Hurricane Ike started as a tropical disturbance off the coast of Africa near
the end of August 2008, then tracked south of Cape Verde and slowly developed.
On September 1, it became a tropical storm west of the Cape Verde islands.1
By the early morning hours of September 5, Ike was a Category 4 hurricane, with
maximum sustained winds of 145 mph.2 That made it
the most intense storm in the 2008 Atlantic hurricane season. Ike also had the
highest Integrated Kinetic Energy of any Atlantic storm in history. Integrated
Kinetic Energy is a measure of storm surge destructive potential, and on a scale
of 1 to 6, Ike reached a 5.6.3 Ike made U.S. landfall
at Galveston, Texas, on September 13 at 2:10 a.m. CDT as a very strong Category
2 hurricane with winds of 110 mph.4
Hurricane Ike hit the communities along the upper Texas Gulf Coast, including
the large suburban areas of Galveston, where it made landfall, and Houston.
Thirty-four counties were declared disaster areas.5
Specifically, in the five counties hardest hit (Orange, Harris, Galveston, Chambers,
and Jefferson), the total real property losses are estimated to be over 100,000
properties, assessed as of December 3, 2008. There were over 100 total deaths
(direct and indirect) from the hurricane as well. Hurricane Ike will likely
go down as the most costly and destructive storm to ever hit Texas, and it is
estimated to be the third costliest storm in United States history, behind only
Hurricanes Andrew (1992) and Katrina (2005).6
The Property Claim Services of the Insurance Services Office, Inc. (ISO)
estimates that the insured damage (not including inland flooding or storm surge)
from Ike in Texas, Louisiana, and Arkansas is $9.7 billion dollars. Using preliminary
figures, it is estimated that the total damage estimates are around $19.3 billion
dollars.
The primary forms of damage were those typical of hurricanes: wind, flood,
and surge. The highest storm surge measured by any National Ocean Service tide
gauge was at Sabine Pass North, Texas, which was 12.79 ft. In areas where tide
gauge records were unavailable due to destruction of measurement devices, it
is thought that the surge was even higher than this. In Galveston Bay on the
east side, it is thought that the surge reached somewhere between 15 and 20
feet, and on Galveston Island, somewhere between 10 and 15 feet.7
Coming in with the surge were huge amount of mud and debris, which caused further
damage.
Effect on Rating and Underwriting
The Texas Department of Insurance (TDI) issued several bulletins to address
the potential rate and underwriting effects from Hurricane Ike. These bulletins,
available at
www.tdi.texas.gov/,
are listed as follows:
- Bulletin No. B-0056-08—(September
14, 2008) encourages insurers to use all available means to provide prompt
and immediate relief to those residents and policyholders, including but
not limited to the suspension of premium payments to allow continuing insurance
coverage.
- Bulletin No. B-0060-08—(September
14, 2008) requires that in instances where insureds or potential insureds
are temporary participants in the relief effort of Hurricane Ike, it is
inappropriate for insurers to rerate, nonrenew, or refuse to provide coverage
due solely to that participation.
- Bulletin No. B-0062-08—(September
14, 2008) provides that it is inappropriate for insurers to re-rate, cancel,
nonrenew, or refuse to provide coverage due solely to an individual's status
as a victim or evacuee of Hurricane Ike. Further, it is not reasonable to
change policyholders' rating classifications or increase their insurance
rates solely because they are victims or evacuees of hurricane Ike.
- Bulletin No. B-0063-08—(September
14, 2008) reminds insurers of their obligations pursuant to Section 559.103
of the Texas Insurance Code. This section requires insurers to provide reasonable
exceptions to their rates, rating classifications, or underwriting rules
for a consumer whose credit information has been directly influenced by
certain factors such as temporary loss of employment, which likely affected
many of those impacted by Hurricane Ike.
- Bulletin No. B-0070-08—(October 14,
2008) encourages the suspension of any vacancy provision contained in the
policy forms to allow continuing insurance coverage. The Commission intends
that the insurer grant the policyholder an extended grace period for the
home or business due to temporary displacement.
Effect on Claims Handling Procedures
The TDI issued several bulletins to address potential effects on claims handling
processes from Hurricane Ike as well. These bulletins, also available at
http://www.tdi.texas.gov/,
are listed as follows:
-
Bulletin No. B-0058-08—(September 14,
2008) reminds insurers that the Insurance Code authorizes insurers to immediately
use nonresident and emergency adjusters to handle claims. The TDI encourages
insurers to use all available means to provide prompt and immediate relief
to residents and policyholders.
-
Bulletin No. B-0065-08—(September 19,
2008) directs insurers to provide data in accordance with the Hurricane
Ike Reporting Requirements Memorandum. The 10-day time period otherwise
required for responses to inquires made by TDI is extended in this bulletin
for the limited purpose of facilitating full compliance with the reporting
requirements.
-
Bulletin No. B-0066-08—(September 24,
2008) provides that in accordance with Insurance Code § 542.059 and 28 TAC
5.903, the Commissioner has determined that Hurricane Ike is a catastrophe
for purposes of claims processing subject to conditions, which are that
the insurer must:
- Establish quick contact with the claimant;
- Quickly survey and assess the claimant's damage;
- Provide quick responses to claimants;
- Promptly provide payment for additional living expenses (ALE) and for
temporary repairs after the assessment of the insured's damage; and
- Quickly set appointments with the claimant for examination and resolution
of claims.
-
Bulletin No. B-0068-08—(September 29,
2008) reminds insurers of the TDI's position that the standard method for
determining actual case value of a structure is replacement cost with proper
deduction for depreciation. The insured continues to be entitled to reasonable
and necessary expenses to repair or replace the damaged property, less proper
deduction for depreciation. The TDI expects all insurers to act in good
faith and use fair claim settlement practices as required by Insurance Code
§ 541.060 and § 542.003 and Texas Administrative Code (TAC) Title 28, §
21.203.
-
Bulletin No. B-0071-08—(October 21,
2008) reminds all persons that Insurance Code § 543.001 requires insurers
or any other person may not misrepresent the terms and provisions of a policy.
As further stated in 28 TAC § 5.9970(d) and (e), persons insured under a
homeowners or dwelling policy are entitled to have their home repaired by
the person of their choice. Further, under Insurance Code 542.003(a) an
insurer may not engage in an unfair claim settlement practice. Not attempting
in good faith to effect a prompt, fair, and equitable settlement of a claim
submitted in which liability has become reasonably clear constitutes an
unfair claim settlement practice.
-
Bulletin No. B-0012-09—(March 16, 2009)
relates to the bulletin which provided that insurers have an additional
15 days for claims handling services, which was necessary because of the
large number of claims resulting from Hurricane Ike. This bulletin notes
that the Commissioner is not extending the bulletins beyond March 6, 2009.
However, it is the Commissioner's continuing expectation that insurers,
their representatives, and agents will efficiently, effectively, prudently,
and timely provide services to their policyholders that their customers
expect and deserve. Insurers should not take advantage of the bulletin extending
of claims handling time unless the extension is absolutely necessary.
Ike Litigation
Numerous lawsuits have been filed in connection with coverage disputes arising
in the aftermath of Hurricane Ike. Among the common issues which have arisen
include allegations of violation of the Texas Insurance Code provision on unfair
settlement practices.8 Other allegations by insureds
include violations of the prompt payment of claims provision of the Insurance
Code.9 Some insureds are also bringing the common
law cause of action for breach of the duty of good faith and fair dealing and
breach of contract.10
Ike Legislation
There is a volume of pending Ike- and hurricane-related legislation. When
hurricane season arrives in June, the Texas Windstorm Insurance Association
(TWIA) will be funded largely by insurance company assessments and state revenues.
The storms of 2008 cost TWIA six times the premium collected in the previous
year. In just one year, 2008 storms depleted a 36-year surplus of reserves,
and recent scientific storm models estimate damage from another large storm
in Texas as high as $8 billion.11
The danger is in insurers pulling out of the market after a series of damaging
storms, which would leave the state's taxpayers and policyholders to foot the
bill. If insurers are charged an unlimited amount of assessments and aren't
allowed to recoup their losses, they'll have to charge policyholders higher
premiums or stop writing policies in Texas. Either way, that's bad news for
homeowners and businesses throughout Texas, not just on the coast. Recognizing
that coastal policyholders cannot pay all of the losses themselves, legislators
are working on a solution to maintain a healthy insurance market for the state.
Currently, public securities, such as bonds, have been proposed as an appropriate
means of refunding TWIA and building up its reserves to protect the state from
the financial consequences of another major storm. It has also been proposed
that the state lend $1.5 billion from its Rainy Day Fund to help pay for claims.
Bills filed to date suggesting a new means of funding for TWIA include HB 911
by Rep. John Smithee (R-Amarillo), HB 3853 by Rep. Craig Eiland (D-Galveston),
and SB 14 by Sen. Troy Fraser (R-Horseshoe Bay).12
Conclusion
The insurance industry will be closely scrutinized as a result of various
coverage disputes that have arisen in the aftermath of Hurricane Ike. Though
it is unlikely that courts will rewrite the policies and construe them in favor
of coverage, the courts may be more inclined to address the uninsured losses
by other remedies, such as extra-contractual liability for alleged unfair underwriting
and claims handling efforts on the part of the insurance industry. Undoubtedly,
the effect of Hurricane Ike could be not only catastrophic in loss of lives
and property, but also a driving force in changing the insurance industry.