Texas Froze and California Burned. To Insurers, They Look Similar.

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In California, insurers were able to point to a state law, since amended, that held power utilities liable for the fires their equipment started, even without a finding of negligence. In Texas, the law requires a showing of gross negligence. And last month, the biggest target of consumer blame — the Electric Reliability Council of Texas, or ERCOT — was effectively granted sovereign immunity by the Texas Supreme Court. The ruling, in an unrelated case, left standing a state appellate decision that ERCOT is “a quasi-governmental regulator, performing an essential public service” and therefore can’t be sued.

ERCOT’s liability insurer isn’t taking any chances, though. Last week, the Cincinnati Insurance Company filed a lawsuit in federal court in Texas seeking a ruling that it has no duty to provide a legal defense for ERCOT, or to make it whole for the sums it would have to pay for property damage or injuries. ERCOT bought a liability-insurance policy from Cincinnati, but the insurer said that the coverage applied only to damage caused by accidents, and that the harm from February’s power outages was “foreseeable, expected and/or intended.”

Estimates of the damage from the storm vary greatly, but none are small. Karen Clark & Company, which models catastrophe losses, has predicted that insured losses from the storm will reach $18 billion, spread over 20 states. But the firm says more than half the losses were in Texas, which years ago isolated itself from neighboring grids, making it impossible for unaffected providers to pick up the slack.

The damage was so extensive that freelance adjusters had to be flown in from other states just to handle all the claims.

“Some families couldn’t get hold of their insurance companies for weeks,” said Tom Formeller, a stucco and exterior-painting contractor in Houston who reinvented himself as an emergency plumber after the storm.

In normal times, he said, families would have paid him upfront for the repairs, then waited for their insurance checks. But with unemployment high from the pandemic, some families didn’t have the cash, so Mr. Formeller capped their pipes for free and told them to pay when they could.

“I had one 78-year-old woman, by herself, who’d been going without water for nine days,” he said. The woman told Mr. Formeller that she would get a loan to pay him, but he sorted out the delay with her insurer and completed $13,000 in repairs.

Even if the power suppliers are forced to pick up the costs of damage from the winter storm, it’s not clear what — if any — steps they might take to prepare for the next one. In a recent survey of Texans by the University of Houston, about half rejected the notion of winter-proofing the grid if it meant they would pay more for power.

Clifford Krauss contributed reporting.

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