Insurer May Face $300K in Fines, Lawsuits After Texas Releases Audit

July 15, 2008

An insurance company disciplined by state regulators for its handling of claims after Hurricane Rita could face up to $300,000 in fines after the release of an audit by the Texas Department of Insurance.

Earlier this year, TDI found that Capitol County Mutual Fire Insurance Company misrepresented policies to its clients, took too long to respond to claims, used unqualified adjusters and failed to pay claims where the insurer was liable, the Beaumont Enterprise reported.

The agency’s investigation into the company was spurred by numerous complaints from policyholders in the aftermath of Rita.

State regulators fined the carrier $150,000 and that could double once an audit is completed by next month. Capitol County could also face class action litigation from policyholders who sued the insurer about its decision to join other private insurers in withdrawing wind coverage after Rita struck in September 2005.

Phone calls and e-mails to Capitol County and its affiliate companies from the newspaper were not returned.

The Department of Insurance issued its disciplinary order in February. Capitol County noted in the order that its ability to handle claims was compromised by the volume of Rita-related claims coming on top of the thousands it received after Hurricane Katrina, about a month earlier.

More than two years after Rita, the pace of lawsuits filed by homeowners against insurance companies about damage had slowed, according to filings in Jefferson, Hardin and Orange counties and the U.S. District Court in Beaumont.

But for Capitol County, the disciplinary order triggered a slew of lawsuits from Rita homeowners at a rate greater than any time since the storm.

In Jefferson County, where the bulk of the lawsuits are filed, more Rita-related homeowner insurance lawsuits have been filed against Capitol County since the disciplinary action than have been filed against both Allstate Corp. and State Farm Insurance.

Like most of the litigation between homeowners and insurance companies stemming from the hurricane, the lawsuits against Capitol County advance two primary claims – that the insurer failed to appropriately value a property’s storm damage and the insurer acted in bad faith in the handling of the policy claim.

Insurance claims for Hurricane Rita-related damages reached $2.27 billion in Texas by March 2007, with 220,641 residents filing, according to the Insurance Council of Texas.

Only a fraction of claims resulted in litigation, but more than 1,000 of the lawsuits have been filed in southeast Texas since the storm. Hundreds have since settled through mediation, and none have gone to trial.

Beaumont attorney Mike Ramsey of The Mostyn Law Firm, which has filed more Rita-related homeowner insurance lawsuits than any other firm, said the chances of getting a trial increase with each day.

“The cases that are likely to get settled, generally get settled fairly early in the process because of the cost involved in proceeding into the litigation,” Ramsey said.

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