chance really to talk       able in the courtroom. But before we get         earned 8 billion dollars in interest on the
about this much — or the business that is          there, there’s open communication and            reserves in the process. So if the insurer
insured, is there some advice to help them get     good discussions that can bring things to        hasn’t done the right thing, you need to
their claim paid or get their coverage accepted    an amicable conclusion.                          start speaking with somebody.
to move these claims speedily? David, maybe        MOSTYN: My advice would be: You                  ANDROVETT: Well, David, I told Chris
it’s unfair to start with you, but I’m wonder-     need to get someone who is knowledge-            he could have the last word, but as our sole
ing if maybe as a defense you’ve talked with       able to help these guys to the extent that       defense representative, we’ll suspend the rules
your insurer about: “Look, when they come          they can help you with your carrier. Get         and give you the last, last word.
to us this way, that is a no-brainer. We can       someone who is an expert that can get a          DISIERE: It would be the same advice I
pay this. It’s when they come to us this way       proper estimate written and to bundle it         give my clients. Let’s do what makes sense.
that we can’t.” I’m trying to figure out what      up in a way that’s understandable. The dif-      If it’s something that can be resolved, let’s
that looks like.                                   ference is that I’ve never seen them be very     work together to get it resolved. If it’s
DISIERE: Well, I’m already involved in a           willing to pay my fees and other expenses        something that needs to be litigated, let’s
lot of matters working with insureds and           and interest unless I had them in a lawsuit.     work together and litigate it. But it’s going
their counsel. I’m working with Steve’s            And so we go from talking about resolv-          to be interesting going down the road.
office on a matter. We’re working on some          ing the claim to resolving the lawsuit. And
creative solutions. Before we get too far          I’ve never sent David a notice letter that
down the road, before suit is filed, my rec-       I didn’t get one back saying it wasn’t suf-
ommendation is to get someone out there            ficient. And so where is George? George               For more information on
to re-inspect the property. We’ll walk             just started and he said, “Do we respond to
with your contractors, their contractors           these?” I said, “No, George. Don’t worry                 upcoming events and
and figure out where the differences lie           about that. I’ve never written one right in
before we get too far down the road and            ten years. I’ve done a couple of thousand            sponsorship opportunities,
the claim gets locked up in litigation, the        of them, and I can’t figure it out.”
adjusters are pulled off the file because it’s     PIRTLE: I guess it’s twofold. I’m going to
reassigned to someone else. Let’s — and            start with the business owner, which I deal
                                                                                                           contact Deni Ruddy at
I like Judge Criss’s approach — get out            with. There’s a great deal to do and there’s
there and figure out where the differences         a little difference in the business policies          800-456-5484, ext. 766.
are and see if it can be resolved. Initial         for business interruption insurance. You’ve

May 11, 2009                                                                                                                                    13

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