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Sunday, Jul. 12, 1998
Court ruling's effect on insurance rates debated
Plumbing-leak claims may drive rates up, some say
BY JEFFREY TOMICH
Staff WriterIt's too early to tell if a recent Texas Supreme Court decision will trigger a jump in homeowners insurance rates here or elsewhere in Texas, industry sources say.
The Texas Supreme Court ruled July 3 that standard homeowners policies cover all damage caused by plumbing leaks.
While it's uncertain if premium increases will follow, as some industry officials predicted immediately after the ruling, representatives of the industry and a consumer advocacy group have differing opinions on the likelihood.
Jerry Johns, president of the Southwest Insurance Information Service, a trade group that represents 85 percent of the property and casualty insurers in Texas, said higher rates aren't certain, but are possible.
``Insurance companies must have the premiums to pay for the losses,'' he said.
Rod Bordelon, state public insurance counsel, says the court's ruling only affirms an existing law. As a result, he feels rates shouldn't go anywhere.
``I'm going to try to make sure rates don't increase as a result of that decision,'' said Bordelon, who represents consumer interests on insurance matters before the Texas Department of Insurance.
Any suggestion that premium increases are on the horizon as a result of the court decision is just rhetoric, Bordelon said.
``I think a lot of insurance companies are posturing right now,'' he said. ``They don't like the decision. I really don't anticipate any drastic measures.''
Some insurers, such as State Farm Insurance Co., are unaffected by the ruling.
``We've been paying these claims all along, so this doesn't mean a big change for us,'' said Sarah Reyna, a spokeswoman for State Farm.
Reyna said the ruling won't affect the company's premiums because claims have already been factored into current rates.
The Texas Supreme Court said Seattle-based Safeco Insurance must pay for damage to Austin resident's Joe Baldaran's home after a plumbing leak caused his foundation to shift in 1993.
Safeco and other insurers argued the standard homeowners policy, written by the state, doesn't cover such damage. They said plumbing problems that resulted in foundation damage were caused by poor maintenance.
The case is of particular interest in the Corpus Christi area, which is known for water-related foundation problems.
Here, the high number of slab-foundation repair claims in recent years has driven rates up, making homeowners insurance rates in Corpus Christi among the highest, if not the highest, in Texas.
Johns describes Corpus Christi as the ``epicenter'' for such claims, but said that's not the case anymore.
``What was a localized problem now is a statewide problem,'' he said, adding that more and more cases are popping up across San Antonio and Dallas.
In the Corpus Christi area, the number of claims has driven some insurers away, making homeowners policies tough to get for some, particularly those who have older homes, representatives of the insurance industry have said.
Other Coastal Bend homeowners have only been able to get policies through higher-risk carriers, whose rates are not state-regulated.
Bryan M. Grove of Grove Insurance Agency in Corpus Christi thinks insurers could see losses as a result of last week's court decision. Whether those losses will be enough to raise premiums or cause insurers to stop writing policies is yet to be seen, he said.
``I believe we're going to see some immediate effect from a loss standpoint,'' Grove said. ``From a market-availability standpoint, I don't know.''
Just as Safeco did in the Baldaran case, many in the Texas insurance industry continue to assert that a home's plumbing system is a maintenance issue, just like electrical wiring or a roof, and therefore should be the homeowner's responsibility.
``As a home gets older, you've got to put money into it to keep it up,'' Grove said. ``When you have something wear out, you fix it.''
Johns said the standard homeowners policy was ``never intended to cover the shifting of the earth or standard maintenance issues,'' and says homeowners should check their plumbing systems every few years.
``Insurance cannot be all things to all people,'' he said. `` We've got to draw the line somewhere.''
Johns expects the court's ruling to result in a ``cross-subsidy'' for homeowners, meaning those who don't have water leaks and foundation troubles will ultimately pay for those who do.
If, when and how much premiums rise is up to individual companies, and, in some instances, state regulators, he said.
``That decision will be individual companies' long-term business decisions based on the losses they think they will experience in Corpus Christi,'' Johns said.
Whether the court's decision will make insurance availability a bigger problem, Johns won't predict. ``I think we just have to wait for the fallout from the Supreme Court decision to determine that,'' he said.
The state-written standard homeowners insurance policy covers all of the more than 2.8 million homes in Texas, according to the Texas Department of Insurance.
In 1997, the Legislature approved a plan to allow insurers to draft their own homeowners policies. The new forms could eliminate coverage for foundation movement and damage caused by plumbing leaks.
Such company-written policies have been submitted to the state, but the department hasn't approved any of them yet, said agency spokesman Jim Davis.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web