It didn’t take long for the first bad faith suits arising from Hurricane Ike to be filed in Texas. Last week, the first two Ike bad faith lawsuits that I am aware of were filed in Galveston and Ft. Bend Counties. In Fort Bend County, a breach of contract suit was filed last week titled Gatesco Inc. v. Steadfast Insurance Company in which plaintiffs claim the insurer failed to pay policy benefits after its property sustained damages during Ike. On November 7th, an Ike bad faith lawsuit was filed in Galveston County titled Williamson v. Brown & Brown Insurance Services of Texas and Chubb Lloyds Insurance Company of Texas for alleged failures to pay Ike-related damages. These are first of several thousand Ike lawsuits expected to be filed across Southeast Texas over the next several years. There doesn’t appear to be anything uniquely significant about them other than their apparently quick filing so soon after the storm. The big question being asked by carriers across the country is whether Hurricane Ike will generate the type and volume of litigation generated by Hurricane Katrina.
In the three years since Hurricane Katrina, it has been estimated that between 27,000 and 30,000 hurricane insurance suits were filed in southern Louisiana alone. Of the 12,565 suits filed in federal court, only slightly more than half -- 7,837 -- cases, have gone to judgment or settled. Some federal court judges have attempted to streamline the flow of cases by issuing form orders applicable only to Katrina-related cases. These efforts have not moved cases as quickly as was hoped and one federal judge recently predicted in an interview that it will be “a couple more years” to settle or try all the Katrina insurance litigation. Some of these cases have provided an opportunity to obtain clarification of the law on critical issues such as whether the flood exclusion in most Louisiana homeowner policies is ambiguous, whether Louisiana’s Valued Policy Law statute compels an insurer to pay policy limits even when some or most of the damage is attributable to a non-covered peril, and the extent to which recovery under a homeowners policy can be offset by prior flood policy payments. Much of what remains in New Orleans Katrina homeowner lawsuits are the many diverse individual claims that were initially brought as part of the several mass joinder lawsuits and are which now being evaluated for individual treatment.
With Hurricane Ike hitting Houston and the surrounding areas hard, many carriers are wondering whether Ike will be “Katrina II” in terms of the legal circus seen in Mississippi and Louisiana over the last three years. For several reasons, I don’t think so.
First, in Katrina the residents and business owners of New Orleans and the surrounding parishes saw much more extensive flood damage than Houston and its surrounding counties. Certainly Galveston, Orange and Jefferson Counties experienced significant flooding in Ike, but it didn’t involve anywhere near the numbers seen in Katrina. Second, the insurance laws have developed differently in Texas than in Louisiana or Mississippi. Texas, unlike Louisiana, has much better developed case law on flood coverage, wind damage, concurrent causation, and burden of proof issues. Texas has an extensive body of established case law on bad faith in contrast to Louisiana and Mississippi. Texas has two year and four year limitations periods in contrast to Louisiana’s one-year prescription period (that was extended by the Louisiana Legislature for Katrina claims). This will not only allow for the more “orderly” progression of the filing new suits, it will also lead to less suits being filed prematurely (which we saw in Louisiana with Katrina suits in the days before the running of the prescription period.) The required Texas Windstorm Coverage in coastal counties will result in more concentrated efforts to separate wind from flood damage than was seen in Katrina. Texas won’t have the “VPL” coverage fight the industry underwent in Katrina. Texas has more stringent class action requirements so less class action lawsuits are likely in Texas than we saw in Katrina. Texas has also utilized the Multi-District Litigation Panel concept much more than in Louisiana or Mississippi, including recently in Hurricane Rita litigation which might result in more easily managed individual litigation (at least at the pre-trial stage).
The differences in Ike litigation, however, may not all be considered good by carriers. The scope of litigation will be more geographically widespread. Most of the Katrina suits were centered in the state and federal courts New Orleans and Gulfport, MS. The Ike litigation will be extensive in the 14 Texas counties declared federal disaster areas as well as in as many as a dozen other Texas counties which were not declared disaster areas but which still experienced wind damage. Far more commercial property suits (including business interruption issues) seem likely given the larger number of commercial entities impacted by Ike in metro Houston. Suits in traditionally pro-policyholders venues such as Galveston, Beaumont, and Orange could make individual Ike lawsuits more expensive to resolve than their New Orleans and Gulfport counterparts. The wide diversity in policy forms among homeowner policies in Texas will likely lead to both more issues and more lawsuits as policyholder lawyers attempt to exploit such policy differences. So, while there will be many similarities in the litigation, it is more likely that there will be significant differences between the types, amounts, geographic diversity and costs of Ike lawsuits in comparison to the Katrina lawsuits.
