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Texas Wind Insurance Association Receives Protection From Lawsuits by Policy Holders

According to reports, the Texas legislature has passed a new law which will restrict lawsuits against the Texas Windstorm Insurance Association (TWIA). Texas Governor Rick Perry signed the bill into law on July 1, 2011. Supporters of the law say it will work to reduce the burden of litigation on the TWIA which is ultimately paid by the taxpayers. However, critics of the law say it will only make it much harder for policy holders to hold the association, which has shown signs of corruption in the past, legally accountable to its policy holders.

The TWIA provides property and business windstorm insurance coverage in 14 Texas coastal counties and part of Harris County. Reportedly, TWIA insures nearly 244,000 homes and businesses, as private insurance companies have recently reduced or eliminated windstorm coverage along the Texas gulf coast. After Hurricane Ike, the TWIA was sued by thousands of policy holders for failure to pay, delays, and other bad faith insurance claims arising from their windstorm damages. Sources say the flood of litigation led to several state investigations of TWIA’s claims handling and underwriting practices as well as a fraud investigation by the Travis County district attorney.

According to reports by supporters of this law, the stated purpose of the new law is to reduce the amount a plaintiff who sues the association may win in damages, as the TWIA has been a frequent target of lawsuits due to their past conduct. Sources say the bill allows policy holders to sue for their claims and collect double damages, but only if they meet strict new standards to prove that TWIA intentionally denied a legitimate claim. Reportedly, the law also requires every claimant to enter into mediation negotiations to resolve the dispute before being allowed to pursue recovery in court. Critics state these two new burdens are high hurdles as they make it financially infeasible to pursue a lawsuit against TWIA; and therefore it will make it practically impossible to hold TWIA accountable for the same type of conduct it committed after Hurricane Ike.

Further, sources say the last resort storm insurer proposed a 5 percent rate increase during a recent meeting in Galveston, Texas. Reportedly, the TWIA association board shared its intent to continue its long term strategy of implementing 5 percent increases every year until it feels rates are adequate to cover potential claims.

Sources say the TWIA is allowed to implement the 5 percent annual increases without prior approval from the state insurance commissioner. However, the state can disapprove any rate increase, even after its implementation. According to reports, the only board member to vote against the increase did so because he felt a 10 percent increase would be more efficient.

Earlier this year the state insurance commissioner took over the administration of the agency. The Texas Insurance commissioner states it still has not released the TWIA from oversight due to concerns with culture, staffing and pending litigation. The TWIA board of the association has recently voted to fire, with cause, former general manager Jim Oliver.