Where most people only see ice the size of golf balls falling from the sky, trial lawyers supposedly perceive golden nuggets raining down from the heavens, initiating tens of thousands of hailstorm lawsuits in just the past few years alone.
And unless plaintiffs’ attorneys are restrained from drumming up fraudulent mass litigation after every hailstorm, Texans will see their coverage melt away for good, much like gulf coast residents did with their private windstorm insurance, according to one industry expert.
“Mark my words,” said Steven Badger, a commercial insurance attorney for the Dallas law firm Zelle Hofmann. “Without a remedy, we can soon expect to see THIA – Texas Hailstorm Insurance Association – as the private insurance industry will stop writing hail coverage as well.”
Following Hurricane Celia in 1970, private insurers pulled out due to dramatic losses, leading to the creation of the Texas Windstorm Insurance Association, the last resort insurer for 14 coastal counties.
When Hurricane Ike made landfall in 2008, tens of thousands of lawsuits emerged in the storm’s wake – a good portion of which were brought by Houston attorney Steve Mostyn, who reaped hundreds of millions in fees suing TWIA.
While Badger says he’s “not critical” of Mostyn’s Ike work, he does believe “crooks” and “frauds” alike are all trying to replicate the “Mostyn model” after every hailstorm strike, a new phenomenon that will lead to higher insurance premiums and increased deductibles in his opinion.
“We saw the beginnings of (mass storm litigation) with Hurricane Ike,” Badger said. “And once those claims and lawsuits were all resolved, the contractors, public adjusters and lawyers all needed something new to keep the coffers full. Hail was the perfect solution … as while hurricanes come along only once in a while, we have multiple hail events every year in Texas.”
Following the devastating spring hailstorms that occurred in Hidalgo County in 2012, homeowners filed a collective 30,000 insurance claims – 22 percent of which morphed into lawsuits, a figure that is still climbing, according to data supplied by Texans for Lawsuit Reform.
On average, 2 percent of insurance claims become lawsuits.
Around 80 percent of the Hidalgo lawsuits were filed after the initial claim was paid and only 24 consumer complaints were filed with the Texas Department of Insurance, showing, according to TLR, that there were few legitimate complaints from property owners.
“Hailstorm lawsuits are the most serious lawsuit abuse in Texas today and enacting hailstorm lawsuit reform is a top priority for Texans who understand the importance of keeping the state’s economy strong,” said Sherry Sylvester, a TLR spokesperson.
“Reforms are opposed by storm-chasing trial lawyers, including Steve Mostyn, who use billboards and mass advertising to relentlessly troll for clients.”
Mostyn refuses to speak with The Record.
Sylvester says consumers already are beginning to pay for hailstorm lawsuit abuse by experiencing reduced access to homeowners insurance, higher-priced premiums and deductibles.
All in all, Badger estimates that 20,000 hailstorm lawsuits have been filed across Texas in the past three years.
Previously, the largest and most expensive hail event in Texas was in Fort Worth in 1995, resulting in thousands of claims but only a handful of lawsuits, he added.
“Until recently, we have never had more than one or two hail lawsuits in our office,” said Badger. “That is because historically the Texas property insurance industry has seen litigation rates of only 1-2 percent. This means that 98 out of every 100 claims were resolved amicably. After Hurricane Ike, the litigation rate jumped to 6 percent, but that pales in comparison to what we are seeing now.”
Badger, who reviews new lawsuit listings for counties where large hail has occurred, says dozens of new lawsuits are filed each week in Dallas, Tarrant, Denton, Webb, Potter, Randall, and other counties.
“Many are surprised to learn that I am a liberal Democrat plaintiff’s lawyer who has always worked on a contingency fee basis,” Badger said. “I respect the right of an aggrieved party to seek redress in the courts, but that is not what most of these hail lawsuits are about.
"They are about pure human greed, plain and simple.”
State lawmakers attempted to address the hailstorm issues this past legislative cycle, when Sen. Larry Taylor, R-Friendswood, filed Senate Bill 1628 in March.
Badger said Taylor had approached him seeking input on common abuses in the claims and litigation process, adding that the bill the senator drafted offered solutions to specific abuse, such as:
- Suing insurance companies without prior notification that there was even a dispute as to the claim payment and an opportunity to inspect the alleged additional damage;
- Suing individual adjusters just to keep the lawsuit in a favorable forum; and
- Public adjusters acting solely as case runners for lawyers.
Nevertheless, SB 1628 met with heavy resistance and died.
At the time, factions like Texas Watch, a self-proclaimed consumer protection group supported by trial lawyers, argued the bill gave to the industry and took from policyholders by incentivizing lowball settlements and creating “gotcha” provisions allowing insurers to deny claims.
“SB1628 would not have denied anyone with a wrongly denied claim from filing a lawsuit and recovering extra contractual penalties when an insurance company wrongfully denied a claim without a legitimate basis,” said Badger. “Unfortunately, at the end of the day, Texas politics got in the way of the legislation passing.”
To remedy the hailstorm issue, Badger says the insurance industry needs to be less reactive and more proactive.
“The industry only takes steps to address a risk exposure when it is being abused,” said Badger. “Remember the hysteria over mold claims? That all ended when the industry changed their policies and eliminated mold coverage. All of a sudden no one had mold in their homes anymore. The outcome here is predictable.”
Badger says he and his firm are already working with insurance clients to change policies.
“Deductibles are increasing and the scope of coverage is being restricted or even in some cases eliminated,” said Badger.
“We are also seeing some insurers completely withdrawing from certain markets, particularly down in the valley. They simply cannot afford to assume the litigation risk, particularly the local Texas insurers who cannot spread the risk amongst a nationwide policyholder base.”
Three things need to happen, in Badger’s opinion, to remedy the issue before insurers pull up stake.
First, the State Bar of Texas and Texas Department of Insurance must step in and bring an end to illegal barratry and other fraudulent conduct.
Barratry, more commonly referred to as ambulance chasing, is illegal in Texas and applies to lawyers who inappropriately solicit clients for profit.
Second, the legislature must make targeted changes to the law to provide the insurance companies with a level playing field in the litigation process.
And third, insurance companies must not be afraid to step forward and take aggressive action in response to bad conduct, including reporting illegal conduct and vigorously fighting meritless claims.
“Without a combination of all three, the predictable end is the elimination of hail coverage in Texas,” Badger said. “Remember, insurance companies are not benevolent societies. They are private businesses. They operate to earn a profit. They cannot be faulted for refusing to accept unprofitable risks.”
Badger says he has a dozen lawyers in his office doing nothing but hail lawsuits, and that his own practice has evolved to deal not with typical lawsuits, but finding solutions to the crisis.
And if he succeeds, Badger says he’s “happy” to work himself out of a job.
“When I was a young lawyer, an older partner told me: ‘Badger, any lawyer can litigate a lawsuit - that’s what we do, but only a few lawyers can find solutions to their client’s problems giving rise to the lawsuits,’” said Badger.
“That really resonated with me. And that’s why I spend most of my time on unpaid work – giving seminars educating the industry, speaking to various groups about the impact of the crisis, assisting with finding legislative solutions, and a whole lot of other non-lawsuit related work.”
Prior to becoming involved with the hailstorm issue, Badger led the $5 billion subrogation action arising from the 911 Terrorist Attack. The litigation was recently settled for $1.2 billion, reportedly the largest subrogation recovery ever obtained by the insurance industry.