ERCOT is being left in the cold, what that means for Texas property owners and their insurance claims.
ERCOT‘s insurer, The Cincinnati Insurance Co., is asking for a court ruling excusing it from defending Texas’ electric grid manager from suits or covering damages stemming from the devastating power failure in February.
The Cincinnati Insurance Co. filed for relief in The U.S. District Court in Austin, asserting it doesn’t have to defend the Electric Reliability Council of Texas refusing to acknowledge the energy outage as an accident, defined by the insurer as a “fortuitous, unexpected, and unintended event.”
If the storm isn’t an “accident”, it isn’t a covered event, and therefore under no obligation to cover ERCOT, which confronts a flood of suits following the winter storm.
So who’s going to pay?
The Electric Reliability Council of Texas might be left to pay for the legal defense and damages caused by more than a dozen lawsuits filed against the nation’s power grid manager.
The storm left over 4.5 million Texans with no electricity, and now an estimated $30B+ in property damage.
The majority of the deaths resulted from hypothermia, the state says.
Timeline of Events
If the federal court doesn’t grant the declaratory judgment, then the Cincinnati Insurance Company would likely have to cover ERCOT under its existing policy contract.
Cincinnati and ERCOT entered into a coverage agreement on June 1, 2019 and the coverage was set to expire on June 1, 2022.
As of March 4, ERCOT’s insurers received 19 lawsuits alleging ERCOT was accountable for loss of life, physical injury, and property damage caused by electricity loss across the state.
On March 18, The Cincinnati Insurance Company advised ERCOT it had been performing its coverage investigation. ERCOT did not answer the insurer’s information requests, according to the lawsuit.
The federal court filing lists the following cases as now pending from ERCOT and others:
“There isn’t any obligation to defend or indemnify the Underlying Matters since there is no occurrence. In order for there to be an occurrence, there must be an accident. An accident is a fortuitous, unexpected, and accidental event,” attorneys for The Cincinnati Insurance Company wrote in the federal court filing.
“None of the allegations in the Underlying Lawsuits assert that the alleged damages have been caused by any crash. In fact, each asserts facts to the contrary. The allegations in the Underlying Lawsuits allege ERCOT either knew, should have known, anticipated, and/or planned, which Winter Storm Uri would cause exactly the exact same power outages which happened as a consequence of prior storms in Texas, such as storms in 1989 and 2011,” the lawsuit continued.
How the Supreme Court Has Ruled
Cincinnati Insurance’s latest filing comes less than a month after the Texas Supreme Court refused to rule on a question of whether ERCOT is a governmental agency with all sovereign immunity protecting it in suits. ERCOT, a private, nonprofit corporation overseen by the Texas Legislature and the Public Utility Commission, is the only grid supervisor in the country that has such protection.
The state’s highest court ruled 5-4 in March that it won’t decide a closely watched case between Dallas power generator Panda Power and ERCOT, which raised concerns about ERCOT’s sovereign immunity from suits. The majority ruled that the Texas Constitution prohibits the court from ruling on the case after the trial court issued a final judgment dismissing the case, making the situation before the Supreme Court moot.
The Supreme Court could decide on ERCOT’s immunity as appeals against the Panda Power case come up throughout the legal system.
Rulings at the Panda Power and the Cincinnati Insurance instances will have widespread implications for ERCOT, which faces several lawsuits, such as over the deaths of an 11-year-old boy and also a 95-year-old man, both found dead in their freezing Houston-area homes.
Who Is at Fault for Not Winterizing?
A national research study into Texas’ energy grid failure revealed Texas’ failure to winterize its energy grid led to the statewide outages, which left some residents without power for weeks.
The 2011 Federal Energy Reliability Commission report detailed multiple measures Texas should take to winterize its electricity grid.
The 2011 report detailed nine findings — half of those dealt with Texas’ lack of winterization inside its grid. Regulators wrote the term “winterization” a total of 92 days from the report.
“The Underlying Lawsuits allege the power outages caused by Winter Storm Uri were also a result of the specific same failures including failures of the same generators that neglected in the prior winter storms, and thereforethe power outages were foreseeable, anticipated, and/or intended,” the Cincinnati lawsuit claimed.
ERCOT needs Cincinnati to pay to defend the suits and to cover any damages arising from them, according to the insurer’s national suit.