Windstorm pool seeks sovereign immunity

The Texas Windstorm Insurance Association wants a judge to give it immunity against paying attorneys’ fees, penalties, interests and other expenses beyond actual damages in litigation claiming it acted in bad faith or maliciously in dealings with policyholders.

In Bakht Khattak vs. Texas Windstorm Insurance Association, the insurer is seeking sovereign immunity, which means it can’t be sued without its consent.

If Judge Susan Criss of the 212th District Court in Galveston grants sovereign immunity in that case, her decision could apply to any lawsuit filed against the insurer since Hurricane Ike, which struck in September with 110 mph winds and devastating storm surge.

The windstorm association isn’t seeking dismissal of the lawsuit or others like it, officials said.

Compensation In Excess

What the association’s attorneys at a Monday hearing asked Criss to do is exempt the insurer from compensation in excess of actual damages, including “exemplary, punitive, treble damages, penalties, interest, mental anguish damages, attorney’s fees or any consequential compensatory or actual damages other than policy benefits.”

Essentially, the association wants to be exempt from being sued on claims it acted in bad faith.

The association would continue to pay policy benefits in judgments against it, Jim Oliver, its manager, said. If the association lost a case because it made a mistake or used bad judgment, it also would pay the plaintiff’s legal fees, Oliver said.

Legal Lottery?

“There’s no reason not to pay attorney’s fees and economic damages if it was determined that we should,” Oliver said. But some policyholders want much more, Oliver said.

The association wants to prevent some policyholders from attempting to win “the lottery” in court, Oliver said. Policyholders can sue for up to three times actual damages. If the association is forced to pay extra-contractural damages in hundreds of cases, rates would go up for all policyholders, Oliver said.

‘Benevolence Of Insurance Companies’

If the association got sovereign immunity, it would have far-reaching ramifications, said Steve Mostyn, attorney for Khattak, a League City resident who sued claiming the association paid too little to repair his roof, drywall and fence after Hurricane Ike.

If the insurer were exempted from codes protecting consumers from unfair or deceptive practices, there would be little to deter it from acting badly, Mostyn said.

“If you say to a company that all they ever have to pay is what they should have paid in the first place, then you will see conduct actually get worse,” Mostyn said.

“You will also see them never pay what they should have paid in the first place. I’m sorry, I do not believe in the benevolence of insurance companies.”

Rare Awards

About 500 Ike-related lawsuits have been filed against the association. But not all involve claims the insurer acted in bad faith.

Large punitive damages are rarely awarded in such cases and are subject to appeal, Mostyn said.

Sovereign immunity would, for example, prevent policyholders who drained their retirement funds or savings while duking it out with the association from recouping such expenses as taxes imposed for liquidating a 401(K) account, Mostyn said.

State codes require insurers who lose a lawsuit to pay actual damages along with 18 percent interest each year from the point the claim was filed.

Khattak has not specified the damages he is seeking from the association.

Sovereign Or Not?

The association wants sovereign immunity to apply in all such cases, Oliver said.

It’s common for governmental entities to declare sovereign immunity, but Mostyn argues the windstorm association is not one.

The association is made of all private insurers doing business in the state but was created by state lawmakers in 1972 as private windstorm insurers left risky coastal areas.

Attorneys for the windstorm association argue the insurer has the status to merit sovereign immunity.

State Rep. Craig Eiland, D-Galveston, contends that policyholders forced to hire attorneys and cover expenses out of pocket while waiting months for claims to be resolved aren’t trying to win the lottery.

‘No Way In Hell’

“TWIA is trying to be exempt from paying the same damages that other insurance companies pay if they are found by a jury to have committed specific unfair claims settlement practices,” said Eiland, who in April joined the ranks of frustrated coastal business and property owners when he filed a lawsuit against the association.

Eiland, who shapes insurance legislation as a state lawmaker, filed a lawsuit as a private business owner. Eiland is not seeking extra-contractural damages in his lawsuit, he said.

Eiland and other coastal lawmakers quashed an association bid for sovereign immunity during the last legislative session.

“There was absolutely no way in hell we would allow our constituents to be discriminated against on adjusting their claims,” Eiland said.

Criss has not ruled on the case.

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