The settlement of the Hurricane Ike claims demonstrates that more oversight is needed for the Texas Windstorm Insurance Association, according to a report from a state legal reform group.
Texans for Lawsuit Reform released a report April 6 entitled, "The TWIA Problem: Why You Should Care."
The report examines the thousands of lawsuits that arose from the 2008 hurricane that struck the Texas coast and the millions in attorneys' fees paid out in the settlements.
"If TWIA is allowed to continue operating the way it has been operating, and if a small group of lawyers is allowed to continue to unduly inflate claim amounts and extract tens or hundreds of millions of dollars from the process for their personal benefit, future hurricanes that hit the Texas coast will likely cost Texas taxpayers billions of dollars," the report states.
According to the report, TWIA is not properly funded and is not in a financial position to meet its obligations. It currently carries $75 billion in insured risk and less than $80 million in available funds to cover those risks if another large storm hit Texas.
"One of the reasons is that TWIA is paying enormous sums to a small group of plaintiffs' lawyers who are using the Texas judicial system to increase the value claims against TWIA by increasing TWIA's risk through litigation," the report states. "The result is that this small group of lawyers is becoming extraordinarily wealthy at the expense of Texas insurance buyers and Texas taxpayers."
Hurricane Ike produced more than 92,000 claims to date, with 4,500 of the claims resulted in lawsuits against TWIA "seeking well beyond the amount of the insurance policy plus attorneys' fees for the lawyers," according to the report.
The largest number were "slab claims," i.e., claims in which nothing of the insured structure remained except the concrete slab and pilings. Of the 4,500 lawsuits, over 2,500 were for slab claims.
"Since the slab claims were the most valuable lawsuits, they became the focus of the plaintiffs' lawyers' attention," the report states.
TWIA does not insure against flood or storm surge damage, but only wind damage. Policyholders had been paid by TWIA, but then hired an attorney or were named in a class action. The cases were consolidated in Galveston court and ordered into single mediation coordinated by a small group of plaintiffs' lawyers who represented the largest number of individual claimants.
All of the individual lawsuits as well as the class action were settled in a single global settlement.
"The terms of and facts behind this global settlement became a secret that the plaintiffs' lawyers went to extraordinary lengths to guard," the report states.
"The information that has been disclosed reveals shocking facts regarding the amount of additional funds paid out by TWIA simply because lawsuits filed, the extraordinary amount of attorneys' fees paid to the plaintiffs' lawyers, and the process TWIA employed in agreeing to the settlement amounts," according to the complaint.
The TLR report states that the former general manager of TWIA has acknowledged that the payouts on the settlement of these claims were "unprecedented and not justifiable based on the facts, the science, the insurance policies, or the law."
Public documents do not reveal the exact fee arrangements but typical fees are 33 to 40 percent. However, the report states that by using the formula disclosed by TWIA, attorneys received 66.66 percent in fees.
"A 66.66 percent contingency fee is universally regarded a an unconscionable fee, and would normally be a violation of the Texas Rules of Disciplinary Conduct," the report states.
The individual settlements fee of $44.5 million went to 63 plaintiffs lawyers. More than half went to four firms: $6.1 million to Bettison, Doyle, Apffel & Guarino of Galveston; $6.2 million to the Merlin Law Group of Houston; $5.2 million to the Mostyn Law Firm of Houston and $5.8 million to Weller, Green, Toups & Terrell of Beaumont.
The report states the fees are especially noteworthy because of the minimum work performed by the attorneys.
According to TLR, there were only two depositions total in the litigation, there was some written discovery but only some cases and most went unanswered, no plaintiffs were deposed, no plaintiffs' experts were deposed and there were no discovery requests in 75 percent of the lawsuits.
The report states that all the settlements and fees were paid at discretion of the general manager of TWIA without any oversight or guidance.
"Texas citizens need answers to certain questions in order to understand how to craft structural changes in the process to prevent exorbitant lawyer fees and litigation costs from happening again."
An Executive Summary and the complete report is available at http://www.tortreform.com/reports/twia-problem-why-you-should-care