While widespread subrogation related to winter storm claims payments against Texas energy organisation the Electric Reliability Council of Texas, Inc.(ERCOT) hasn’t emerged and in some quarters is thought unlikely, one insurer is seeking to hold ERCOT accountable for some of its costs from the freeze event in the State.The Cincinnati Insurance Company, part of Cincinnati Financial Corporation, has filed a federal suit that seeks to absolve the insurer from responsibility for paying out for winter storm related claims if ERCOT is found to have any liability for them.Cincinnati Insurance covers ERCOT under a commercial general liability insurance policy, but is asking the federal court to issue a judgement that would mean it does not have to defend or indemnify ERCOT in connection with 19 separate lawsuits against ERCOT, related to the winter storm in February.

“These suits seek damages arising out of the mid-February 2021 Winter Storm Uri and the related power outages that occurred across the state of Texas,” the federal court documents explain.Cincinnati Insurance wants the court to approve it to decline paying any damages related to these lawsuits, where liability is laid at ERCOT’s feet The insurer asserts that “There is no duty to defend or indemnify the Underlying Matters because there is no occurrence.In order for there to be an occurrence, there must be an accident.

An accident is a fortuitous, unexpected, and unintended event.“None of the allegations in the Underlying Lawsuits assert that the alleged damages were caused by any accident.In fact, each asserts facts to the contrary.

The allegations in the Underlying Lawsuits allege ERCOT either knew, should have known, expected, and/or intended, that Winter Storm Uri would cause the same power outages which occurred as a result of previous storms in Texas, including storms in 1989 and 2011.“The Underlying Lawsuits allege the power outages caused by Winter Storm Uri were a result of the exact same failures including failures of the same generators which failed in the previous winter storms, and therefore, the power outages were foreseeable, expected, and/or intended.” As a result, the lawsuits filed against ERCOT, which relate to bodily injury or property damage, do not satisfy the insurance policy’s terms, Cincinnati believes.As said, this isn’t a case of subrogation, where an insurer seeks for a third-party that has been deemed liable for the cause of a loss to take on the responsibility for paying out to claimants, or to recover its claims paid from the liable party.

But it is an interesting development and the federal suit could influence some carriers to seek to pursue the possibility that subrogation against ERCOT could be an option.The rolling blackouts are thought to have been a significant factor in many burst pipe claims related to the freezing temperatures.Which means in many cases the freeze related damage could be construed a man-made loss, caused by the implementation of rolling-blackouts in Texas.

Which is where the subrogation angle comes in, .Some attempts to pursue potential subrogation continue, we understand, but precedence would suggest they may be unsuccessful.However, Cincinnati Insurance’s case against ERCOT could change this picture somewhat and of course could also have some relevance for reinsurance firms backing the carrier, as if ERCOT was forced to shoulder the claims of liability for property damages, it could reduce the recovery it can make from its insurer.

Successful subrogation claims can provide insurance or reinsurance carriers with the ability to recoup some of their losses, if another party has been deemed liable for causing the loss in the first place.The most recent and high-profile subrogation related to a catastrophe event was the Californian wildfires, where utilities and SoCal Edison have paid billions back to subrogation rights holders, including insurers.Those subrogation payments ultimately reduced losses for providers of reinsurance and retrocession, including ILS funds and even resulted in some reductions in losses for exposed catastrophe bonds.

As a result, the potential for any subrogation in relation to the recent winter storms and ERCOT’s role in the energy issues that hit the State of Texas will continue to be closely watched by the industry.– .– .

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