Deep in the Heart of (Frozen) Texas

While large sections of the U.S. regularly experience extreme cold spells, the week of February 14-19, 2021, will go down in the history books for residents of Texas. Dozens of people died due to homes, businesses, and Texas infrastructure not being able to handle temperatures well below freezing. All of this is expected to create major issues for policyholders and those of us in the insurance business, too.

As a former catastrophe adjuster, I have a unique perspective on how to deal with natural disasters as well as a database full of companies and resources to call upon. Even with my preparedness knowledge and experience, though, I fell victim to a propane tank that ran dry at my nearby ranch, cutting off the systems I had expected would prevent a loss.

Although my loss was minimal, unfortunately, many residents of Texas were not so lucky. The onset of the too-numerous-to-count broken water pipe claims have already started to inundate claims call centers, creating the first wave of issues for the insurance industry. Perhaps the only silver lining for this event—if one exists—is the large number of independent catastrophe adjusters who live in Texas and stand ready to be deployed to assist on these claims.

This is one of the few times that these adjusters might be able to work a catastrophe event and not have the expenses and hassles associated with being on the road. Carriers and independent firms might be well advised to consider utilizing these individuals first when they begin deployments rather than bringing in outside help. An additional benefit to using these professionals is their first-hand knowledge of the terrain and the connections they might have with mitigation and repair companies (not to mention their availability to handle re-inspections and supplements).

Coverage Questions

This freezing event will raise multiple coverage issues in the age of COVID-19, as carriers will have to address potential vacancy issues in properties that were shut down by the governmental orders related to stemming the rise of COVID-19 infections. Viable businesses may have been shuttered by governmental orders, leaving numerous properties “vacant” for all intents and purposes. How will that be taken into consideration for coverage purposes? Negative coverage decisions for policyholders are not likely to play well in front of judges and juries, regardless of policy language.

Damages from broken water pipes are typically covered under most policies, but how will loss-of-use or business-income losses be calculated for businesses that were already shuttered or, at best, on a reduced volume, such as restaurants that were surviving on limited take-out business?

Texas is unique in how it handles electricity generation and distribution, and that has created a substantial potential liability issue on the part of an entity known as the Electric Reliability Council of Texas (ERCOT). While ERCOT is a membership-based 501(c)(4) non-profit corporation, governed by a board of directors and subject to oversight by the Public Utility Commission of Texas and the Texas legislature, there are already cases being filed to address possible corporate liability for the power outages that affected the area. Governmental oversite doesn’t necessarily equate to governmental immunity. Might that trigger potential subrogation from carriers that will be paying large sums out to affected policyholders? Even if that is the case, it won’t look good if insurance companies try to muscle their way to the front of the line by recouping losses through subrogation.

Mechanics of Adjusting

Aside from coverage issues that will arise, the immense size of Texas creates a different set of problems with which to address and overcome. As Texas is the third-most populous state in the country, the volume of claims coming in may be overwhelming to smaller, regional carriers, potentially creating solvency issues for some.

When it comes to the mechanics of the repair process, multiple issues complicate matters even more. For example, while hurricanes can be devastating in the amount of damages they cause, they are generally limited in scope in the areas they affect. Tradesmen and other laborers can be brought in from other nearby regions to effectuate the clean-up and repair processes.

Because the winter freeze affected the entire state of Texas, however, there are no additional available individuals left who are not totally swamped with work where they currently live. Add in the fact that plumbing repairs must be completed first, and that they can only be done by licensed plumbers and you have the recipe for a perfect storm of extended periods of delays that must be accounted for. As of late February 2021, the waitlist to have a plumber arrive at a home or business can stretch days or weeks. Once there, there is no guarantee that the plumber will have access to the supplies needed to complete repairs, which are likely flying off the shelves.

COVID-19 also comes into play in the initial calculations of damages covered under the policy. Carriers would be wise to consider modifications to the standard estimating systems used to settle claims that take into consideration any additional costs associated with repairs.

If policyholders have concerns about a large number of repairmen coming and going tos their homes during the repair process, it might be beneficial for carriers to allow for a portion of additional living expenses for a brief hotel stay, if needed. Far better to be lenient in that issue than to suffer extended litigation down the road if someone develops COVID-19.

Appraisal Wave

Getting past the first wave of claims that are pouring in will only provide a brief respite before a second wave of related insurance issues swells up: the inevitable demands for appraisal on supposedly closed claims. Rest assured that plaintiffs’ firms that focus on property claims are gearing up their advertising and solicitation spiels now in order to try and convince policyholders that there is more money in the insurance well to drain.

The only advantage that carriers may have in the appraisal game is in the focus of damages related to water claims from broken pipes. It is much easier to quantify damages related to a singular event such as a broken water pipe than it is for a wind or hail event. Those types of claims are far more susceptible to measures designed solely to inflate the damages and, to use the words of public adjusters, “maximize your recovery!”

The key for carriers is to have a complete and comprehensive investigation into the original claim from the very onset. Contents should be considered and photographed on an individual basis. An adjuster should never leave a blank inventory form with the insured. Documentation that covers not only the actual damages, but also the non-damages is crucial to a successful resolution through the appraisal process.

Regardless of the circumstances that result from any major catastrophic event, carriers are best served by following the policy terms and conditions religiously, ensuring that statutory timelines and requirements are monitored and remain in compliance.

Most importantly, good claims practices and standards are essential. It is in times like these that carriers that specialize in marketing their claims philosophies can separate themselves from those who might choose to focus solely on lower prices.