While the Hurricane Ike litigation is all but over, there has been an undeniable increase in hail claims in the past 24 months that have kept carriers, adjusters, and attorneys quite busy. These claims, and subsequent litigation, have not gone unnoticed.
Recently I ran across an article by Steven Badger, an experienced Dallas insurance defense attorney, posing the question: “What the Hail is Going On in Texas?”1 Although admitting that the number of hailstorms “is on the rise”, he goes on to attribute the sharp increase in claims and litigation to “sinister” forces, i.e., public insurance adjusters, roofers, and out-of-town policyholder attorneys desperately searching for work after the Hurricane Ike claims ended.
In explaining his diagnosis, Badger writes:
A little history …
On Sept. 13, 2008, Hurricane Ike struck Galveston Island. It was the costliest hurricane in Texas history — estimated at $20 billion — and the damage was widespread. Contractors, consultants, public adjusters, attorneys, and others with no insurance-related experience whatsoever descended upon the Gulf Coast to become involved in the massive number of Hurricane Ike insurance claims and resulting lawsuits.
Car mechanics became roofing contractors. Sanitation engineers became wind engineers. Personal injury attorneys became insurance policyholder attorneys. A new industry emerged. It was the full employment event.
But more than four years later, the Ike claims have, for the most part, been resolved, leaving this new industry of contractors, consultants, public adjusters and attorneys (who for four years made a living pursuing hurricane claims) with a significant shortage of work. What could they do to stay busy and capitalize on their Ike experience?
The answer — hail claims.
Over the past couple of years, a cottage industry has emerged in Texas of newly licensed public adjusters, individuals acting as unlicensed public adjusters, insurance appraisers, consultants, general contractors, roofing contractors and attorneys, all of whom have become hail damage claim “experts.”
Armed with an endless supply of old, deteriorated roofs and frequent Texas hailstorms, these individuals have found the hail claim business to be a good one, at least until the next hurricane comes along.
All that is needed to identify potential new claims are the high-quality aerial images of Google Earth (to identify old roofs sure to have seen hail at some point in their lives) and a National Climatic Data Center Storm Report listing recent hail events in a particular county (to establish a recent date of loss). Thereafter, the business model is simple — knock on doors and offer to help the building owner pursue a hail damage claim.
The offer is attractive to the building owner, as the contractor agrees to work on a contingency basis, completing the roof repairs with the insurance proceeds. In some cases, the contractor even offers to pay the building owner’s deductible (a potentially fraudulent practice).
Plus, with favorable Texas “bad-faith” law and an appraisal process in disarray since the Texas Supreme Court’s opinion in State Farm v. Johnson, the Texas climate for this business model is very appealing.
Most claims pursued under this model play out the same way. They are initially handled by the contractor, who files the claim on behalf of the property owner. If the insurer disagrees with the scope of damage or cost of repair, a public adjuster is engaged. If the claim cannot be resolved by the public adjuster, appraisal is demanded. Finally, if the claim remains disputed, an attorney (often from Houston or San Antonio) steps in and pursues the lawsuit.
Like anything in life, there is some truth to what Badger has written. The aftermath of Hurricane Ike did usher in a new generation of claims consultants, public insurance adjusters, contractors, and even attorneys (as has been the case with every major disaster). It similarly created a new era of insurance adjusters (that were sent into the field to adjust claims with little to no training), “construction consultants” (practicing engineering without that pesky license), and defense attorneys (with no discernable experience in property damage claims).
Where the article misses the boat, in my opinion, is in placing the blame squarely on the people offering to help the policyholders. Are there some bad apples on both sides? Sure, that’s why the Texas Association of Public Insurance Adjusters actively reports individuals that are adjusting claims without a license and was instrumental in passing new legislation to prevent contractors from adjusting claims. But insurance carriers and their representatives must shoulder the blame as well. Whether it is a lack of training, or an internal backlash resulting from the number of storms and amounts paid out by carriers (Amarillo alone saw $500 million in insured losses), some carriers have utterly failed in their obligation to provide prompt and fair payments. Often these denials are based on self titled “construction consultants” that are passed off to the policyholder as professional engineers.
If an insurance carrier is presented with an invalid claim, it will generally hire experienced adjusters and attorneys to defend its right to deny the claim. If a policyholder presents a valid claim that is denied, should they not be afforded the same right without fear of being labeled as “part of the problem?”
Badger concludes by saying the pattern of increasing hail lawsuits “will continue until the insurance companies curtail their coverage to the point that it no longer makes sense for these third parties to get involved in the insurance claims process, or greater judicial and legislative attention is brought to bear.” This “take my ball and go home” approach, however, is far from the solution. To prevent “third parties” from getting involved in insurance claims, carriers should perform full, unbiased investigations with qualified and reputable experts. If this happens, the vast majority of claims will be settled and the carriers will be able to successfully defend any litigation challenging their determinations.
I could provide a number of illustrative examples of how the claims tactics of insurance carriers are really “driving the bus” in the increasing hail litigation in Texas but, as they say, a picture (or video) is worth a thousand words. Below is a video, shot from my client’s property on the night of the hail storm. The carrier denied that any damages to the roof, stucco, or soft metals were caused by hail and their adjuster opined after watching the video that there was nothing falling larger than a pea. See what you think: