Winter Storm Uri left millions in Texas without electricity and water in mid-February 2021, opening up threats of mass litigation. Texans seek to hold the state’s primary grid operator, Electric Reliability Council of Texas (ERCOT) and electricity retailers liable. Among the litigation is a $100 million suit brought by family members of an 11-year-old boy and 95-year-old man who both froze to death during the storm. Additionally, a class action suit against ERCOT alleging gross negligence has been filed in Harris County, Texas. More litigation is likely forthcoming as experts predict an avalanche of insurance claims. But should potential Texan defendants be shaking in their cowboy boots? Generally, no, as the current state of the law shows potential defendants may be protected from mass litigation.
Electrical companies limit liability by contract provisions
Lawsuits against Texas electrical companies will prove difficult as contract provisions may protect these companies from weather-related claims. Electrical companies contract with customers through generally standard contracts with tariff provisions, which govern how much consumers pay for power. Tariff provisions generally contain rules and regulations that limit a company’s liability. In certain instances, these tariff provisions can limit a utility company’s liability for negligence in connection with the supply of electrical service. In Danisco Ingredients USA, Inc. v. Kansas City Power & Light Co., the court found public policy and law justified interpreting a tariff provision as limiting a utility company’s liability for negligence.
These contracts also contain standard “force majeure” clauses providing that utility companies are not liable for service interruptions that stem from “Acts of God” or other events beyond the utility’s control. Courts enforce these provisions and frequently recognize that utility companies may not be liable when forces beyond their control are the cause of injury. In Rehab. Ctr. at Hollywood Hills, LLC v. Fla. Power & Light Co., the court acknowledged that “a power company may not be liable where the power outage was caused by a hurricane or other event beyond the utility’s control.”
As a result, utility companies generally only face potential liability in extreme cases involving gross negligence or willful misconduct. However, these claims rarely result in extended litigation as they are often resolved in the company’s favor on a motion for summary judgment. In Timmerman v. Maguson, the court granted summary judgment in favor of a power company because the plaintiff could not show the company committed gross negligence in failing to cut down a rotten tree that caused a power outage. In addition, in FMR Corp. v. Boston Edison Co., the court found a utility company was entitled to summary judgment even if the plaintiffs could show that it committed gross negligence because the contract precluded recovery in negligence for plaintiff’s economic losses.
Insurance companies limit liability by large deductibles and through use of an amendment to the Texas Insurance Code
While insurance companies are sure to face a large claim event due to this major weather crisis, this does not mean insurers will face mass litigation. The Insurance Council of Texas, a trade association that represents 400 insurance carriers statewide, predicts the winter storm will be the largest insurance claim event in the state’s history. However, a majority of potential claims will likely be covered by property insurance policies, especially claims stemming from lack of weatherization of pipes in homes and businesses. As a result, most of these claims will be processed and paid out through the generally large deductibles that most homeowners carry, avoiding mass litigation.
However, in the instances of good-faith disputes over insurance coverage, Texas insurance companies may be protected by a 2017 amendment to the Texas Insurance Code, H.B. 1774, which discourages lawsuits over weather-related claims. Requiring that consumers file notices of potential claims at least 61 days before suit is filed, and providing the insurers with an opportunity to settle the claims pre-suit, the law allows an opportunity for insurers to try to resolve claims before becoming embroiled in protracted litigation. Further, the additional time provides insurers with time to limit potential exposure for extra-contractual claims by demanding an appraisal on the disputed loss.
H.B. 1774 law also protects insurance companies from excessive demands for attorney’s fees often brought in weather-related insurance litigation. Discouraging excessive demands, the law links recovery of attorneys’ fees to the claimant’s trial recovery and initial demand. Thus, an excessive demand of attorneys’ fees in an unsuccessful suit will result in a substantial reduction of recoverable attorney’s fees, or no recovery at all.
Electricity retailer limits liability by warning and contract
Texas electricity retailer, Griddy, has also been the subject of a class-action suit alleging illegal price gouging, but the retailer is unlikely to be liable as courts recognize the flexible nature of its variable rate plans. In Urbino v. Ambit Energy Holdings, LLC (D. N.J. 2015), the court dismissed a complaint alleging price gouging because variable rate electricity plans can fluctuate in price and these types of energy companies are “entitled by contract to change [their] rates.” As a variable rate electricity provider, Griddy allows customers to pay a wholesale price, as opposed to a fixed price, for electricity. This led to drastically larger bills during the winter storm as wholesale electric prices spiked. While all signs seem to point to litigation, a crucial liability-limiting fact is that Griddy warned its customers of the potential for soaring prices and encouraged them to find a fixed-rate provider before their rates spiked. While plaintiffs fight to hold the company liable for their energy bills, Texas Gov. Greg Abbott plans to investigate these price spikes.
Handling weather-related claims
While the devastating power outages in Texas are threating mass litigation, potential defendants may have little reason to fear. Contract provisions, high deductibles, the amended Texas Insurance Code and variable-rate energy plans may help ensure that defendants are protected from mass litigation regarding weather-related claims. Practitioners should be aware of these protections and use contractual provisions and Texas law to their advantage. Defendants in weather-related claims should engage legal counsel with environmental and energy-law experience to ensure that appropriate defenses are asserted.