Farmers, whose various Texas units combine to make it the state’s third-largest insurer, received 207 complaints from Oct. 1, 2010, to Sept. 30, 2011, according to Austin-based Texas Watch, which obtained complaint data from state regulators.

That compares with 198 against State Farm, which has the largest market share in Texas, and 159 against Allstate, the second-largest home insurance company in the state.

Jerry Davies, a spokesman for Farmers, said it was difficult to comment without knowing how many of the complaints were found to be legitimate.

“Everyone we deal with is dealt with as fairly, efficiently and as quickly as we can to resolve their issues, and we work very diligently to resolve each and every claim,” Davies said.

The number of complaints is small compared with the thousands of claims the company handles each year.

However, Texas Watch executive director Alex Winslow said the data are still an important measure of how companies stack up against each other.

“Farmers stands out as a company with more complaints than anyone else, and that’s a very telling distinction,” he said.

The data do not include complaints about coverage or premium issues, but those dealing with payment delays, underpayments, denials and other matters pertaining to how claims are handled.

The numbers don’t break out how many of the complaints are justified. But Winslow said that isn’t relevant because the Texas Department of Insurance can dismiss complaints without investigating if it feels they fall outside its jurisdiction.

“We weren’t interested in what TDI thought of the complaints. We were interested in how many people were registering dissatisfaction with their carrier,” Winslow said.

Insurance Department spokesman Jerry Hagins said the “vast majority” of complaints received do fall within the department’s jurisdiction.

“Things don’t always work out for the consumer; but when we do find the company has erred and the consumer is right, we work robustly for the consumer,” he said, noting that regulators forced insurers to return $25 million to consumers from Sept. 1, 2010, to Aug. 31, 2011.

Consumers can file complaints by calling 800-252-3439 or visiting www.tdi.texas.gov.

In allegations similar to ones in an earlier lawsuit against the state’s insurers of last resort, the home-owners allege that State Farm denied many claims involving lifted shingles and told policyholders that the roof material would reseal itself.

State Farm spokesman Kevin Davis declined to comment on specific allegations.

“Should the court allow this case to move forward, and we do not believe that is appropriate, we are confident and prepared to make our case appropriately in a court of law,” Davis said.

The lawsuit, filed earlier this week in Galveston, alleges State Farm considered lifted shingles that weren’t creased and had no debris beneath them as undamaged.

In some instances, the lawsuit alleges, State Farm flatly told consumers that lifted shingles wouldn’t be taken into account when estimating damages – despite a bulletin from at least one shingle manufacturer that shingles would not reseal after being lifted.

In March 2009, State Farm determined that it would cost $50 per square foot to repair lifted shingles, according to the lawsuit, but didn’t contact policyholders whose claims already had been closed.

Those customers didn’t get compensation for lifted shingles unless they called back and were able to get claims reopened that initially were denied.

Steve Mostyn, the lawyer representing the homeowners, estimated that 80 percent of the allegedly mishandled claims were in Harris County.

Earlier this year, the Texas Windstorm Insurance Association and Texas Fair Access to Insurance Requirements Plan, which sell coverage to those who can’t find it in the private market, agreed to settle similar allegations brought by the Texas Department of Insurance.

Mostyn said State Farm’s efforts to avoid shingles claims were more egregious than those because – unlike the state-created insurers of last resort – State Farm actively advertises for customers.

“State Farm advertises that they’re the cream of the crop, the best,” he said, and “part of that persona that is developed is what consumers relied on and convinced them they were being told the truth.”

As part of the FAIR and TWIA settlement, the two insurers agreed that in assessing claims, they would treat roof shingles unsealed by hurricane winds as damaged. Policyholders had complained that Ike winds blew their shingles back, breaking the seals that keep them adhered to each other and prevent water from leaking through.

The settlement required the insurers to give homeowners premium credits for roof claims that were denied when they should have been paid.

Jerry Hagins, a spokesman for the state Department of Insurance, said the agency received a handful of complaints about other insurers and roof claims. It found insufficient evidence to support those complaints, he said.

But state Sen. Rodney Ellis, D-Houston, said he plans to send the Insurance Department a letter urging it to investigate State Farm.

“I think we have had so many problems with TWIA, and initially when I raised the flag with many of my colleagues, they were leery of it, but so far history has proven those complaints that my constituents sent in were legitimate,” he said. “I’m seeing a similar pattern here and think it’s appropriate to ask the department to do a comprehensive investigation and these improprieties be brought to light.”

Hagins declined comment on Ellis’ request for an investigation.

On Sept. 20, Kitzman headlined a political fund-raiser where she helped tap the insurance industry—the very companies she’s charged with regulating—on behalf of long-time friend and former boss, South Carolina Gov. Nikki Haley, according to a copy of an invitation obtained by The Texas Observer. (View the text of the invitation email here.)

The event—held at the corporate headquarters of the auto insurer Ethos Group in Irving, Texas—attracted a number of insurance executives ready to open their checkbooks, according to Gov. Haley’s campaign records. It also included Barry Goldwater Jr., president of a Washington, D.C., consulting firm that represents the insurance industry, according to the invitation. It’s rare for a political appointee—Kitzman was appointed by Perry in late July—to participate in raising campaign money from the industry he or she regulates.

“It stinks. There’s no doubt about it,” says Alex Winslow, director of Texas Watch, a consumer protection watchdog group that has advocated for tighter regulation on the insurance industry in Texas. “It is completely inappropriate for the insurance commissioner to be headlining a fundraiser hosted at an insurance company headquarters.” He likened it to a shakedown operation.

Kitzman didn’t respond to repeated requests for comment. She was out of state on Friday, Oct. 14, according to her assistant, Laverne Chase. When asked where, Chase said, “I’d rather not say.”

The Kitzman event raised money for Haley, but it may have benefited Perry as well.

Haley, the nation’s youngest governor, has yet to make an endorsement in the South Carolina’s critical first-in-the-South presidential primary. She has said that she will. A Haley endorsement would be a major boost for Perry’s sagging presidential campaign. As she ponders it, the insurance commissioner—who Perry appointed just three weeks before launching his presidential bid —is helping make Haley comfortable in the Lone Star state.

The South Carolina governor flew to Texas on a private plane late last month without putting the event on her public schedule. She left with her campaign coffers flush with insurance industry cash.

The suggested contributions for the Ethos Group fundraiser featuring Kitzman were $500 per person, according to the invitation. “Make checks payable to: Haley for Governor,” it read.

Most people gave more.

Haley raised about $35,000 from Texas contributors in her latest fundraising quarter, according to her disclosure reports released last week. Much of it came from insurance industry folks in a two-day period around the time of the Ethos Group fundraiser with Kitzman. The Ethos Group and the Ethos HR Online Corp. each gave $3,500—the maximum allowed under South Carolina law. Other contributors included Ethos Group executives David Terek, Jeffrey Lukash and Kerry Muller, who donated at or near the maximum amount, according to the fundraising reports.

The Washington, D.C., consulting firm that facilitated the hour-and-a-half-long fund-raising event, The Goldwater-Taplin Group, “provides unrivaled representation for the insurance industry in all 50 states,” according to its website.

Lee Newell, executive assistant to the firm’s CEO, sent out the invitation for the Ethos Group event, according to an email version of it. The email said those not able to attend could send contributions to the firm, which would hand-deliver it to Haley.

Newell wouldn’t provide any details about the fundraiser to the Observer. “I know nothing about the function,” she said before hanging up the phone.

For her part, Kitzman, a 54-year-old Houston native, is a close friend of Haley. Kitzman formerly directed the South Carolina Department of Insurance, but former Gov. Mark Sanford forced her out of that post. She ran for lieutenant governor in 2010, raising the majority of her campaign cash from the insurance industry, but lost the race. When Haley entered the governor’s office this year, she appointed Kitzman to a coveted position leading South Carolina’s budget board. Kitzman held the $173,000 post for six months before bolting for Texas this summer to regulate the insurance industry under Perry.

Both Perry and Haley have been criticized for dispensing political payoffs to friends and contributors. In Texas, companies that received state economic development grants through Perry’s office have donated millions in campaign contributions to the governor. He’s also received millions in campaign contributions from his political appointees. This isn’t the first time one of Perry’s appointees has been involved in soliciting campaign contributions from a regulated industry. In 2009, the head of the Texas Alcoholic Beverage Commission signed a fundraising letter for Perry’s reelection campaign that was sent to restaurant owners regulated by his agency.

So why did the Ethos Group put on a Texas fundraiser for Haley in the first place?

“They, like many others across the country, like what we are doing in South Carolina with a pro-business climate,” said a Haley campaign aide in a statement to the Charleston Post & Courier. “We appreciate their willingness to support the governor.”

But something else could be going on.

South Carolina voters have accurately predicted the eventual GOP presidential nominee since 1980; and a recent Winthrop University poll found that 70 percent of Republicans in the state approve of the job Haley is doing.

Meanwhile, the fresh-faced Tea Party governor has been sharpening her national profile and spending much time on FOX News, ramping up talk that she’s angling for a placement on 2012 vice presidential shortlists.

Kitzman’s Texas fundraising for Haley could be aimed at currying favor for Perry with the governor of a state with a January primary that could make or break Perry’s presidential run.

“That’s kind of what I suspect went on,” says John Crangle, a Limestone College political science professor who has run the South Carolina chapter of Common Cause for 25 years. “Why else would she go to Texas and raise insurance money?”

Crangle adds that insurance companies are common targets for governors looking for campaign cash because of the hyper-regulated nature of their industry. “A common pattern of practice around the country is to shake down insurance companies because they’re regulated industries and they’re easy to shake down,” Crangle says.

In Texas, the pay-to-play game is played for sure, says Winslow of Texas Watch. But usually, he says, the participants are careful in how they present fundraising events so as to avoid any perception of a conflict of interest.

What’s unusual about the Texas Ethos Group fundraiser for Haley, he says, is that the state’s insurance commissioner was there.

“It’s unusual to have an agency head who’s an administrative officer — not an elected official — to be actively involved in politically fundraising for a candidate like this,” he says.

So, why might Kitzman have landed her job and then become involved in fundraising?

Says Winslow, “There’s all kinds of speculation that Perry made this decision as a way to court Haley.”

Insurers say that dropping or decreasing certain coverage allows them to control costs and, in turn, keep a handle on the rates they charge to customers. Consumer advocates say it’s a reflection of lax oversight resulting from an overhaul of Texas insurance laws eight years ago.

Since then, many insurers in Texas have limited coverage for mold damage, limited wind damage coverage to named storms and in some cases eliminated windstorm coverage altogether in coastal areas.

More recently, State Farm, the state’s largest insurer, said it plans to move new and renewing customers to a minimum 1 percent deductible starting in December.

That means deductibles will be calculated as a percentage of a home’s insured value rather than a flat dollar amount, increasing how much homeowners would pay out of pocket before collecting on insurance.

The Texas Department of Insurance reported earlier this year that a survey of insurers making up 90 percent of the Texas market found that many dropped or reduced coverage compared to the standard homeowner policies they sold before the laws changed in 2003.

Eighty-seven percent of the insurers had less coverage for leakage from plumbing, air conditioning or heating; 72 percent had less coverage for sewer backups and 67 percent had less coverage for foundation and slab damage.

That could mean they reduced or eliminated coverage for certain types of damage. For example, the department report said, some insurers now cover water damage from sudden pipe breaks, but not from slow or repeated leaks.

“The numbers are pretty clear,” said Alex Winslow, of Austin-based Texas Watch. “Consumers are not getting the same level of protection they were getting under the standard form. And we are paying more now than we were then. So we are paying more and getting less.”

Winslow blames the 2003 overhauls for creating a climate that allows companies to raise prices and lower coverage with less oversight than he believes is needed.

Lawmakers passed the changes when insurers said rising mold claims were creating a financial crisis.

The new rules established a “file and use” system that permits insurers to file changes in rates or coverage with the state, then put them into effect immediately.

Regulators still review the changes and can order refunds if they determine changes weren’t justified.

“This is a political battle,” Winslow said. “This is the legislature allowing insurance companies to operate without meaningful oversight.”

Industry spokesmen, however, say insurers can’t really make changes as quickly as they hoped the overhaul would allow.

Haggling’s toll

Beaman Floyd, a consultant and lobbyist for the Texas Coalition for Affordable Insurance Solutions, an industry trade group, said insurers often let the Insurance Department preview changes before officially filing notice, which leads to haggling that can delay the process.

Texas has the most expensive homeowners insurance premiums in the nation, according to figures released last November by the National Association of Insurance Commissioners.

The average annual premium in Texas is $1,460 for the most common type of homeowners policy sold across the country, according to the report.

Industry representatives say the report is misleading because it doesn’t reflect the range of policies sold in the state, some of which are cheaper than the one used for the comparison.

They don’t dispute, though, that rates in Texas have grown.

By the end of 2009, according to Insurance Department figures, Texas homeowners rates were 5.1 percent higher than when the laws changed in 2003.

State Farm and Farmers have filed notices of rate hikes with state regulators in recent months.

Floyd said rates have increased because insurers are facing higher costs, such as the rising price of building materials.

But he said the 2003 laws have made it easier for insurers to offer coverage and discounts not available before, such as price breaks for installing fire resistant shingles or sprinklers.

Insurers make changes based on market demands and limit or drop types of coverage so they can keep their rates competitive, said Jerry Johns, spokesman for Southwest Insurance Information Services, another industry group.

For that matter, Farmers also partly justified the increase on, of all things, Hurricane Ike. We hate to be splitting hairs here, but we’re pretty sure that Ike struck in 2008. And earlier this year, Farmers raised its homeowners rates another 3.9 percent … and state officials did nothing.

The Legislature also went through another session this year without doing anything to slow down the increases in homeowners rates for coastal residents.

If consumers think they are being let down by their state officials, they are right.

As part of a notice to Texas insurance regulators that it plans to hike homeowner rates an average 9.6 percent in October, the state’s largest insurer also said it plans to move all current customers to a minimum 1 percent deductible starting in December.

That means deductibles would be charged as a percentage of the home’s insured value rather than a flat dollar amount.

For example, the owner of a house insured for $200,000 with a flat $1,000 deductible and a $10,000 claim would collect $9,000 from an insurer. With a 1 percent deductible, however, the homeowner would only recover $8,000 because the 1 percent deductible translates to $2,000.

With a 5 percent deductible, the same homeowner would collect nothing from the insurance company.

Higher claims, costs

State Farm is making the changes because of higher claims volumes and costs, said spokesman Kevin Davis. Shifting more costs to the homeowner allows the company to limit increases on premiums, he said.

The company has paid more than $350 million in catastrophe claims in 2011 to date, mainly “due to spring hail storms and wildfires,” he said.

Insurers have historically required percentage deductibles in wind and hail policies and have offered them as a lower-cost option for other types of coverage.

About 60 percent of policies other than for wind and hail now are sold with percentage deductibles, according to the Office of Public Insurance Counsel, a consumer agency in Austin. The rest are sold with flat-dollar deductibles, the most common being $1,000.

Allstate, the state’s second-largest insurer, offers fixed-dollar deductibles, although many policyholders have a 1 percentage deductible, said spokesman Joe McCormick.

‘A virtual illusion’

If approved by regulators, State Farm will require customers to have a minimum 1 percent deductible for all claims and is eliminating the options for flat-dollar deductibles that ranged from $500 to $4,000.

Using percentage-based deductibles means higher out-of-pocket costs for consumers who file claims, said Alex Winslow, head of the consumer group Texas Watch. It also would mean policyholders would collect only for the most extreme, catastrophic losses.

“With higher costs and less coverage, insurance will become a virtual illusion for most middle-class homeowners,” Winslow said, noting that other insurers are likely to follow if State Farm is allowed to move everyone to percentage deductibles. “This will mean higher costs for consumers, period.”

The average 9.6 percent rate hike would vary by county.

Montgomery up 15%

In Harris County, average premium rates would change from a 1 percent decrease to an 11 percent increase, when accounting for all the changes, including discount adjustments. Fort Bend and Brazoria county residents will see an average 6 percent hike, and those in Montgomery County will see a 15 percent increase. Average premiums in Galveston County remain unchanged.

The actual premium change for any individual customer will vary based on the home’s age, coverage and other factors.

The company also intends to increase a discount for customers who have both cars and homes insured with the company to 25 percent from 20 percent.

The TRCC, however, had at least one friend who mattered: Houston homebuilder Bob Perry, who has given Gov. Rick Perry more than $2.5 million during his tenure in office. An advocate for the agency from its creation in 2003 until it closed its doors in 2010, the homebuilder’s imprimatur was significant. His lobbyists played a key role in its inception; his company’s general counsel, John Krugh, was appointed to serve on the commission by Gov. Perry, no relation to Bob Perry, one month after the homebuilder gave a $100,000 campaign contribution to the governor.

Now dormant, the TRCC serves as a case study of how wealthy contributors can shape public policy. In this year’s hard-fought Republican presidential primary, the agency likely will get renewed scrutiny as Perry’s Republican competitors search for ways to distinguish themselves from the Texas governor. In a speech last week in Iowa, former Alaska governor Sarah Palin took aim against career politicians who reward their campaign contributors with government favors.

“There is a name for this. It’s called ‘corporate crony capitalism,’ ” she said. “I believe in the free market and that is why I detest crony capitalism. And Barack Obama has shown us cronyism on steroids. It will lead to our downfall if we don’t stop it now.”

While Palin won applause from her conservative audience by focusing on the president, many political observers believe her remarks were aimed at another target: Rick Perry, whose lengthy tenure in office leaves him vulnerable to the charge he has rewarded campaign contributors with government favors. She raised a question central to the GOP’s mission: If Republicans hope to defeat Obama because he engages in “crony capitalism,” is Perry the right candidate to carry that message?

“When she said ‘crony capitalism,’ who else could it be? It had to be Perry,” said Dr. Larry Sabato, director of the University of Virginia’s Center for Politics. “She mentioned Obama, but whoever wrote her speech, it had a Republican dimension to it.”

‘Everybody does it’

To Sabato, the salvo from Palin provided evidence that the Republican contest was far from decided. He expressed doubts, however, that Palin or other Perry opponents would make much headway with the “crony capitalism” charge.

“People are cynical,” he said. “Basically, people expect a certain level of corruption from all high officials. After all, you can go through and name probably 200 individuals that Obama has appointed who gave him big contributions. People shrug their shoulders and say ‘everybody does it.’ ”

Sheila Krumholz, director of the bipartisan Center for Responsive Politics which tracks campaign finance issues, agreed that Perry is “helped by the fact that this is the system by which all candidates raise money and the system in which they operate.”

However, she added, “I do think there are lines in the sand which, when candidates cross them, they do so at their peril. There have been instances of a scandal or perceptions that candidates in the pocket of specific interests and that will be fodder for their opponents. I don’t think he can count out the ire of the voters.”

Inherent conflict

To Texas lawmakers of both parties, the TRCC crossed that line of propriety.

“This was a reward,” said Rep. Jessica Farrar, D-Houston, who fought to shut down the agency. “Bob Perry gave a ton of dough and got rewarded.”

But Anthony Holms, a spokesman for the homebuilder, said it was “absurd” to link the creation of the agency to campaign contributions to the governor. “A state agency in Texas can only be created by 181 Democrats and Republicans,” he said, referring to the Texas Legislature.

The creation of the agency meant that consumers with complaints of poor workmanship had to go first to the agency for dispute resolution, instead of the courthouse. Farrar said that in practice, that meant “consumers lost a lot of rights.”

A state Sunset Commission report bears out that charge: Before lawmakers ultimately decided to end its existence, the TRCC resolved only 12 percent of its cases to the satisfaction of consumers. The rest wound up going to court, the report noted, “the very outcome” the TRCC was supposed to avoid.

Sen. Bob Duncan, R-Lubbock, initially supported creation of the agency, but became dismayed when Perry appointed Krugh to the commission. While on the commission, Krugh worked actively against legislative changes that many believed would have made the TRCC more responsive to consumers.

The Texas Senate confirmation hearing for Krugh illustrated the inherent conflict in naming Bob Perry’s lawyer to the commission. Duncan asked Krugh about his opposition to legislation that would have made the agency more consumer friendly. When Krugh replied that he opposed them “as a builder,” Duncan admonished him.

“I’m asking you to take off your builder hat. When you are sitting on this commission, you are sitting in a fiduciary (capacity) for the State of Texas. You have to make decisions based on … what’s fair and balanced, not what’s in the best interests of the builder.”

Krugh, who no longer works for Perry Homes, could not be reached for comment, but in a 2005 interview with Texas Monthly, he said he hoped the agency would help homeowners avoid costly and unpredictable litigation. “The old system drove them to their lawyers and their experts and they got caught up in what I call this vortex of litigation, and they couldn’t get out,” he said. “The third-party intervention at least gives the homeowners some control over what goes on before they get caught up in that vortex.”

Consumer complaints

A few years later, however, when the Sunset Commission examined the TRCC’s operations, it got a barrage of consumer complaints, sharing their experiences with the agency.

“We as Texans are faced with another layer of government that has no power to enforce construction standards and can not resolve homeowner’s construction complaints,” wrote one dissatisfied home owner. “I have incurred additional legal and expert fees throughout this entire process and I am back to where I would have started prior to the establishment of the TRCC – that is before the court to resolve this dispute.”

Another Houston area homeowner reported that the commission often overturned the findings of its own experts. “The TRCC inspector ruled in (the home owners’) favor but once again, the builder whined and the judgment was overturned in favor of the builder. There seems to be a pattern of certain builders whining like babies and TRCC obliging them.”

Eleanor Kitzman, 54, a former South Carolina insurance director, made an unsuccessful run for that state’s lieutenant governorship last year in which the majority of her contributions came from insurance companies, insurance industry political action committees and people working in the insurance business.

A review of campaign finance records showed that at least two-thirds of the more than $150,000 in contributions were from insurance-related organizations or people working in the field. The South Carolina State Farm Agents and Associates PAC gave $3,500, the State Mutual Insurance Co. gave $3,500, and thousands of dollars were donated by lawyers and governmental affairs specialists from insurance companies.

Kitzman, who founded a small insurance company in 1999, said she would not be beholden to the industry. The contributors gave to her campaign despite not being able to garner any favor, she said.

“I worked in the insurance industry,” she said. “Those are the people who know me.”

Alex Winslow, executive director of the consumer group Texas Watch, said he’s concerned about Kitzman’s closeness to insurers but hopeful that she’ll lead with an understanding of consumer needs.

“The insurance commissioner’s job is to represent both industry and consumers, to serve as a referee that doesn’t give an advantage to either side,” Winslow said. “Policyholders expect Ms. Kitzman to keep her thumb off the scale and work toward a balanced market with reasonable rates, decent coverage and fair claims handling.”

Jose Montemayor, who was Texas’ insurance commissioner from 1999 to 2005, knew Kitzman when they each led insurance departments, and he said he thinks she would do “an excellent job” and that she has “sufficient integrity” to fill the spot in Texas.

Montemayor said he wasn’t surprised — or concerned — about Kitzman’s ties to the industry.

“Those are the people you deal with,” he said.

Kitzman ran South Carolina’s insurance department from 2005 to 2007. She resigned after a disagreement with then-Gov. Mark Sanford over coastal wind coverage in 2006 , she said.

At the time, coastal South Carolinians were finding it more and more difficult to get insurance, and Kitzman wanted to expand the area of the state where residents could get insurance from the wind pool, a nonprofit organization similar to the Texas Windstorm Insurance Association. But Sanford disagreed, and soon after, Kitzman resigned, she said. She noted that the state later expanded the pool.

Kitzman is executive director of the South Carolina Budget and Control Board, the central administrative agency for South Carolina state government. It is run by five state officials, including the governor. She was appointed by Republican Gov. Nikki Haley, who was elected last fall.

But Kitzman’s performance recently has been criticized by some board members.

State Treasurer Curtis Loftis said he has seen the board suffer under Kitzman’s leadership.

“I found the board to be inefficient, unaccountable and nontransparent,” he said. “As one of her employers, I found her to be nonresponsive to my direct requests, and she seemed to think she only worked for one person, which was the governor.”

Kitzman declined to talk about the criticism.

When she starts her Texas job on Aug. 15, she’ll be returning home, in a sense. She grew up in Houston, she said.

In 1974, Kitzman said, she was 18 years old, was divorced, had a 1-year-old son and had a 10th-grade education. But as an avid reader, she said, she never stopped learning, and eventually she attended the University of Houston at night and earned a law degree from the South Texas College of Law.

She excelled in law school, she said, and got a job as a law clerk at the state Supreme Court. That opportunity turned into a job with the mega-firm Akin Gump, where she learned about insurance law before leaving the state, she said.

Kitzman said she is excited about returning to Texas because her son and two granddaughters live in Austin.

She said her salary as insurance commissioner has not been finalized. Perry will determine her earnings, which must be between $140,900 and $221,500. Commissioner Mike Geeslin, who announced in January that he would leave the post, makes $163,800 a year.

The Texas Windstorm Insurance Association and Texas Fair Access to Insurance Requirements Plan, which sell coverage to those who can’t find it in the private market, agreed to settle cases brought by state regulators over delayed payments and disputes over damaged roofs and other claims after Hurricane Ike in 2008.

The companies settled without admitting any violations of state regulations.

Under the settlement with the Texas Department of Insurance, both insurance associations agree to provide training for adjusters and claims examiners, upgrade their technology to improve tracking of claims and comply with prompt payment deadlines.

Hundreds of policyholders sued TWIA after Hurricane Ike, and the association’s claims-handling practices led to several state investigations.

Many policyholders alleged the windstorm insurers didn’t meet deadlines required by law, such as sending policyholders written acceptance or rejection notices within 15 days of receiving the information they need to assess a claim.

The insurance department found that 600 complaints against TWIA by August 2010 and 100 against FAIR by April of that year were justified.

Both insurers agreed to give premium credits of 18 percent as interest on claims that weren’t paid within deadlines set out in the state’s insurance code.

The two insurers also agreed to treat roof shingles unsealed by hurricane winds as damaged. Policyholders had complained that Ike winds blew their shingles back, breaking the seals that keep them adhered to each other and prevent water from leaking through. TWIA and FAIR had not considered loose shingles damaged in assessing claims.

The settlement requires the insurers to give homeowners premium credits for roof claims that were denied when they should have been paid.

The insurers also agreed to pay “overhead and profit” to policyholders unfairly denied the payments. Such payments are made for damage that would likely require the use of a general contractor, even if the homeowners oversee the work themselves.

The insurers must file reports with the insurance department noting which customers receive the additional benefits; regulators reserve the right to audit the files where no payments were made.

Policyholders who are owed more than their premiums will get credits in the amount of the premium and checks for the surplus.
The settlement doesn’t apply to claims that have been settled previously or remain in litigation. Neither TWIA nor the insurance department could say how many policyholders would be affected.

State regulators placed TWIA under more direct oversight earlier this year, amid a fraud inquiry by the Travis County district attorney.

The settlement will not affect the oversight, said Jerry Hagins, insurance department spokesman.
“That’s a separate issue,” he said.

TWIA has grown to insure nearly 244,000 homes and businesses as private insurers have reduced or eliminated windstorm coverage along the Gulf Coast.

Steve Mostyn, an attorney for policyholders whose litigation brought many of the complaints to light, welcomed the insurance department’s efforts.

“I am concerned about the search criteria for identifying lifted shingles and hope the follow-through will be diligent,” he said. “These violations were uncovered after thousands of hours of private-attorney time. TDI simply does not have the budget to do this type of discovery.”

The settlement could also have implications for private insurers that received similar complaints after Ike, he noted.

“TWIA needlessly punished and endangered its policyholders after Hurricane Ike. The lesson from this man-made disaster should be to bolster protections for policyholders. Instead, lawmakers have chosen to severely curtail the legal protections and constitutional rights of coastal residents and business owners,” said Alex Winslow, Texas Watch executive director. “This legislation is an unconstitutionally retroactive big government solution that severely restricts existing legal protections designed to guarantee that claims are paid promptly and fairly.”

The primary concerns about the legislation are as follows:

1) Expert panel: The bill creates a so-called “expert panel” to establish guidelines upon which claims will be handled. These guidelines are “presumed to be accurate and correct, unless clear and convincing evidence supports a deviation from the guidelines,” creating a virtually insurmountable legal burden on policyholders who dispute the panel’s findings. This represents an unprecedented amount of power for an unelected, unaccountable panel.

2) Damages: The bill severely restricts protections that are guaranteed for all other insurance customers for TWIA policyholders. In order to force TWIA to pay penalties for unfair claims handling, policyholders must overcome a legal hurdle that is much higher than all other policyholders must meet.

3) Retroactive: This legislation takes the exceptional step of upsetting current contracts. It states that limitations on lawsuits will apply to any cause of action that accrues on or after the effective date of the bill, “regardless of the date on which the policy was delivered, issued for delivery, or renewed.” So if a policyholder bought a TWIA policy today, which incorporated claims handling deadlines and policyholder protections on par with those provided in the private market, those contract terms could be trumped by this legislation. The coverage purchased by their hard-earned dollars would be undone by state action. Through this legislation, the state is effectively confiscating their property rights and providing no benefit in return.

4) Binding Arbitration: The bill includes a provision that is likely to result in most policyholders waiving their legal rights before a dispute arises. Additionally, the legislation creates a de facto binding arbitration process through appraisal for many claims.