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Hurricane Harvey by the Numbers

Insurance Coverage

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Hurricane Harvey in Houston

Over seven months after Hurricane Harvey ravaged the Texas Coastal Bend region and dumped historic amounts of water on Houston and Galveston, the number of insurance claims reported to private insurers, the Texas Windstor

m Insurance Association (TWIA), and the Federal Emergency Management Agency (FEMA) paint a vivid picture of the impact of the storm.  As insurers continue to process claims, counsel for insurers and insureds are readying for what may be the second wave of Hurricane Harvey—insurance coverage litigation.

Hurricane Harvey—A Look Back at the Devastation

Hurricane Harvey made landfall on August 25, 2017 as a category 4 storm near Rockport with maximum sustained winds of 130 m.p.h.[1]  The storm moved inlan

 

d along southeast Texas, slowing to 5 m.p.h., developing strong rain bands while it traveled south to north.  Strong flash flooding occurred during the evening of the 26th, and continued in Houston and Galveston for several days.  In Harris and Galveston counties alone, rainfall totals exceeded fifty inches over less than a one-week period, causing extensive and catastrophic flooding.[2]  The economic impact of Hurricane Harvey exceeds that caused by Hurricane Ike in 2008 and the storm currently ranks as the costliest in the state.[3]

Texas Department of Insurance Claims Data

The Texas Department of Insurance (TDI) has crunched the numbers in a data call to private insurers based on the 58 counties included in the Texas Governor’s August 28, 2017 proclamation and four additional counties identified by TDI on September 1, 2017.  In its report to the Texas legislature in January, TDI summarized claims data among insurers in the disaster area (including insurers providing “Write Your Own” federal flood insurance but exclusive of flood insurance directly written by the National Flood Insurance Program) and made multiple findings, including the following:

FEMA Assistance and National Flood Insurance Program (NFIP) Claims

FEMA recently reported the following information about the extent of Hurricane Harvey’s damage:

Hurricane Harvey Claims Litigation—A Look Forward

Based solely on the applicable limitations period, suits based on disputed flood claims may be the first to be filed.  Such suits will be litigated in federal court, with federal law preempting “bad faith” claims such as the Unfair Settlement Practices enumerated in Section 541.060 of the Texas Insurance Code.[9]  TWIA claims likewise have statutory limitations on recovery of damages, imposed after Hurricane Ike litigation,[10] and are subject to a one-year deadline in which to file a claim.

Suits arising under residential and commercial property policies and auto policies are expected to be filed anytime up to two years after denial or partial declination of the claim, based on common policy provisions which contain a two-year limitations period.  Also, claims for breach of the common law duty of good faith and fair dealing and “unfair settlement practices” enumerated in section 541.060 must be brought within two years of denial.

Property policy litigation may raise issues over “anti-concurrent cause” flood exclusions, extent of damage issues, business income disputes, and claims arising under the Unfair Settlement Practices and Prompt Payment of Claims chapters of the Texas Insurance Code.  Of note, in a suit arising out of Hurricane Ike, the Texas Supreme Court held, consistent with the Fifth Circuit’s jurisprudence, that an anti-concurrent causation exclusion for flooding bars all coverage unless a non-excluded factor, e.g., wind, is the exclusive cause of damage.[11]

Other coverage litigation resulting from Harvey may implicate commercial general liability policies as businesses and homeowners sue third parties for causing or exacerbating storm damage.  For example, over three hundred residents in or near Sweeny, Texas, have sued Phillips 66 over the alleged erection of temporary dams at the Linnville and Little Linnville bayous to prevent petroleum and chemical leaks which allegedly caused surrounding homes to flood.[12]  Other such suits may result in disputed issues over the duties to defend and indemnify under CGL policies.

For first-party claims litigation, key time periods and basic legal principles include the following

FLOOD POLICIES (NFIP, including write your own policies “WYO” issued by private insurers):

HOMEOWNERS/COMMERICAL PROPERTY AND AUTO POLICIES

Conclusion

While TDI, FEMA, TWIA, and other agencies and insurers can calculate the cost of Hurricane Harvey on Texas residents and businesses from a claims perspective, the impact of the storm will continue as suits are litigated in Texas state and federal courtrooms.  Policy language and interpretative principles, statutory provisions, and case law that arose after prior storms such as Hurricane Ike will provide many answers to the disputes.  Additional pronouncements expected from the Texas Supreme Court in the areas of bad faith and appraisal may also affect Hurricane Harvey litigation.  Stay tuned.

 

Laura J. Grabouski is a partner with Tully Rinckey, PLLC and focuses on insurance coverage and bad faith litigation.

 

[1] See Nat’l Oceanic & Atmospheric Admin., Nat’l Weather Serv., https://www.weather.gov/hgx/hurricaneharvey.

[2] See id.; see also TDI, Hurricane Harvey Data Call, Presentation to the Senate Business and Commerce Committee, Jan. 23, 2018, p.1.

[3] See Nat’l Oceanic & Atmospheric Admin., Ctrs. For Env’tl.. Info., ”Billion-Dollar Weather & Climate Disasters,” https://www.ncdc.noaa.gov/billions/events/US/1980-2017See also Insurance Council of Texas, “Costliest Texas Storms,” https://www.insurancecouncil.org/document//145/.

[4] See TDI Data Call, p.3.

[5] See TDI Data Call, p.5.

[6] See TDI Data Call, p.4.

[7] See TDI Data Call, p.3.

[8] See FEMA, “Progress. Partnerships. Preparedness: Six Months after Hurricane Harvey,” Feb. 16, 2018, https://www.fema.gov/news-release/2018/02/16/progress-partnerships-preparedness-six-months-after-hurricane-harvey.

[9] See 44 C.F.R. Appendix A(a) to Part 61 (Standard Flood Insurance Policy), § R.

[10] See, e.g., Tex. Ins. Code §§ 2210.576; 541.152(c).

[11] See JAW the Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597, 608 (Tex. 2015).    

[12] See Houston Chronicle, Sept. 29, 2017.

[13] See 44 C.F.R. Appendix A(a) to Part 61 (Standard Flood Insurance Policy), § VII, R.

[14] See 44 C.F.R. Appendix A(a) to Part 61 (Standard Flood Insurance Policy), § VII, R.

[15] 44 C.F.R. Appendix A(a) to Part 61 (Standard Flood Insurance Policy), § IX.

[16] See, e.g., Ling v. Farmers Ins. Grp., 2017 WL 451222, *5-6 (S.D. Tex. Feb. 2, 2017).

[17] See Tex. Civ. Prac. & Rem. Code §§ 16.004, 16.070.

[18] See Tex. Civ. Prac. & Rem. Code § 16.003; Tex. Bus. & Comm. Code § 17.565; Tex. Ins. Code § 541.162(a).

[19] See Tex. Ins. Code § 542.060(c).

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