By Allan 'Bud' Shivers Jr., Special Contributor
In 2008, the Texas Windstorm Insurance Association (TWIA) was hit by three hurricanes -- Dolly, Ike and personal injury trial lawyers.
Claims arising out of the hurricanes have resulted in millions of dollars in legal fees paid by TWIA to plaintiff lawyers. Texas taxpayers could be on the hook for part of these inflated legal fees from Dolly and Ike because state tax credits must cover the shortfall if TWIA pays out more than it collects in premiums, assessments and reinsurance.
TWIA was created by the State of Texas to be an insurer of last resort for wind and hail damage for homeowners on the Texas Gulf Coast. It does not cover losses due to water damage.
Hurricane Dolly resulted in 8,300 claims and Hurricane Ike, an enormous storm, has resulted in 92,000 claims so far. Almost all of these claims (94 percent) were settled without litigation, but the remaining 6 percent has produced thousands of lawsuits and millions of dollars in fees to approximately 60 lawyers who did very little legal work.
They simply filled out cookie-cutter legal pleadings, demanded payment from TWIA and pocketed the money. Very little discovery took place and no plaintiffs or plaintiff experts were deposed.
Although TWIA is a government-created body subject to the Texas Public Information Act, the plaintiffs' lawyers obtained a restraining order from the Galveston judge who had presided over the settlement, preventing TWIA from releasing information about TWIA's settlement of the lawsuits including information about the amount of attorneys' fees TWIA paid. The public finally found out how much the lawyers were making when the Attorney General's office ruled that the information had to be disclosed.
Now that we know the fees, it's easy to see why the trial lawyers fought to keep the information secret. Of the $114.6 million that TWIA paid to settle individual slab claims (where only the structure's foundation remained after the storm), $70.1 million went to 1,306 policyholders and $44.5 million went to plaintiffs' lawyers.
These outrageous fees were calculated by using a formula that apparently resulted in an astonishing 66.66 percent fee to the lawyers – for example, a fee of $100,000 on a $150,000 claim.
In addition to the individual lawsuits, TWIA settled a class action on slab claims, and a few trial lawyers made an additional $11.5 million in fees (fortunately, Texas law limits attorneys' fees in class actions). Again, the attorneys did little legal work beyond filing basic pleadings in the class action.
TWIA's former general manager acknowledged that the slab payouts were not justified based on the facts, the science, the insurance policies, or the law, but he said the excessive settlements were necessary due to the cost and risk of defending and litigating all of the claims in the plaintiffs' lawyers' chosen venue.
It was lawsuits and fear of more lawsuits that caused TWIA's payouts on these claims to skyrocket. TWIA has already exceeded its funding threshold and more claims are still coming in. The very solvency of TWIA is now in question and taxpayers could be stuck with future claims.
To protect coastal homeowners and all Texas taxpayers, the Legislature must stop trial lawyers from exploiting TWIA. Attorneys' fees in TWIA cases should be limited to reasonable and necessary charges.
An alternative to litigation, such as an independent appraisal review panel or arbitration, would prevent the huge transactional costs imposed by entrepreneurial litigation by advertising lawyers. All TWIA claims should be filed within a year of a storm and a firm limitations period should be established.
In these challenging economic times, homeowners and taxpayers must be the priority. TWIA is a government-backed system intended to help policyholders, not trial lawyers, when catastrophe strikes.
Allan "Bud" Shivers Jr. is a member of Texans for Lawsuit Reform PAC Board.