Texas investigators have opened a criminal probe into how State Farm handled what may turn out to be thousands of insurance claims from Gulf Coast homeowners involving damage from Hurricane Ike in 2008, officials said.
Gregg Cox, head of the public integrity unit of the Travis County District Attorney’s office in Austin, said his team began its investigation months ago and he wasn’t sure how long it would take.
Cox, whose office has state-wide jurisdiction, would not confirm the substance of the investigation or say whether it is related to claims in about 300 individual lawsuits, as well as a class-action suit, filed in Houston and Galveston over State Farm’s handing of claims to repair “lifted shingle” damage after Hurricane Ike.
“Lifted shingle” damage occurs when high winds break the watertight seal on roof shingles and tear them partially — but not fully — away from the roof.
Houston Attorney Steve Mostyn, who represents hundreds of the homeowners who have filed lawsuits, says State Farm initially denied “lifted shingle” claims, then reversed its position. His office cites scores of electronic documents it says indicate managers at State Farm’s Texas subsidiary, State Farm Lloyds, took deliberate steps to initially deny roof-damage claims.
Mostyn said so many homeowners had their claims denied on Hurricane Ike-related roof damage that the Texas Department of Insurance launched inquiries into State Farm. He said the documents show the company then wasn’t truthful in its responses to regulators.
“The information State Farm gave them just wasn’t honest information,” Mostyn said.
Mostyn said State Farm’s repeated denial of “lifted shingle” claims could have saved the company up to $1 billion. He said as many as 110,000 claimants may participate in the class-action suit.
State Farm Lloyds said it “strongly disputes the lawsuit accusations and is cooperating fully with the Travis County District Attorney.”
“We are proud of our response to Hurricane Ike,” the company said in a statement on Sept. 7. “To date, we have paid our policyholders more than $1.5 billion, much of which went to repair or replace roofs.”
State Farm Lloyds added that it is continuing to “work to resolve our policyholders’ claims, including those that are in litigation.”
State Farm Lloyds also said it had submitted a rate filing to the Texas Department of Insurance that will mean customers statewide will see homeowner’s insurance premiums increase by 20 percent on average.
The company said in a statement that the changes are coming because of the high number of claims it has received and increasing costs of those claims. It noted roofing prices alone have shot up “almost 90 percent in the past five years.” The changes take effect Nov. 1 for new customers, and a month later for existing ones.