Texas Windstorm Insurance Underwriting Bill Sent to Governor Rick Perry for Action

Jul 1, 2011


The comprehensive Texas Windstorm Insurance Association (“TWIA”) reform bill, HB 3, was passed by the Texas Legislature on June 28, 2011 during a Special Session. 

Immediately upon the adjournment of the Regular Texas Legislative Session on May 29, 2011, Governor Rick Perry called the Special Session to address major issues, including TWIA, which had yet to be resolved.  During the Regular Session, TWIA reform failed largely because of tort reform components of the bill that were aggressively attacked by the Trial Lawyer lobby.   During the Special Session, the Texas Senate and House passed two distinctly different bills, thus forcing a conference committee to be appointed to resolve the resulting disputes.  Ultimately, compromise HB 3 passed the House by a vote of 98-14 and the Senate by a vote of 18-12.

The final version of HB 3, which was sent to Governor Rick Perry for action on June 29, 2011, includes the following provisions:

  • Defines “catastrophe year” as a calendar year in which an occurrence or a series of occurrences results in insured losses, regardless of when the insured losses are ultimately paid.
  • Allows the TWIA Board of Directors (“Board”), with the approval of the Texas Insurance Commissioner, to issue up to $1 billion of the Class 1 pre-event bonds.
  • Improved the process for surcharging coastal property owners for “post-event” class 2 bond.
  • Authorized marketable Class 2 bond to be issued, if the amount of marketable Class 1 bonds are insufficient to pay the excess losses for which the bonds are issued. Authorized marketable Class 3 bonds to be issued if the amount of marketable Class 2 bonds is insufficient to pay the excess losses for which the bonds issued.
  • Requires the TWIA Board to report a plan of action to the Legislature on covering losses over $2.5 billion if reinsurance is not purchased in a calendar year.
  • Clarifies language for Class 2 bonds regarding premium surcharges and the lines of insurance that are subject to assessments and surcharges.
  • Subjects TWIA to the open meetings and open records laws under Chapters 551 and 552, Government Code.
  • Provides that TWIA shall develop a simplified renewal process allowing for the acceptance of an application for renewal coverage, as well as payment of premiums, from a property and casualty agent.
  • Requires an insured to file a claim under a TWIA policy within one year from the date of loss; the Insurance Commissioner has the authority, upon the showing of good cause, to extend the one-year period for up to an additional 180 days.
  • Other insurers may include certain contractual limitations in their homeowners’ policies that mirror the TWIA limitations, with approval by the Insurance Commissioner, as an incentive to increase the insurance marketplace.
  • A procedure for handling disputes arising over the amount of damages on accepted claims that are subjected to a binding appraisal process.
  • Claimant must provide notice to TWIA of the intent to bring a lawsuit; lawsuits must be filed within two years of the denial of a claim; TWIA may require the claimant to submit the dispute to alternative dispute resolution by mediation or moderated settlement conference.
  • Limits the type of suits that may be brought against TWIA, eliminates treble damages and the 18 percent penalty provisions, and places limits on the following recoverable damages:
    • Covered loss payable under the terms of the policy, less that amount of loss already paid by TWIA;
    • Prejudgment interest;
    • Court costs and reasonable and necessary attorneys’ fees;
    • Consequential damages as provided under common law; and
    • Double damages under limited circumstances.
  • The Commissioner shall appoint an expert panel to advise TWIA concerning the extent to which a loss occurred as a result of wind, waves, tidal surges, or rising waters not caused by waves or surges.
  • Establishes an ombudsman program to provide information and educational programs to assist insureds.
  • Expands the authority of the Insurance Commissioner as follows
    • Provides authority to put TWIA into conservatorship;
    • Affords discretion to do claims audits; and
    • Provides authority to set agent commission and fees.
  • Establishes a legislative interim study committee to:
    • Conduct an examination of alternative ways to provide insurance;
    • Study the residual markets;
    • Study windstorm-related building codes and mitigation strategies;
    • Recommend the appropriate scope of authority for an entity to provide insurance, organizational structure of this entity, timetable for implementation, specific amendments to state laws and estimated funding requirements;
    • Report to the Governor and the Legislature no later than December 1, 2012.
  • Provides for a joint study between the Texas Department of Insurance and TWIA to examine whether TWIA’s use of a single adjuster program would improve the effectiveness and efficiency with which TWIA receives, processes, settles and pays claims filed under insurance policies.
  • The Insurance Commissioner shall study the feasibility of TWIA writing policies directly and the impact it would have on rates for policies issued by TWIA.

To access the full text of the enrolled HB 3, click here


Should you have any questions or comments, please contact Colodny Fass.



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