House Tentatively Passes Windstorm Insurance Bill

State Rep. John Smithee (c), R-Amarillo, listens to Texas Gov. Rick Perry (r) on the House floor on May 28, 2011.
State Rep. John Smithee (c), R-Amarillo, listens to Texas Gov. Rick Perry (r) on the House floor on May 28, 2011.

The Texas House today approved a measure meant to bolster the Texas Windstorm Insurance Association, the state's largest provider of hurricane insurance. It's a bill that has pitted Republican Gov. Rick Perry and trial lawyer Steve Mostyn, the largest Democratic donor in Texas, against one another, and it's a key reason that lawmakers are in a special legislative session.

Negotiations over lawsuit restrictions in the bill came to a boiling point during the regular legislative session when Perry and Mostyn staked out opposite sides of the issue. Perry and many members of the GOP-dominated House want to reduce the amount of damages homeowners and their lawyers can recover if they sue TWIA over the agency's failure to cover losses. Currently, homeowners can recover up to three times the cost of actual damages if TWIA officials knowingly do wrong. Under the House bill, homeowners could only recover actual damages, court costs and some attorneys fees. One provision of the bill also would eliminate current law that adds damages to claims at the rate of 18 percent per year.

State Rep. John Smithee, R-Amarillo, said changes in the legal process for windstorm claims are needed to keep TWIA solvent. The quasi-governmental insurer of last resort currently has about about $100 million in cash and the capability to issue $2.5 billion in bonds, plus about $636 million in reinsurance. TWIA is still paying for claims from Hurricane Ike, which blasted ashore in Houston and Galveston in 2008. The storm resulted in claims from nearly 93,000 people that totaled about $1.9 billion. “We just don’t have enough money to go around," Smithee said.

And when TWIA can't cover its costs, Smithee said, then insurance ratepayers across the state could see their premiums rise, because the association's funds come from a pool of private property and casualty insurers in Texas. "We're just trying to do the best we can do for as many people as we can," Smithee said. TWIA, he said, has not awarded any homeowners triple damages, but the threat of having to do so has forced the agency to agree to much higher settlements than are justified in some cases.

Opponents of the bill, including Mostyn, argue that TWIA is not in financial trouble and that without the prospect of paying major judgments to homeowners, the agency will not have the incentive to act in good faith. State Rep. Pete Gallego, D-Alpine, said the measure would make TWIA unaccountable when it acts in bad faith — which it has a history of doing — and does not provide the coverage that homeowners on the coast pay for. "They're protected even from their own decisions, and I think that's fundamentally unfair," Gallego said.

The bill faces more opposition in the Senate, where coastal legislators have expressed displeasure with the House approach to dealing with TWIA. During the regular legislative session, the Senate approved a bill that would have allowed homeowners to recover up to twice the cost of actual damages. At a hearing Tuesday on the TWIA measure, state Sen. John Carona, R-Dallas, said the issue has become one of the most complex of the legislative session. Carona told Mostyn, who testified at the hearing, that trial lawyers should not expect to get a compromise as generous as the one the Senate approved earlier this year. Carona said Perry is determined not to allow double damages, and if lawmakers don't approve a TWIA bill in this special session, the governor will call them back again. "I reminded the parties over and over … that there was a risk if we didn’t get it done in regular session that you wouldn’t see as good of a bill in a special session," Carona said. "It's naïve to believe you'll get the same results."

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