Can the Texas Windstorm Insurance Association use future premiums to pay off old obligations from a past storm?

Plain-English summary

The Texas Windstorm Insurance Association, known as TWIA, is the state-created insurer of last resort for windstorm and hail coverage along the Texas coast. Representative Todd Hunter, chair of the House Committee on Calendars, put two questions to the Attorney General about TWIA's handling of its finances after Hurricane Ike.

His first question asked whether it amounted to negligence, or a failure of authority or responsibility, for the TWIA organization, the TWIA board, or the Texas Department of Insurance not to make assessments against insurance carriers in response to the Hurricane Ike losses. The Attorney General did not answer that question. As the opinion explained, whether a particular entity has failed to perform its duties, and whether any such failure creates a cause of action for negligence, involve fact questions that the opinion process cannot resolve. The office is not authorized to investigate allegations of negligence or to resolve disputed questions of fact; attorney general opinions advise authorized requestors about questions of law. So the AG concluded it could not provide an answer to the first question.

His second question asked whether any provision of the Texas Insurance Code would prohibit TWIA from using future premiums to pay prior obligations once all available funding had been exhausted. Here the Attorney General gave a substantive answer. Chapter 2210 of the Insurance Code sets the framework for TWIA's operation and the use of its funds. Section 2210.056 lists the permitted uses of the association's assets, including satisfying the association's obligations, but nothing in it limits TWIA's authority to use assets, with current or future premiums, to satisfy prior obligations. Section 2210.071 addresses how TWIA pays losses that exceed its premiums and other revenue, drawing on available reserves and the catastrophe reserve trust fund, but nothing in it restricts TWIA's use of available premiums, current or future, to satisfy prior obligations. After reviewing chapter 2210 in its entirety, the AG found no provision expressly prohibiting TWIA from using future premiums to pay prior obligations.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The House Committee on Calendars (as the opinion described it): The opinion declined the first question, explaining that whether TWIA, its board, or the Texas Department of Insurance had been negligent or failed in their duties presented fact questions outside the opinion process. On the second question, the opinion answered that no provision of Insurance Code chapter 2210 prohibits TWIA from using future premiums to pay prior obligations.

The Texas Windstorm Insurance Association (as the opinion described it): The opinion described chapter 2210, including sections 2210.056 and 2210.071, as not restricting TWIA's use of available premiums, current or future, to satisfy prior obligations.

Coastal policyholders and insurance carriers (as the opinion described it): The opinion addressed only the legal question of whether the Insurance Code prohibits a particular use of premiums; it expressly did not decide whether any failure to assess carriers was negligent, treating that as a disputed fact question.

Common questions

Does the Insurance Code stop TWIA from using future premiums to pay old debts?
No. The AG reviewed Insurance Code chapter 2210 and found no provision that prohibits TWIA from using future premiums to pay prior obligations. The sections on use of association assets and on paying excess losses do not restrict that use.

Did the AG decide whether TWIA was negligent for not assessing carriers after Hurricane Ike?
No. The AG declined that question. Whether an entity failed its duties or committed negligence involves disputed fact questions, and the opinion process answers questions of law rather than investigating negligence or resolving facts.

What part of the law governs how TWIA pays catastrophe losses?
The opinion pointed to chapter 2210 of the Insurance Code generally, and specifically to section 2210.056 (use of association assets) and section 2210.071 (payment of excess losses from available reserves and the catastrophe reserve trust fund).

Background and statutory framework

Chapter 2210 of the Insurance Code provides the framework for TWIA's operation and the use of its funds (Tex. Ins. Code Ann. §§ 2210.001-.654 (West 2009 & Supp. 2012)). Section 2210.056 lists the permitted uses of the association's assets, including satisfying its liability on claims and its obligations incurred in connection with reinsurance, public securities, and financial instruments (Tex. Ins. Code Ann. § 2210.056(b) (West Supp. 2012)). Section 2210.071 directs that, in a catastrophe year, losses and operating expenses exceeding premium and other revenue be paid from available reserves and the catastrophe reserve trust fund (Tex. Ins. Code Ann. § 2210.071(a)-(b)).

On the first question, the AG relied on the established limits of the opinion process: it does not resolve fact questions or investigate negligence, but advises requestors on questions of law (Tex. Att'y Gen. Op. No. JM-153 (1984) at 8; Tex. Att'y Gen. Op. No. JM-1098 (1989) at 3).

Citations

Statutes:

• Tex. Ins. Code Ann. §§ 2210.001-.654 (West 2009 & Supp. 2012) (framework for TWIA's operation and funds)
• Tex. Ins. Code Ann. § 2210.056(b) (West Supp. 2012) (use of association assets)
• Tex. Ins. Code Ann. § 2210.071(a)-(b) (payment of excess losses)

Other authority:

• Tex. Att'y Gen. Op. No. JM-153 (1984) at 8 (fact questions not answered in opinion process)
• Tex. Att'y Gen. Op. No. JM-1098 (1989) at 3 (opinions advise on questions of law)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-1033
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2013/ga1033.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

December 30, 2013

The Honorable Todd Hunter Opinion No. GA-1033
Chair, Committee on Calendars
Texas House of Representatives Re: Texas Windstorm Insurance
Post Office Box 2910 Association's authority to assess insurance
Austin, Texas 78768-2910 carriers and to use future premiums to pay
prior obligations (RQ-1134-GA)

Dear Representative Hunter:

You ask two questions regarding the authority and duty of the Texas Windstorm Insurance Association ("TWIA") to assess insurance carriers and to use future premiums to pay prior obligations.[1]

You first ask whether it is "negligence and/or failure of authority or responsibility of duties by the TWIA organization, TWIA Board and/or Texas Department of Insurance to not make said assessments" against insurance carriers in response to losses incurred by TWIA due to Hurricane Ike. Request Letter at 1. Thus, rather than ask a legal question about TWIA's current authority to assess insurance carriers, you ask us to determine whether TWIA has been negligent or committed a "failure of authority or responsibility of duties." Id. Whether a particular entity has failed to perform its duties, and whether that failure creates a cause of action for negligence involve a number of fact questions that cannot be answered in the opinion process. Tex. Att'y Gen. Op. No. JM-153 (1984) at 8. This office is not authorized to investigate allegations of negligence in the opinions process, nor do we resolve disputed questions of fact. Instead, attorney general opinions advise authorized requestors about questions of law. Tex. Att'y Gen. Op. No. JM-1098 (1989) at 3. Thus, we cannot provide an answer to your first question.

In your second question, you ask whether "any provision of the Texas Insurance Code . . . would prohibit TWIA from using future premiums to pay prior obligations if all available funding had been exhausted by an event or series of events?" Request Letter at 1. Through chapter 2210 of the Insurance Code, the Legislature has provided a framework for the operation of TWIA and the use of its funds. TEX. INS. CODE ANN. §§ 2210.001-.654 (West 2009 & Supp. 2012). Section 2210.056 addresses TWIA's "use of association assets" and states:

The association's assets may not be used for or diverted to any purpose other than to:
(1) satisfy, in whole or in part, the liability of the association on claims made on policies written by the association;
(2) make investments authorized under applicable law;
(3) pay reasonable and necessary administrative expenses incurred in connection with the operation of the association and the processing of claims against the association;
(4) satisfy, in whole or in part, the obligations of the association incurred in connection with Subchapters B-1, J, and M, including reinsurance, public securities, and financial instruments; or
(5) make remittance under the laws of this state to be used by this state to:
(A) pay claims made on policies written by the association;
(B) purchase reinsurance covering losses under those policies; or
(C) prepare for or mitigate the effects of catastrophic natural events.

Id. § 2210.056(b) (West Supp. 2012). Nothing in the language of section 2210.056 limits TWIA's authority to use association assets to satisfy prior obligations with current or future premiums.

Furthermore, Insurance Code section 2210.071 addresses the payment of excess losses, stating, in relevant part:

(a) If, in a catastrophe year, an occurrence or series of occurrences in a catastrophe area results in insured losses and operating expenses of the association in excess of premium and other revenue of the association, the excess losses and operating expenses shall be paid as provided by this subchapter.
(b) The association shall pay losses in excess of premium and other revenue of the association from available reserves of the association and available amounts in the catastrophe reserve trust fund.

Id. § 2210.071(a)-(b). While section 2210.071 addresses how TWIA should fund losses that exceed available premiums and other revenue, nothing in this provision restricts TWIA's use of available premiums, current or future, to satisfy prior obligations. Id. Moreover, after reviewing chapter 2210 in its entirety, we find no other provision expressly prohibiting TWIA from using future premiums to pay prior obligations.

SUMMARY

Whether it is negligence by the TWIA organization, TWIA Board, or the Texas Department of Insurance to not make assessments against insurance carriers involves questions of fact that are inappropriate for the opinion process.

No provision in Insurance Code chapter 2210 prohibits TWIA from using future premiums to pay prior obligations.

Very truly yours,

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee

[1] See Letter from Honorable Todd Hunter, Chair, Comm. on Calendars, to Honorable Greg Abbott, Tex. Att'y Gen. at 1 (July 3, 2013), http://www.texasattorneygeneral.gov/opin ("Request Letter").