Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

Most fall into the second category. There is an epidemic of underinsured structures. I have no idea why the insurance industry is not pushing harder to correct this problem, but I suspect ninety percent of all properties do not have the coverage necessary to fully replace a structure following a catastrophe.

This problem was highlighted in 2004 congressional hearings following Hurricane Isabel in 2003. A number of Mid-Atlantic Congressional leaders had complaints from constituents following these storms. The claims handling problems were exacerbated by many not having sufficient National Flood Insurance limits. Those from major computerized construction cost estimating companies essentially testified that the construction costs in their database reflected new construction costs not following a catastrophe. If a catastrophe ensued, the costs could be up to forty percent higher.

When policyholders underinsure, it is an underwriting problem. The issue rarely arises because the vast majority of all losses are small--many are not even reported because of deductibles or the hassle of reporting and collecting upon small claims is financially not worth the effort. Some policyholders are even warned that they may become "undesirable" for reporting small losses--so they simply do not. So, the first lesson is that most losses are not total and the need for policy limit coverage seldom arises.

But what about co-insurance penalties that penalize policyholders for not insuring to value as I warned recently in "Coinsurance Penalties Await Policyholders Who Do Not Insure to Full Value?" A coinsurance penalty occurs when a policyholder purchases less coverage than is needed to insure to full replacement value. It exists just to prevent policyholders from gambling with the probabilities that a total loss will never happen.

Typically, the larger the loss, the greater the economic incentive for the insurer to investigate whether a coinsurance penalty applies. The second lesson is to avoid the financial catastrophe of having any significant loss not fully covered. Policyholders, agents, and insurers need to promote the idea that properly insuring to value is a significant part of underwriting. The wide-spread practice of promoting construction underwriting estimates that are insufficient to restore structures must stop. All of us in the insurance claim business see this underinsured to value phenomenon as a repeated problem---is anybody at underwriting listening?

If National Flood had doubled the residential limits to $500,000 and made commercial limits available to $1,000,000, with proper underwriting of insurance to value, many of the Hurricane Katrina total loss cases may never have been litigated. While there seems to be significant political reservation about the Federal Government competing with the private market, why not increase the coverage? The insurance industry cannot or will not underwrite at a limit that satisfies the vast majority of structures. Increased coverage would allow National Flood to insure to value on many structures and therefore, be more actuarially sound.

The uninsured flood policyholders need better education or "required" lending incentives to purchase flood coverage. Standard mortgage requirements at time of closing need to reflect the flood peril. Flood waters occur much further inland than many expect. While infrequent, inland floods can devastate, but the cost is so minimal in those areas of slight risk that it should almost be required--just ask those several miles from the Mississippi and Louisiana coasts. Flood limits should be the same as "all-risk" limits. Many coastal insureds had substantially less coverage for flood than under their all-risk policies. The third lesson is that the concept of insuring to value should be promoted in flood underwriting. Currently, that seems to be a foreign concept.

Some may wonder why I would call for higher National Flood limits and better underwriting of policies. After all, it would certainly decrease the need for my legal services. Many Katrina lawsuits in Mississippi would never have been filed if these few suggestions were followed. Many Hurricane Ike lawsuits in Galveston and the Bolivar Peninsula would not be needed either. Much of this madness can stop without a major disruption in the day to day operation of the way insurance currently works and without major political changes to National Flood, if today's suggestion were put into practice.

So why not do it? It seems the only people to lose are the lawyers, and we have no problem with that in this case. We have plenty of other insurance coverage disputes to keep us busy.

Most policyholders do not know where to find experts familiar with issues of windstorm damage. Many cannot afford to do so. Today, I am making available a client’s meteorologist report to help demonstrate that many areas in Galveston, Bolivar and Houston sustained tornado type wind events.

The report notes that there were sufficient wind speeds to cause extensive damage by tornadic events along the Bolivar peninsula and other areas:

"Using the collected NEXRAD data and knowing the limitations of NEXRAD to detect these phenomena, I estimate that there were over 60 mesocyclones that moved over the Bolivar peninsula. Based on this estimate and using the percentages from previous studies, this would place between 18 to 30 tornadoes on Bolivar peninsula as early as 10:43PM, September 2008.

There are several pictures I took during the site visit that show distinct rotation based upon how remaining structures and poles were oriented. This indicates tornadic activity.

At 7:00PM, September 12, 2008 there were measured winds of 115 knots (126 miles per hour) only 2000 feet above the surface along the edge of the Bolivar peninsula. This measurement was recorded by a rawinsonde observation. With the numerous convective cells over the Bolivar peninsula, it is very plausible that winds from 2000 feet above the surface were transported down to the surface causing gusts as high as 100 miles per hour. These winds would not be detected by NEXRAD because the radar beam would be located above the 2000 foot level over Bolivar peninsula." 

Anybody can use this report for any purpose they wish. The bottom line is that the insurance company experts typically do not conduct this kind of in depth investigation to find evidence supporting higher payments. Get your own analysis if you suspect your insurer is underpaying your claim. 

Many people received a letter from Texas Windstorm Insurance Association explaining how TWIA determined the value of damages to their property. The TWIA letter states:

“You are hereby notified that an appeal of the Texas Windstorm Insurance Association’s decision must be filed with the Commissioner of Insurance at the Texas Department of Insurance … no later than the 30th day after receipt of this letter.” [emphasis added]

The letter further states that a policyholder can appeal or file suit.

TWIA’s letter implies that a policyholder can appeal and file a lawsuit for violation of unfair settlement practices under Section 541.060 of the Texas Insurance Code. THIS IS NOT TRUE. Texas Statutes Section 2210.552, of the Insurance Code states that a person may appeal the decision with the Texas Department of Insurance OR file a lawsuit under Chapter 541. A policyholder cannot do both.

A person who appeals gives up his or her right to file a lawsuit against the insurance company for unfair settlement practices, such as misrepresenting a material fact or policy provision relating to covered loss, failing to attempt a prompt, fair, and equitable settlement of a claim after the insurer's liability has become reasonably clear, unreasonably delaying a settlement, requiring a release when only a partial payment has been made, or refusing to pay a claim without conducting a reasonable investigation. There is a very good chance that you have faced one of these situations or know of someone who has.

The TWIA letter gives the false impression that if a policyholder does not appeal within 30 days, the decision is final, and the policyholder has no other options or remedies. Texas has some very good consumer protection laws:

• Texas allows an insured to recover attorney fees and costs under Chapter 38 of the Civil Practices and Remedies Code.
• Tex. Ins. Code Section 542.060, Prompt Payment Statute, entitles the insured to collect 18% interest plus additional attorney fees and costs if the insurance company does not promptly pay the claim in violation of the statute.
• Tex. Ins. Code Section 541.152, punishes the insurance company by forcing them to pay the full amount of damages, attorney fees, expenses, and, if the violation is done knowingly, the damages owed by the insurance company are three (3) times the actual damages.

In addition, as some of you already know, an order has been entered in Galveston County directing that all homeowner Ike cases be stayed for 100 days to allow plaintiff and defense counsel to exchange discovery and set mediation. This order is very specific and holds the insurance company in contempt of court if its attorneys attend this mediation without full authority to settle the case or if they fail to settle in good faith. Mediation is not binding, and the insured decides whether to accept or reject the insurance company’s final offer. In my opinion, entering this order was a very wise decision by District Judge Susan Criss and will result in many more settlements. In this instance, mediation is not an alternative but a method within the litigation process, again another great example of consumer protection in Texas. Hopefully, a similar order will be entered in neighboring Harris County, helping to expedite settlements there.

Each policyholder has the right to contest TWIA’s decision through either an administrative hearing or by filing a lawsuit. Policyholders should carefully consider each option before making a decision.

It is important to note that policyholders who have already filed for an administrative hearing may, prior to the hearing date, ask to withdraw their administrative appeal, cancel the hearing and pursue remedies through the courts. A person wishing to do so would be well advised to contact an attorney to make sure that the proper procedure is followed in withdrawing the administrative appeal and preserving the policyholder’s right to file suit.

Texas provides some of the best consumer protection laws in the nation; I truly see no reason not to take full advantage of them.

Everyone talks about the maximum wind speed, the highest wind gust, the storm surge and how all of it fits together as part of Hurricane Ike. What puzzles me is why aren’t more people focusing on many of the other weather elements found within Hurricane Ike (and other hurricanes) that routinely cause ground damage, most of the time hours before a storm surge hits the coastline.

Hurricanes are more than just high winds and water. Hurricanes also spawn tornadoes, microbursts, straight line winds, extreme ground turbulence and phenomena that have the definite capacity to destroy houses, rip off roofs, uproot trees and do lots of damage. There are also induced dangers such as funneling winds and wind maxima areas (an area where two wind bands converge together to form a small area of increased wind speeds). These meteorological elements occur during hurricanes, yet everyone focuses on the highest wind speeds and storm surge heights.

Some of these mentioned elements can be detected and measured by the latest weather technology, but most of what I mentioned can not be measured. That doesn’t mean that the phenomena do not occur or can not be proven. I’ll start with mesocyclones.

As defined by the National Oceanic and Atmospheric Administration's National Weather Service (NOAA/NWS), a mesocyclone is a storm-scale region of rotation, typically around 2-6 miles in diameter and often found in the right rear flank of a supercell. The circulation of a mesocyclone covers an area much larger than the tornado that may develop within it. In other words, mesocyclones have the capacity to spawn tornadoes.

Another specific point about mesocyclones as defined by NOAA/NWS - Properly used, mesocyclone is a radar term; it is defined as a rotation signature appearing on Doppler radar that meets specific criteria for magnitude, vertical depth, and duration.

This means that if all the physical characteristics of a mesocyclone are present, but it doesn’t meet ALL the specific criteria based on magnitude, vertical depth and duration, this phenomena will not be detected by NEXRAD. This is why some people state that NEXRAD may miss as many mesocyclones as it detects. The same goes for NEXRAD detected tornadoes. If NEXRAD doesn’t detect it, the meteorological event can still happen.

For example, the NEXRAD Doppler weather radar located in Houston and operated by the National Weather Service (NWS) detected numerous mesocyclones moving across Bolivar peninsula, the Sabine Pass area, northwest Houston, and along Galveston Bay. If you apply simple statistical data, 30% to 50% of all mesocyclones develop tornadoes. If there were 60 mesocyclones, they would spawn 18 to 30 tornadoes.

Just because there were no “confirmed” tornadoes doesn’t mean there were not any tornadoes. You have to understand the limitations of the NEXRAD radar, the rules, guidance and responsibilities pertaining to the National Weather Service and what you should do in the event you spot a tornado during a hurricane (or any other time). This is another subject for a later blog.

Please accept that no technology is perfect. The NEXRAD radar is a great upgrade from what meteorologists had before as the dedicated meteorological radar. NEXRAD provides all types of data and information used at all times by the NWS and National Hurricane Center (NHC), but it is not perfect. NEXRAD products are the visual results of algorithms. There is no algorithm for any meteorological event that can cover all possible scenarios. Even algorithms have limitations. Due to these limitations, NEXRAD can not detect each and every meteorological element that occurs.

Some people think the workers at NWS/NHC should be responsible for providing weather data for all people at all times. The NWS/NHC workers are already overworked, undermanned and unfunded and to have the inferred responsibility of having to provide weather information that applies to each person at any chosen time is unrealistic. This is impossible!

As for the rules and responsibilities of the NWS and NHC; these are dictated by people at high levels of government that really don’t have a clue as how a real weather situation creates more work than anyone could possibly expect. We expect miracles from the NWS/NHC and complain when miracles don’t occur.

From what I see as an impartial observer, The NWS and NHC are doing exactly what is mandated by higher headquarters and the government. Their job is to protect and warn the public, not determine the winds specifically at 123 ABC Street in Anywhere Texas.

(For further explanation of the damage caused by Ike, apart from the hurricane winds and water, please read Part Two of Rocco Calaci’s guest blog tomorrow.)

Among friends, the lack of national attention concerning the Hurricane Ike recovery has been a topic of conversation. The explanations we have include:

• The election campaign and story of Obama and Palin were overwhelming.
• The collapse of the national economy had others thinking about their backyards rather than Hurricane Ike.
• Galveston and the Bolivar Peninsula are not Houston and not the size of New Orleans. Devastation to smaller communities gets overlooked.
• Images of rescue did not feed the media's desire for sensationalism.

There was one comment of note to the Houston Press article---

"Now you tell us what happened, but the important thing is to tell us what we can do about it."

Recovery lessons can be learned from Hurricanes Ike and Katrina so the impact of the devastation minimized. Federal, state and local governments with coastal areas should have emergency regulations in place and ready to be enacted expecting these types of rare occurrences. Building permitting has to be expedited. New National Flood Building Regulations have to be made much quicker so that those in the most severely devastated areas are not waiting months for permission to rebuild. FEMA has to be more practical regarding federal infrastructure regulations so that local officials can replace infrastructure with an eye to practical and much quicker repair. There needs to be exemptions from the National Flood Regulations which recognize historic areas, such as parts of Galveston, so we do not destroy the unique characteristics of communities with historical significance.

While, governments were much better prepared for Hurricane Ike than Hurricane Katrina, we can still do a better job. I am afraid that revised lessons are not going to be learned because the national attention is elsewhere. It is pretty certain that this song will remain the same the next time we arrive in a catastrophically damaged community.