ERCOT Lawsuit

The lights are on today in Texas homes and businesses, and clean water is flowing. However, during one week in February, a significant winter storm brought the entire state of Texas to its knees, causing such a need for electricity that most of Texas went without power and water for days at a time. The widespread loss of control wreaked havoc on a scale that rivaled any natural disaster. The only assurance at this stage is that the path to recovery will be long, and the danger of litigation will last much longer.

Many who have suffered losses as a result of natural disasters invariably wonder, "Who will pay for this?"

There is no simple solution, but insurance can play a critical and deceptively nuanced role in any recovery. It should cover property damage and lost income and the legal defense of those suspected of causing harm and the security of such sectors, such as the gas and electric power industries, from particular risks. That is why, when we all try to make sense of our losses, we must be aware of the multiple roles insurance can play. Only in this way will Texans and companies hope to be restored.

Various Damages

Unlike the losses usually associated with natural disasters, which result directly from the force of nature (e.g., wind damage in a tornado), some losses resulting from the 2021 winter storm have more to do with the effect and handling of a state-wide demand for power that outstripped the state's generative capability. In terms of "natural" disasters, this makes the 2021 occurrence very special. It has resulted in an extensive range of casualties, both in terms of geographic scope (i.e., most Texas) and type.

Significant and far-reaching losses have occurred. In terms of physical harm, we're also hearing about hypothermia-related deaths and personal injuries caused by a lack of medical attention or treatment. Property damages include everything from water damage from burst pipes to machinery and structural damage from ice and falling tree limbs. Due to rolling blackouts, a lack of clean water, and access to their properties, many companies lost an entire week (or more) of revenue. These people and companies have started to wonder who is to blame for their losses.

Natural Disasters and Insurance Take a stroll together.

Unsurprisingly, the hurricane has resulted in a large influx of insurance claims. The traditional property policy is the first line of protection when it comes to property and company losses.

Commercial property policies typically cover damage to the insured's property. Still, they can also cover business interruption (lost revenue due to disruptions in operations), contingent business interruptions (lost income due to disruption in the supply/customer chain), service interruption (losses caused by utility disruptions), and so-called "extra expenses" (expenses incurred due to utility disruptions) (loss of property in transit).

Property insurance plans can also cover damages resulting from government decisions. Property policies have a wide range of possible applications, but each approach is unique. For example, those seeking compensation for business interruption can learn that their policies have a 24-hour to 60-day waiting period until coverage starts.

When it comes to liability plans, there are various ways available to defend businesses from lawsuits made against them. The general commercial liability (CGL) policy is the first line of protection in the third-party sense. CGL policies protect you from the risks that come with owning a company. For example, if a downed powerline caused a house to burn down, a CGL policy could protect the resulting allegation.

Specific policies tailored toward the insured's company are often used to supplement CGL policies and fill in any coverage holes. A design company, for example, should have a professional liability (or mistakes and omissions) policy that explicitly covers design flaws.

The directors and officers liability (D&O) policy is another form of third-party insurance that is likely to receive a lot of coverage in light of the various litigation filed against the Electric Reliability Council of Texas (ERCOT), local utilities, and others. When a corporation is sued for wrongful actions resulting from management-related wrongdoing, D&O policies shield company management (and sometimes the company itself).

They might also involve federal inquiries. For example, Texas Attorney General Ken Paxton launched multiple investigations and sued electric retailer Griddy, claiming that Griddy misled its customers by misleading sales practices, resulting in some customers being billed tens of thousands of dollars for electricity during the state-wide shortage under variable rate electricity plans. Griddy's and those under investigation's D&O policies can provide them with a defense.

In the weeks following the hurricane, property damage, personal injury, and wrongful death litigation proliferated. Defendants in these cases have traditionally included ERCOT, PUC, energy providers, generators, and others. The fact that these institutions have become primary targets is unsurprising, considering the widespread media coverage and political attention, but the plaintiffs' path to recovery will be complicated.

According to observers, other companies, such as landlords who may be accused of creating unhealthy conditions, and contractors who may be charged of defective design or construction efforts causing generation or transmission problems, are expected to enter the defendant pool in the coming months. Liability plans of all types will be called upon to defend and pay settlements and judgments, regardless of the ultimate validity of these different cases.

Although not yet in court, a flood of insurance coverage cases will eventually follow, with policyholders fighting for all forms of coverage, including property loss, business interruption, and liability coverage. There is usually the calm before the storm in all waves of coverage litigation following a natural disaster, as insurance firms seek to devise a standard coverage position. As a result, it's critical not to confuse temporary calm with clear skies on the insurance front at this time.

The floodgates have been thrown open. Plaintiffs are currently filing lawsuits against government officials, ERCOT, and power firms in the courts. Around the same time, policyholders around the state are filing large numbers of claims with their insurance providers. The worst thing policyholders can do is wait to see if they have sustained a loss during the 2021 winter storm. To remain one step ahead of the avalanche, they must work quickly to record their damages, consider their claims and the insurance and other available funds, and file those claims as soon as possible.