No wind without flood under new law

Owners of houses and commercial properties built or renovated on or after Sept. 1 in areas most vulnerable to storm-driven waves won’t be able to buy or renew state-backed windstorm policies unless they can prove they have flood insurance.

The Texas Department of Insurance still is finalizing the rules of the unprecedented requirement that essentially amounts to “hurricane policies” for perhaps thousands of county residents.

Although rules still are being formulated, the gist is that beginning next month, anyone building, altering, remodeling or enlarging homes or commercial properties in so-called “Velocity” or “V Zones,” must buy flood insurance if they want coverage through the Texas Windstorm Insurance Association, an insurer of last resort in risky coastal counties.

V Zones, where properties are exposed to high-velocity water and storm surge, include beach-side areas in Galveston and almost all of Bolivar Peninsula, where Hurricane Ike wiped more than 3,000 houses and other buildings off their foundations.

According to the dense language in a draft of the new law, the “terms constructed, altered, remodeled and enlarged refer to any building activity or action on a structure other than a repair that would require the insured or applicant to obtain a certificate of compliance under the Insurance Code ... prior to the structure being considered to be insurable property and eligible for insurance coverage from the association.”

Even some industry observers aren’t sure what the new rules mean for property owners making Hurricane Ike repairs.

Texas Department of Insurance officials declined to speculate about how the new law would apply to properties undergoing repair from Hurricane Ike, which struck Sept. 13.

The department plans to make the final rules public next week, officials said.

Much depends on how the regulatory agency interprets the phrase “other than a repair,” Mark Hanna, spokesman for the trade group Insurance Council of Texas, said.

“It’s unclear who is affected and who wouldn’t be,” Hanna said.

The new rules are part of HB 4409, which lawmakers passed in the last session to, among other things, boost funding for the Texas Windstorm Insurance Association, which saw its reserves depleted by Ike and other storms last year.

Lawmakers were spurred by a startling number of property owners all along the upper Texas Coast who didn’t have flood insurance when Hurricane Ike struck nearly a year ago. The hurricane, with 110 mph winds and a storm surge as high as 20 feet in some areas, damaged or destroyed thousands of properties in the county.

Only about 62,000 National Flood Insurance Program policies — the only type of flood insurance available — were in force in Galveston County when the hurricane struck. In contrast, the windstorm association insured 90,000 properties in Galveston County.

Most private insurers have stopped selling windstorm policies in storm-prone coastal areas, including the island, where coverage only is available through the Texas Windstorm Insurance Association.

The windstorm association is facing 600 Ike-related lawsuits around the state.

At the heart of some of the lawsuits is the fight about what caused damage during Ike — wind or water.

Some county residents have argued windstorm policies should cover storm surge damage because the floodwaters were driven by wind. But windstorm insurance doesn’t cover storm surge.

Some policyholders who did not have flood insurance want their windstorm policies to cover storm surge damage, Jim Oliver, manager of the windstorm association, said.

Windstorm policyholders who also had flood insurance are less likely to fight the windstorm association over claims, Oliver said.

But the ones without flood insurance are more likely to take legal action against the association, he said.

“We’re finding people — not all — who had sufficient flood insurance in most cases are actually OK with what we’re paying and going along about their business,” Oliver said.

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