The association is a nonprofit, state-supervised insurer of last resort for people who can't get private property insurance. The organization is subsidized with mandatory dues from for-profit insurance companies.
Following Hurricane Rita, there were numerous allegations of collusion between claims adjusters and the association. More than 1,900 policyholders sued the association for failing to pay for legitimate damages. The Texas Department of Insurance placed the association under administrative oversight in February.
The most controversial part of the bill would limit how much a property owner could win in punitive damages if the nonprofit association doesn't fulfill its obligation for coverage. The proposed bill would eliminate claims for punitive damages. Trial attorneys and advocacy groups have opposed that provision.
Ware Wendell, legislative director of the consumer advocacy group Texas Watch, said the measure takes away vital rights to sue that people with policies issued by for-profit insurance companies can currently use to force insurers to fulfill their policies.
"Those protections are important for a number of reasons. They do deter bad conduct, they do compel prompt payment," Wendell said. "And more importantly, they make more likely that the aggrieved, deserving policy holder will be made whole."
Supporters of the bill argue that because of the co-operative nature of the association, the only people punished by lawsuits are other policyholders. The cost of litigation is passed on to them. "There is a loser, but there is no winner, unless you think about people who make a lot of money from the judicial process: the lawyers," said Rep. John Smithee, R-Amarillo, who authored the bill. "The losers are every policyholder up and down the coast."
The disagreement led the bill to die in the regular session of the Legislature, prompting Perry to add it to the special session. Other changes include greater transparency at the association, and stricter ethics rules for the staff. There are tougher standards for who can serve in the association and what relationships they may have with claims adjusters and others involved in the industry.
If passed, the bill would also change the associations name to The Texas Coastal Insurance Plan.