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TWIA paying claims - Some Windstorm policyholders being paid after long delay

James Shannon | Mid & South County Editor
Posted on January 8, 2010
THE EXAMINER - Click here to view original PDF

Photo by James Shannon TWIA chief Jim Oliver, left, shown during a March 13 protest in Austin, said the payments being made now are not tied to the ongoing legal battle.

More than 15 months after Hurricane Ike inflicted large-scale devastation across Southeast Texas, previously contested claims are being settled by the Texas Windstorm Insurance Association (TWIA), with payments in many cases far exceeding earlier offers that residents considered woefully inadequate.

The Examiner has confirmed that some policyholders – including many represented by attorneys and others who dealt with TWIA directly – suddenly began to receive substantial offers after more than a year during which no such offers were forthcoming.

Alex Winslow, executive director of the consumer advocacy group Texas Watch, welcomed news of the reported payments and said it’s about time.

“It’s unfortunate that it took this long and people had to go to the lengths of filing lawsuits to force TWIA to do what they should have done in the first place,” said Winslow.

“That’s the problem. These folks bought insurance policies expecting they would be paid when they needed it. Instead of doing that, TWIA dragged it out, made them go to court. Until they had their backs against the wall, TWIA continued to deny those claims. Finally, they are beginning to see the light,” he added.

The first crack in TWIA’s armor came in August 2009, when a formal complaint filed by the Texas Department of Insurance (TDI) accused TWIA of “unfair or deceptive” practices in its handling of claims arising from Hurricane Ike. A certified letter to TWIA director Jim Oliver set a hearing on the matter before an administrative law judge on Dec. 1, 2009. That never happened.

“They were supposed to have an administrative hearing on that last month. At the last minute it ended up getting postponed until May,” said Winslow. “Whenever TDI does something like that, it gets my helicopters flying. What’s going on here? Why didn’t they have that hearing? Is there a good reason to push it back?”

The TDI letter said the assertion that TWIA only pays claims for “direct, physical loss from windstorm” placed the burden on the policyholder to prove that roof damage - including loose or unattached shingles - was caused by the storm in question.

In the months since Hurricane Ike, there have been numerous complaints from policyholders about different aspects of TWIA’s claims process. Although the formal TDI complaint focuses on the rather narrow issue of unattached shingles, more than one source indicated the current enforcement action could represent “just the tip of the iceberg” in terms of grievances with TWIA that are attracting official attention.
The more proximate cause of loosened purse strings at TWIA might be a discovery motion signed by the judge in a lawsuit filed by attorney Steve Mostyn on behalf of a Galveston County policyholder.

Internal documents and e-mails obtained in the case suggest TWIA might have acted improperly in contesting an engineering report from an outside firm hired to do damage evaluations.

In one e-mail exchange, TWIA management discusses an engineering report submitted by an independent firm the insurer hired to help determine the extent of damage on a home. The head of catastrophe claims for TWIA wrote that while the agency could not tell the engineer what his opinion should be, TWIA could simply use another engineering firm.

The actions documented in this correspondence track closely with anecdotal reports gathered by The Examiner from policyholders whose initial damages reported by adjusters assigned by TWIA were subsequently reduced – often by a significant margin – when a different adjuster was assigned.

Mostyn said the e-mails clearly show TWIA threatened to cut off work from those who disagree with the agency, and hiring only engineers who agree with TWIA meant the outcome of the report is predetermined, which is illegal.

Whatever the cause, the reported response by some TWIA operatives handling policyholder requests has undergone an apparent sea change in recent weeks.

One couple who live in Beaumont also have a beach house on the Bolivar Peninsula. They sustained heavy damage at both residences during Hurricane Ike.

The original TWIA payment on the cabin in Bolivar was for the same 11.3 percent offered to many peninsula residents. When the couple heard rumors in December 2009 that TWIA was settling claims, they called the agency and said they wanted more money.

The employee who took the call said he was only authorized to offer an additional $10,000. The couple countered with $12,500 and shortly thereafter received a check for $11,000.

Emboldened by their unexpected success with the beach house claim, the couple decided to press their separate claim on the Beaumont house. Although they had received an initial payment of $2,500 and an additional $38,000 for a claim totaling more than $50,000, TWIA had subtracted the depreciation value of the home from the settlement. In December 2009, the couple was able to recover that $7,500 for depreciation after some minor wrangling over receipts.

As for Mostyn, his Mostyn Law Firm represents more than 600 clients with cases against TWIA including those signed up by his firm and others he is representing on referrals from other attorneys. When reached via phone on Jan. 5, 2010, Mostyn said he was in Austin meeting with TWIA about settling these cases.

“We’ve gone from the fighting and litigating mode to the resolution mode. That will take time in evaluating each claim, but the process will greatly speed up,” he said, further evidence of the aforementioned sea change.

Just a month before, in response to the revelations in the TWIA documents and e-mails, Jim Oliver sent a detailed letter to members of the Legislative Oversight Committee. The letter placed much of the blame on plaintiffs’ lawyers in general and Steve Mostyn in particular, claiming Mostyn demanded $86 million in legal fees to settle those 315 cases.

“We’re required by law to give a notice of what we think the damages will be,” said Mostyn. “At the time we were writing that, TWIA was fighting us tooth and nail on everything we had, so there were 12 lawyers working on this constantly.”

Mostyn said the $86 million figure would only become operative if his firm proceeded to jury trials in each of the 315 cases, but stressed his belief that is not where the leverage to start settling cases originated.

“Instead of responding to the petitions and filing an answering lawsuit, (TWIA) wrote a letter to the legislators. When TWIA wrote to those legislators saying ‘We didn’t do it; it’s all wrong,’ they put it firmly in the lap of the Legislative Oversight Committee, and I believe the Legislative Oversight Committee should and will look into it,” said Mostyn.

Mostyn said he thinks it was the order signed by Judge Sharon Criss in Galveston ordering Oliver and other TWIA officials to give depositions lasting up to five days long beginning Feb. 15 that prompted the settlement discussions.

“It wasn’t real smart for James Oliver to write a nine-page, single-spaced letter saying everything is false when he’s required to sit for his deposition for five days beginning Feb. 15,” said Mostyn. “They asked me if I would consider not doing the depos. I said I would consider it but only if you start settling these cases.”

Mostyn didn’t mince words when predicting what these depositions would reveal.

“The insurance companies – and these guys in particular – are the worst actors I’ve ever seen,” he said. “The more we got into the e-mails and seeing what they had done, it was clear what I originally stated – there was a pattern and practice of intentionally underpaying these claims.”

At press time, The Examiner received a statement from Jim Oliver, TWIA general manager, in response to questions submitted to his public relations representative.

“Ever since Ike hit, we’ve reevaluated cases virtually every day and reopened thousands of claims for policyholders who have presented us with valid reasons that their original offers were too low. This often happens when a contractor actually begins work on a particular property and finds previously undiscovered damage. Anyone who feels they have a valid request for us to reevaluate a claim should contact us. If supplemental payment is warranted, we definitely want to make sure that our policyholder receives a fair amount,” said Oliver.

He also replied to some of the other allegations uncovered in the reporting of this story.

“The lawsuits filed against TWIA are certainly no secret. Our lawyers are working in good faith with the plaintiffs’ attorneys to ensure that policyholders who deserve supplemental payments get paid. Deposition schedules and other aspects of the legal process are not tied to the supplemental payments you’re apparently hearing about, nor has there been any particular ‘flurry’ of supplements,” he concluded.

However these disputes ultimately play out, it is clear that the Texas Windstorm Insurance Association has been damaged, at least in public perception.

“They certainly are wounded, and it all stems from the decisions and behavior of the people that run TWIA,” said Winslow of Texas Watch. “If they had paid these claims on time and in full, they wouldn’t have these problems. If they had treated their customers with respect, they wouldn’t have these problems. Instead they chose to deliberately deny and underpay claims – and did so in an underhanded way.”

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