Thursday’s Hurricane Ike policyholder attorney meeting in Houston, which our law firm organized, was a great success. More than 30 attorneys from the Galveston and Houston areas registered. We coordinated litigation and shared ideas and information to help our individual clients. This will eventually help all insureds involved in litigation receive the benefits owed by their insurance companies. I am certain the judges assigned to the cases will be happy to hear we are working on methods to streamline the litigation process so the cases can move quickly and cost efficiently.
After the meeting, I reread an appellate decision involving Texas Windstorm Insurance Association (TWIA), Tex. Windstorm Ins. Ass’n v. Poole, 255 S.W.3d 775 (Tex. App. Amarillo 2008), from a new perspective. The Court determined what kind of an entity TWIA is. The opinion starts with an amusing story:
The young boy looked at his grandfather and asked: "What is it?" "What do you think," came the reply. "Well . . . it has a beak . . . and, it’s feet are webbed . . . it also laid eggs . . . maybe a duck . . .?" "What else do you see,?" asked the old man. "Fur and a beaver tail . . . so maybe it isn’t a duck." "You’re right" said the granddad, "it’s a platypus." "A platypus . . . ,?" queried the boy, "what’s that?" Granddad hesitated a bit, rubbed his chin, and answered: "You got me . . . ."
Dealing with our own platypus, we have been asked what is it and what can it do. Though the object of inquiry is a creature, it is not an animal created by God. Rather, it is some type of entity manufactured from the hands and minds of our Texas legislators. Having some earmarks of a governmental agency, its membership nonetheless is composed of private insurance companies. Those companies pick the officers who run the thing, but those officers must do so under the supervision of the Texas Department of Insurance. What we determine it to be helps resolve the question of whether it may initiate lawsuits to protect its interests. The trial court along with Renetta and Walter Poole say it cannot. The Texas Windstorm Insurance Association (Association) says it can. With this, we dive into the waters with our platypus, inspect its characteristics, and ultimately side with the Association.
The Court then started on the more serious discussion of how the Texas legislature mandated TWIA operate:
The legislature created the Association as a means of providing property insurance to people living within geographic areas at risk of being hit by hurricanes… Its membership consists of all property insurers authorized to do business in Texas… Moreover, the members participate in the "writings, expenses, profits, and losses of the association . . . ." … it has a board of directors composed of individuals selected by its membership and nominated by the "office of public insurance counsel," … that board answers to the commissioner of insurance… That commissioner is also obligated to develop a plan of operation for the entity (which plan encompasses provisions relating to the administration of the association and others deemed necessary to implement the association’s purpose)… And, though members of the Association may participate in the profits and losses generated by the Association, the entity’s assets revert to the state upon dissolution of the entity. Id. §2210.056(c)
As for the plan of operation, … the board…is entrusted with "the management of the business and affairs of the [A]ssociation and may exercise" both specifically enumerated powers and "all other powers incidental or appropriate" to the management of the Association’s business and affairs "subject only to the restrictions imposed by law." (Emphasis added). Included in the enumerated powers are, among other things, the authority to establish and change regulations for the management of the Association’s business affairs, to purchase or acquire property, rights and privileges for the Association, to appoint and remove Association officers, representatives and legal counsel, to contract with a "servicing facility" to perform services "deem[ed] appropriate," and to "have all other powers and to perform all other duties reasonably necessary to accomplish the purpose of the Act.
Tex. Windstorm Ins. Ass’n, 255 S.W.3d at 777.
Private insurance companies have a great deal of authority through their board appointees to influence the operation of TWIA. The member companies have a significant interest in claims because of their participation in profits, and especially, assessments of losses. My impression is this entity allows private insurance companies to socialize loss and privatize their profits because it allows insurers to "pool" undesired wind risks into TWIA, where they exercise overwhelming control. It does not take a rocket scientist to figure out that denying and slow-paying policyholder claims is in the member companies’ financial interest.
The Court also noted the significant private insurer attributes of TWIA:
Upon stepping back and contemplating the foregoing indicia, we note that the Association has attributes of a private insurance business while operating under a governmental cloak. Its membership comes from the private sector, and those members are entitled to engage in activities, via the Association, that earn them a profit. Yet, when all is said and done, the Association’s assets belong to the state. So, what it truly is escapes easy categorization.
Tex. Windstorm Ins. Ass’n, 255 S.W.3d at 777.
The important thing for all to remember is that TWIA is not a government entity. It has very strong ties to the insurance industry in it membership. Those member companies can yield a great deal of power through the TWIA board of directors.