Insurers in Texas’ deep freeze turning to California strategy
Firms shifted blame to utilities for wildfires to avoid costly payouts
A deep freeze in February left Texas with billions of dollars in damage from cascading power failures that stranded residents in their dark and flooded homes. And insurance companies are hoping they can pass the bill on — just as they did when wildfires engulfed California.
Two months after the storm crippled large swaths of Texas, insurers are sketching out a legal strategy to pin the costs on utilities and power companies that they say failed to adequately prepare for bitterly cold weather.
“The insurance industry is looking very carefully into the question of how the Texas power grid works and what went wrong with it,” said Rhonda Orin, an insurance recovery attorney at the law firm Anderson Kill.
The strategy echoes an approach that worked after the devastating California wildfires of 2017 and 2018, when equipment owned by Pacific Gas & Electric sparked blazes that wiped out communities.
At stake could be more than $10 billion in insured losses for insurers and their business partners, as well as almost-certain premium increases for property owners if the insurers have to pay for the damage themselves.
But the insurers face longer odds in Texas: Decades of deregulation have made the state’s power grid a dizzying web of companies that could make determining fault tricky. Insurers will also have to show that the damage was the result of “gross negligence” — a higher bar than in California.
The insurers say the power companies and utilities failed to prepare for a major winter storm, even though past cold snaps and climate-change data had made the danger clear.
“They knew in 1989 and even earlier that their systems weren’t winterized, and it doesn’t look like anybody did anything,” said Lawrence Bowman, a lawyer in Dallas who represents insurers in liability disputes.
Electric utilities in Texas operate as de facto monopolies and were required to use “reasonable diligence” to ensure a consistent supply of power, he said.
“That’s the essence of the claim, that these participants had market power and failed to exercise it in a way to meet their mandate,” Bowman said.
Although it will be months before the insurers process all their policyholders’ claims, Bowman is already gearing up for the court battle.
Once the claims come in, insurers have as little as 30 days to notify the power companies of their intentions, and Bowman said he had already sent about a hundred such letters to power companies.
None of the big property insurers that recovered money from PG&E — State Farm, Allstate, the Hartford and Travelers — were willing to comment on possible claims against power providers in Texas.
But Camille Garcia, a spokeswoman for the Insurance Council of Texas, an industry group, said the “massive property losses are largely the fault of the energy companies.” If the insurers manage to recover money from them, she said, “our customers will benefit, by potentially recovering part or all of their deductible.”