Texas attorney going to prison for five years for committing insurance fraud and barratry in hail claims

Those of us in the trenches know that there is an epidemic of insurance fraud and barratry in Texas hail claims. Well, there is now undeniable proof. On Friday, well-known hail attorney Kent Livesay appeared in a Tarrant County courtroom and entered a guilty plea to insurance fraud and barratry occurring in Texas hail claims. As part of his guilty plea, Livesay accepted a 5-year prison sentence. YES, THAT’S RIGHT. A Texas attorney has pleaded guilty and is going to prison for five years for committing insurance fraud and barratry in hail claims. A copy of his plea agreement is available here . A 343 page listing of evidence accumulated by the TDI and Tarrant County District Attorney used to support the indictment is available here .

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Zelle LLP to Host “2018 Texas Hail and Harvey Claims/Litigation Seminar”

On Thursday, May 3, 2018, the Dallas office of Zelle LLP will host an all-day seminar at the Hyatt Regency Reunion titled “2018 Texas Hail and Harvey Claims/Litigation Seminar.” The seminar will bring together insurance industry professionals to share information and knowledge concerning Texas Hail and Hurricane Harvey claims and litigation. The seminar has been held every other year since 2012. Over 500 attendees are expected.

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2017 – A Record Setting Year

2017 was a year of records for sure.  Most notably, professional eater Joey Chestnut set a new record by eating 55 glazed doughnuts in eight minutes.[1] At a university in Ohio, 972 people set a record by dressing as penguins.[2]  And, Ayanna Williams of Texas set a record thanks to her fingernails reaching a combined total length of 18 feet, 10.9 inches.[3] Unfortunately, the U.S. also set a record in 2017 with a total of $306 billion in damage resulting from several natural disasters. In fact, the 2017 season was the first time that three Category 4 hurricanes — Harvey, Irma, and Maria — made landfall in the United States and its territories in a one-year period.

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First Quarter Numbers for Property Insurers Look Bleak, But is it Too Early to Call it a Trend?

The insurance industry has been able, in the past few years, to avoid a string of major catastrophes like those in the early 2000’s.  One might think that property insurers have gotten off easy. Appearances can be deceiving, however, as the industry has been battered by smaller, more frequent, events.  In fact, Fox Business recently reported that the first quarter of 2017 was the most expensive quarter for U.S. property insurers in more than 20 years. The cause for such dreary numbers can be attributed to severe weather—namely tornadoes, flooding, hail, and ice storms. As of early April 6, 2017, there have already been 5 weather and climate disaster events in the U.S., with losses exceeding $1 billion each.  The average for the most recent 5 years (2012–2016) is 10.6 severe weather events per year. In total, it is estimated that insurers have paid approximately $6 billion in weather-related claims so far this year compared to an estimated $4.5 billion as of the same time last year.

Source: https://www.ncdc.noaa.gov/billions/time-series 

It is also worth noting that the first quarter of the year typically yields fewer catastrophe-related damages because hurricane season does not start until the second quarter. However, there were over 400 tornadoes from January through March 2017, compared to 205 during the same period in 2016. When the final tornado count for March is determined, the month will likely rank among the 10 most active Marches for tornadoes. Moreover, hail continues to show that it has devastating economic effects for both commercial and personal lines. 

With more than double the number of tornadoes than in 2016 and an increase in hail claims, insurers are bracing themselves for an increase in weather-related claims as we enter the second quarter.  According to NOAA, the contiguous U.S. had the second wettest April in over 123 years.  Moreover, hail is most likely to fall in the U.S. during the months of May and June. With the hail and tornado season underway and the hurricane season around the corner, weather related-claims should continue to roll in during the second quarter. 

Yet, it may not be all doom and gloom for property insurers, as forecasters are calling for a below-normal hurricane season this year. In fact, only 11 named storms are predicted for the U.S. for 2017. Of these named storms, only four are predicted to become hurricanes and only 2 are predicted to be Category 3 or higher (Category 3 hurricanes have sustained winds of 111 miles per hour.). This is slightly below the 30-year average of 12 named storms and six hurricanes per hurricane season. If these predictions are accurate, insurers will have El Niño to thank, since warmer-than-normal ocean water temperatures in the Pacific Ocean may limit the development of storms in the Atlantic. But as we all know from past hurricanes such as Andrew, Katrina, and Sandy, it only takes one named storm to have significant economic impact on the industry.

Insurers have no choice but to brave the storms to see how the 2^nd and 3^rd quarter numbers shape up. Mother Nature will always be unpredictable, and she will sometimes be violent. Although storm chasers will keep searching for the next big natural disaster, insurers should keep an eye on the smaller, more frequent, events that can be just as damaging to their loss ratios.  The first quarter 2017 numbers have already told their cautionary tale.

Published by Jennifer Hoffman

The Graber Opinion is Confirmed as an Outlier in Matters Involving Texas Appraisals

With the continued onslaught of hail and other weather related litigation in Texas, insurance carriers often elect to resolve claims through the appraisal process outlined in the policy. Insurance carriers historically demanded appraisal under the policy knowing that as part of the ordinary adjustment process set forth in the policy, the full and timely payment of an appraisal award would preclude the policyholder from seeking statutory penalties found in the Texas Prompt Payment of Claims Act (TPPCA) and other extra-contractual remedies. This legal precedent had previously been confirmed by the Fifth Circuit, several federal district courts, and multiple Texas courts of appeal.

In 2015, however, one federal court judge in the Northern District issued the Graber v. State Farm Lloyds opinion, and for the first and only time, held that an insurer’s “full and timely payment of [an] appraisal award d[id] not preclude [the insured’s] claim for statutory interest under the TPPCA.” Policyholder lawyers rejoiced over the opinion as a win. Our firm, however, predicted Graber was an outlier opinion, and we were right.

Since the 2015 Graber opinion, two federal courts interpreting Texas law have disagreed with the rationale of Graber and held that the full and timely payment of an appraisal award still insulates an insurer from TPPCA. Both opinions were issued by other federal court judges in the Northern District.

The first opinion opposite Graber is Aguilar v. State Farm Lloyds. In Aguilar, the plaintiff made a timely claim for damage from a June 15, 2013 storm. After notice of the claim, the carrier adjusted the loss, paid the claim and understood the matter was resolved. The carrier was unaware of any dispute until the plaintiff filed suit on June 26, 2015 – almost two years after the carrier made what it understood was an undisputed payment. Despite the suit, the parties agreed to submit the matter to appraisal. An appraisal award was issued and the carrier timely paid the award in full, which in the ordinary case, should have been the end of the matter. The plaintiff and her lawyers, however, persisted in pursuing the breach of contract extra-contractual claims.

The federal district court granted summary judgment to the carrier on all claims, noting if such claims were allowed to survive, “[t]he entire purpose of the appraisal process would be rendered nugatory.” The federal district court also found it “especially galling” that the plaintiff waited almost two years to “notify” the carrier of the dispute by filing suit, instead of simply picking up the phone.

More recently, another federal judge for the Northern District issued a March 2017 opinion on these same issues - also opposite Graber. In Mainali  Corp. v. Covington Specialty Insurance, Judge Fitzwater dismissed all TPPCA claims against the carrier after its timely payment of an appraisal award. The court held “that an insurer is not liable for statutory interest for the time between an initial payment and the timely payment of an appraisal award.” In the Mainali opinion, Judge Fitzwater acknowledged the Graber opinion, but noted it as an “outlier.” 

The policyholder rejoicing from the “outlier” opinion of Graber should be over.

Closing note…State Farms Lloyds appealed the federal district court’s decision in Graber to the Fifth Circuit. Before the Fifth Circuit ruled, however, the plaintiff and plaintiff’s counsel unilaterally dismissed the action. They likely did so to avoid the Fifth Circuit overturning the unusual and unprecedented Graber opinion.

Posted by Todd Tippett

Global Hail: Kenya

Kericho, Kenya is said to be the most hail-prone place in the world and has up to fifty days of hail each year. Kericho is close to the equator and at an elevation of 7,200 feet, which contributes to it being a hot spot for hail. Other areas of the country have experienced a few notable hailstorms as well. One of these storms occurred in 2010, along with flooding and landslides, and attributed to the deaths of 93 people and displaced over 69,000. Another storm occurred in 2013 throughout Ol Kalou. The 2013 storm was deemed a “freak hailstorm” that hit Busara, covering a large portion of the region in a sheet of solid ice.

Hailstorms are especially devastating in areas such as Kenya because most Kenyans work in farming, creating significant growth potential for climate risk and agricultural coverage. After the 2013 hailstorm, for instance, tea farmers (which are part of a multi-billion-dollar industry in Kenya) lost over 12,890 kilograms of tea in a single day. Kenyan farmers would be wise to seek insurance coverage and protect themselves from histories repeated.

Second to South Africa, Kenya is the best-regulated insurance market in the region, accounting for seventy-percent of the East African insurance industry. Kenya is also one of the most developed African countries and maintains steady economic growth. According to the World Economic Forum, higher income directly correlates with a competitive insurance market. As of 2016, Kenya has forty-nine insurers and five re-insurers. However, the African insurance market could face bouts of disarray over the next few years stemming from the 2016 regulatory amendments to Insurance Act No. 487 of 1984. Essentially, the new regulations almost double companies’ capital investment requirements, and many underwriting companies (majority of which are family-owned) may be unable to meet them.

Despite these regulatory changes, Kenya’s insurance market has potential for growth. This is likely due in part to the fact that Kenyan farmers continue to excel as prominent exporters of goods (such as tea), and in turn, the need for property and/or agricultural insurance grows as well. As of 2015, the population size of Kenya was 44.9 million. However, according to recent statistics, property and/or casualty insurance only comprises less than thirty-percent of the non-life insurance market. While the imminent legislative changes may bring temporary chaos, the Kenyan insurance market is ripe for growth.

Posted by Jennifer Gibbs and Victoria Vish

Global Hail—Australia

Storms that produce large hailstones (greater than 2cm in diameter) occur often in Australia, most commonly in New South Wales and the Australian Capital Territory.

Losses from severe convective storms (tornadoes, hail, straight-line winds, and lightning) make up about 50% of all loss ­producing natural hazard events that occur in Australia. Hence, severe convective storm is the number one peril in national catastrophe (natcat) business in Australia.

In 1999, Australia experienced one of the worst hailstorms in the world. The storm single-handedly damaged 24,000 homes and 70,000 automobiles, creating an insured loss of $1.04 billion (U.S. dollars). The hailstones in the April 4, 1999 hailstorm were one of the largest ever recorded measuring 3.5 inches in diameter.

In 2011, another catastrophic hailstorm hit Melbourne resulting in extensive property damage. Within a year of the 2011 storm, Australia endured subsequent natural disasters, and the damage wrought by this series of events spurred double-digit premium rises by some of the largest Australian insurers.

In 2014, a super cell storm of fierce winds and hail caused over $1.1 billion in damage to cars and homes alone. One year later, the Insurance Council of Australia reported that insurance losses from claims following 2015 spring hailstorms totaled about $1.208 billion with almost 120,000 insurance claims.

Similarly, a series of severe hailstorms devastated Australian farms in November 2016, resulting in the filing of over 28,000 insurance claims, totaling $193 million.

Most Australian insurers provide coverage for weather-related damage if it falls into one of two categories—thunderstorms (hail, flash flooding, wind, lightning) or land gales (gale-force winds that occur over land). Despite the fact that coverage is generally afforded for hail-caused damage, Australia has experienced an unprecedented rise in fraudulent insurance claims.

To address these issues, the Insurance Council of Australia created The Insurance Fraud Bureau of Australia to drive down the impact of insurance fraud.  Moreover, the Insurance Council of Australia encourages policyholders to design and construct buildings to be resilient to the hazards present in the environment as minimum building standards in Australia are generally insufficient to protect against severe convective storms. 

Posted by Jennifer Gibbs and Victoria Vish

Global Hail: China

Hailstorms have been occurring for centuries across the globe. However, some regions of the world, particularly southern China, seem more prone to these destructive storms. High-impact weather (HIW) is defined as weather that can impact safety, property, or socioeconomic activity. Because of the complex topography and monsoon circulation, hailstorms are a prevalent HIW in China. One study analyzed HIW patterns throughout China by distributing meteorological stations in each region—Northeast China, North China, mid-lower Yangtze River valley, South China, Northwest China, and Southwest China. The study analyzed hailstorm occurrences from 1959 through 2014. Interestingly, the annual average days and spells of hailstorms decreased significantly in all regions except for South China. Theories seeking to explain weather patterns across the globe have varied over the years. Nevertheless, the scientists involved in the China HIW study stipulate that global warming is likely to increase the intensity levels of certain types of HIW—notably, thunderstorms and hailstorms.

Seemingly consistent with this prediction, southern China has experienced intense hailstorms over the last few years. In April 2011, Guangdong Province endured a hailstorm that affected 5,067.7 hectares of farmland and caused 50 million yuan (or 7.65 million U.S. dollars) of economic loss. This same hailstorm later hit the Guizhou Province of southwestern China and caused 75 million yuan in direct economic losses.

Another severe hailstorm pummeled southern China in March 2013, and the region suffered an economic loss of 357 million yuan (or 57.5 million U.S. dollars). At least twelve people were killed by this storm, and over 272 others were injured.

In April 2016, egg-sized hail stones showered over southern China and affected over 387,000 people. In particular, the Guilin and Liuzhou of the Guangxi region of southern China were hit by the hailstorms. The storm also damaged 5,010 hectares of crops and caused seventy-four homes to collapse, totaling an economic loss of 86.69 million yuan (or 13.4 million U.S. dollars).

Most recently, and only a few months after the April 2016 storm, another hailstorm wreaked havoc in southern China. An airbus, travelling from Guangzhou to Chengdu, was pummeled by a hailstorm in July 2016. While the aircraft landed safely, it was severely damaged during its descent.

The combination of South China’s potential for large, catastrophic hail events and China’s fast-growing insurance market could result in a large number of litigated hail claims.  However, because Chinese courts do not recognize tort liability for wrongful denial of claims, and because Chinese law generally requires judges to conclude civil lawsuits within six months upon acceptance of a complaint, hail claim litigation in China will likely yield distinguishable results from the current hail claim crisis insurers are currently experiencing in the United States. 

Posted by Jennifer Gibbs and Victoria Vish

Claims Journal Names Hail Top-Trending Story of 2016; Steven Badger Quoted

Claims Journal has named their top-five national trending stories affecting the property casualty claims industry in 2016, and hail tops the list. The video segment on the Claims Journal website notes: 

According to Steven Badger, a partner with Dallas-based Zelle LLP and the author of several articles on the subject, “The property insurance industry is under attack. The present battle has nothing to do with repairing roofs actually damaged by hail, but instead putting money in the pockets of individuals who can find a way to inject themselves into the insurance claims process. The individuals may be contractors, public adjusters and policyholder attorneys.” Badger said that more than 11,000 hail damage-related lawsuits were filed in just one county in South Texas after a hail storm. 

Click here to see the video detailing Claims Journal’s top-five trending stories of 2016.

Global Hail: India

India has a warm and moist climate – ideal conditions for thunderstorms and hail.   India’s hailstorms frequently cause property damage and injuries to people and livestock.  The most damaging storm hit India on April 30, 1988, resulting in deaths to approximately 250 people and 1,500 livestock.   A hailstorm of that intensity has not happened in India since, but hail remains a common occurrence there. 

For example, in March 2014, ten thousand villagers of the Madhya Pradesh were adversely affected by a severe hailstorm and suffered heavy loss to the Rabi crop (wheat, cereals, millets, pulses and oilseeds). The 2014 storm was noteworthy because two-thirds of India’s population is dependent on agriculture for their livelihood. After the March 2014 hail storm, Agriculture Insurance Company of India (AICI), a carrier part of the National Agricultural Insurance Scheme (NAIS), denied liability.

Insurance issued through AICI is compulsory for all farmers who access seasonal crop production credit from the lending institutions and is voluntary for non-loanee farmers. NAIS has three overall objectives: (1) provide a measure of financial support to farmers in the event of crop failure as a result of an insured peril; (2) to restore the credit eligibility of farmers after a crop failure for the next season; and (3) to support and stimulate the production of cereals, pulses and oilseeds.

AICI insures against yield loss due to non-preventable risks, including damage caused by hailstorms. AICI developed a complex weather index program which has subsequently attracted government premium subsidies. Government financial support for the NAIS is split between the federal government and the state and union territory governments. Since AICI is heavily subsidized by the government, banks market and administer the NAIS scheme on behalf of AICI. The banks’ charges comprise 5% of AICI’s premium while operating costs amount to another 2% of premium. Because the AICI operates at a low overall cost structure, the company maintains low premiums for farmers.

Litigation resulting from AICI’s denial of claims resulting from the March 2014 hail storm was later considered by the Madhya Pradesh High Court. The bench of justices SK Gangele and Sheel Nagu ordered the company to process all the farmers’ claims under the scheme and compensate for the losses. This marked the first time that insurance claims for crop loss due to hailstorm were ordered to be paid by AICI.

Despite the ultimate outcome of the 2014 hailstorm litigation, it seems that Indian farmers are still skeptical of crop insurance programs. Only 42.82 million hectares (or 22 percent) of crops were covered by crop insurance in 2014. Furthermore, the average sum insured (maximum amount that insurance would pay in the event of crop damage) is far below the gross value of output for most crops. The combination of these two factors likely deters many farmers from investing in crop protection. However, in 2016, the Narendra Modi government implemented a new crop insurance scheme with lower premiums.

Because India’s agriculture industry remains critical to its economy, and weather conditions are favorable to hailstorms, crop insurance for hail damage should play an important role in the future of India’s insurance market, and other jurisdictions experiencing similar damage to crops from hail may look to India for guidance in addressing such claims.

Posted by Jennifer Gibbs and Victoria Vish

Global Hail

The United States experiences a large number of hail events, but hail can occur anywhere in the world – especially in areas near mountainous terrain.  Western China and northern India experience hail quite frequently, as do areas near the Alps in Europe, the Andes in South America and in mountainous east Africa. New South Wales in Australia is also known for its catastrophic hail events. 

Amid the current Texas “hail crisis” – an analysis and evaluation of how other parts of the world address and resolve hail-damage claims may provide some valuable insight to those currently in the trenches of hail claims and litigation. 

Below is a brief summary of the countries experiencing the most hail and the types of hail events these countries experience.  Later in this series, we will provide an analysis of how each of these countries addresses and resolves hail damage claims.

But first – the Hail of Fame

The following are the top places in the world where hail occurs:

1.      Kenya

2.      United States (The Great Plains)

3.      Australia

4.      Southern China

5.      India

Kenya

When you think of the places in the world experiencing hail events, Kenya probably doesn’t come to mind.  However, Kericho, Kenya holds the world record of 132 days of hail in one year and annually experiences approximately 50 days of hail. Despite the frequency, Kenyan hail is typically small.  Kericho is close to the equator and at an elevation of 7,200 feet, which contributes to it being a hot spot for hail. Kenya's localized hail storms damage tea crops, and in many cases, are one of the largest single natural variables affecting tea production.

United States

Although Bangladesh holds the record for the heaviest recorded hailstone, the United States claims a close second. The largest officially recognized hailstone on record to have been ‘captured’ in the U.S. fell near Vivian, South Dakota on July 23^rd, 2010. It measured 8.0” in diameter, 18 ½” in circumference, and weighed in at 1.9375 pounds.

In the United States, hail storms most frequently occur in what has been referred to as “Hail Alley” - more specifically the Great Plains areas of Colorado, Wyoming, Nebraska, Kansas, Texas, and Oklahoma.  Hail in this area of the country is most likely to fall late in the afternoon during the months of May and June and is often responsible for extensive crop loss, property damage and livestock deaths.

According to NOAA’s Severe Storms database, there were over 5,000 major hail storms in 2015; with over 1,300 occurring during the month of June. Since 2010, nearly 40 percent of all insured losses resulted from claims related to wind and hail damage, averaging $15 billion annually and growing. In the state of Texas alone, insured losses from two hailstorms that occurred in March 2016 are currently expected to exceed $1.5 billion.

China

Just this past June 2016, a tornado and extreme hailstorm in China’s eastern Jiangsu Province, just north of Shanghai, destroyed buildings and killed 51 people. A month later, a South China Airlines Airbus A320 made a miraculous landing after it sustained extensive hail damage, forcing the pilots to land the plane blind.

In China's Henan province, twenty-two (some say twenty-five) were killed by a hailstorm in 2002, and nine more were killed in a hailstorm in 2003 in the Dingxi Prefecture. As recently as 2009, fourteen were killed by hail in the Anhui province and buildings collapsed.

Australia

Perhaps the single costliest hailstorm in world history struck the Sydney, Australia area on April 14, 1999. Hailstones up to 3½” in diameter fell for almost 60 minutes damaging 20,000 structures and 40,000 vehicles. The total sum of insured losses reached A$1.7bn, and the esti­mated direct economic losses were over A$2.3bn.

In November 2014, a hail­ storm battered the Brisbane area, producing hailstones even larger than those in 1999.  This hailstorm occurred during rush hour, damaging more than 60,000 cars, 22,000 commercial and residential buildings and injuring 30 people. The number of insur­ance claims exceeded 100,000, with a total insured loss of A$1.35bn, and a direct economic loss estimated at A$1.8bn.

India

The Deccan Plateau of northern India is home to some of the most deadly hailstorms, and perhaps the largest hailstones, in the world. In fact, the heaviest authenticated hailstone ever measured was one of 2.25 pounds that fell in the Gopalganj district of Bangladesh (which was once part of India) on April 14, 1986. The stones were not officially recorded and measured, although anecdotal reports claimed the stones were the size of “pumpkins”.  

In 1888, a hailstorm in Moradabad, India killed more than 250 people. More recently, a 2013 hail storm killed at least 9 people in the state of Andhra Pradesh, India, also destroying houses, crops, and livestock. Hail events, so devastating to crops in this area of the world, have prompted novel methods to minimize the catastrophic impact in the agriculture industry.

Posted by Jennifer Gibbs