Perry's TWIA Nemesis Loses Battle but Promises War Isn't Over

He’s the trial lawyer Republican Gov. Rick Perry loves to hate: Steve Mostyn, from the small East Texas town of Whitehouse, founder of one of the state’s largest plaintiffs’ firms, single biggest political donor in the 2010 state elections, top financier of lost Democratic causes.

Mostyn gave about $10 million in 2010, much of it aimed at defeating Perry and nearly all of it going to Democrats. About the only thing he has to show for it now, though, is the ire of a powerful — and, in Mostyn’s words, “vindictive”  — Texas governor and possible presidential candidate. In the marathon lawmaking session that just ended, a Perry-versus-Mostyn fight concluded with the trial lawyer on the losing end of an argument over how much money attorneys like him could make from storm insurance claims.

He may have lost this fight, but he's not giving up the war. Mostyn said he is making plans to create a national political action committee so he can keep gathering "opposition research" on Perry and dog him through any possible presidential bid.

Perry spokesman Mark Miner said the governor is undeterred by Mostyn's sustained money bomb campaign. "People can see behind the rhetoric and the millions of dollars that he spends against the governor," Miner said. "He has an agenda, which is to help liberal trial lawyers. It was unsuccessful during the governor’s race, and it was unsuccessful during the session.”

Dogging Perry is a strategy Mostyn is familiar with, but one that so far has paid little dividends. Mostyn paid for those controversial full-page newspaper ads calling Perry a “coward” for refusing to debate Democrat Bill White in 2010. He also dipped into his personal fortune to run a series of negative TV ads against the governor, and he funneled millions into political action committees opposed to the GOP conservative agenda. Perry won 55-42 percent.

The fight didn’t end in November. It spilled into the regular and special sessions of the Texas Legislature, and when they concluded, Perry had helped oversee a highly contentious overhaul of the rules governing storm-related lawsuits — the kind that helped make Mostyn a multimillionaire.

Perry said the reforms were needed to stop trial lawyers like Mostyn from depleting a state-backed insurance fund known as the Texas Windstorm Insurance Association, or TWIA. Perry said they were treating the state insurer of last resort like a “personal ATM." Mostyn calls the outcome — TWIA reforms that reduce damages awarded to policyholders and sharply limit lawsuits by storm victims — political revenge.

In an interview with the Tribune, Mostyn said Perry and the Republican-led Legislature, in their zeal to punish him, instead put coastal insurance policyholders in the crosshairs. He said he’ll still make millions, though perhaps not by suing insurance companies after devastating storms like Hurricanes Rita and Ike. He said policyholders along the coast in particular will be “shocked” to see what their wind-damage insurance now covers, and he predicted attorneys will essentially now quit taking TWIA cases.

Under current law, policyholders who can prove that TWIA intentionally failed to honor a claim can win up to three times the amount of damages caused by a storm. And penalties on those damages can accrue at a rate of 18 percent per year. The new law allows wronged claimants up to twice the damages the storm caused and reduces the penalty amount to zero.

“I’m unfortunately the reason that policyholders of this state are going to be stuck with the worst insurance law, regarding any windstorm insurance company, flood or any other type of insurance … in the country,” Mostyn said. “It’s just straight-up vendetta politics.”

The reform debate naturally pitted the Texas Trial Lawyers Association, which Mostyn leads as president, against Texans for Lawsuit Reform, arguably the most influential business lobby group in Republican-ruled Texas. That group’s chief lobbyist is Mike Toomey, Perry’s former chief of staff, longtime friend and confidante.

Perry and GOP lawmakers, supported by TLR, came into the regular legislative session determined to limit how much money TWIA pays out as a result of major hurricanes and the number of claims policyholders can file. Lawmakers said they worried the agency was on the brink of bankruptcy, especially after Hurricane Ike. 

In all, the agency has so far paid about $1.9 billion to 93,000 homeowners affected by Ike. Now, TWIA has about $100 million in cash and the capability to issue $2.5 billion in bonds. It also has about $636 million in reinsurance. That's not nearly enough, they argued, with weather experts predicting a busy hurricane season ahead.

TLR and their GOP backers focused on the millions trial lawyers have made from claims and lawsuits against TWIA and on the fact that if the agency ran out of money, insurance policyholders from all over Texas would have to pay more into the insurance pool to cover storm losses. "We just don’t have enough money to go around," state Rep. John Smithee, R-Amarillo, chairman of the House Insurance Committee, and lead TWIA negotiator for the lower chamber, said during debate on the House floor.

Democrats and other coastal lawmakers pointed to alleged malfeasance and fraud perpetrated by the windstorm association.

Critics say emails exchanged among TWIA officials show a pattern of deliberate fraud, an orchestrated effort to limit payouts to storm victims. In one email obtained by Mostyn's firm, for example, TWIA claims supervisor Christina Turner writes to her superiors to warn that the agency was acting in “bad faith” by not following procedures for settling claims.

“We are basically refusing to pay a claim without conducting a reasonable investigation. This is a class-action lawsuit in the making,” Turner wrote in January 2009. According to Mostyn Law Firm attorney Andrew Taylor, Turner was escorted off the property and fired shortly after writing that email. John Polak, TWIA's interim general manager, would only confirm that Turner worked as a contractor for the agency from Oct. 1, 2008 to Jan. 19, 2009

Instead of reining in the abuses, Mostyn and some coastal lawmakers worry the law will make it harder for policyholders to hold TWIA accountable in court if it doesn't honor its policies, and that it will eliminate class-action lawsuits brought by private attorneys. Mostyn also said Texans who have TWIA policies now, or who buy them before the law takes effect, will be misled into thinking they have better coverage than the new law will give them. Once the law goes into effect, he said, it impacts all TWIA policies, both existing ones and new accounts.

During the high-profile squabbling over TWIA bill, Mostyn said it became clear that his direct involvement in the negotiations had become a source of tension in the governor’s office. Mostyn said he never talked to Perry but was told the governor wanted him out of the negotiations taking place behind the Senate chambers, where Mostyn and Perry’s chief legislative liaison, Ken Armbrister, were among those working on hammering out a compromise bill.

“He was so entrenched on getting me. ... That was causing them to not be willing to focus on anything in these negotiations other than me,” Mostyn said.

At one point in late May, as the regular legislative session was winding down, Mostyn said all sides had agreed to a compromise deal. But Perry said there was never a deal because he hadn’t signed off, and one of the chief sticking points was that Mostyn needed to get out of the room.

"Having [Mostyn] as a lead negotiator has been a bad idea from the get go,” Perry told reporters at the time.

After negotiations melted down, state Sen. John Carona, R-Dallas, chairman of the Senate Business and Commerce Committee, said Perry's staff had initially approved of the deal but reconsidered because the governor was concerned it didn't do enough to limit lawyer profits. Frustrated, Carona said at the time he had spent hundreds of hours trying to negotiate a compromise between Perry and Mostyn. 

"There’s a little too much bravado on all sides of this issue right now," Carona said in a May interview. "There’s no denying this is becoming a very personal matter between two very powerful individuals.”

And Carona said he warned Mostyn and the trial lawyers that they would not fare as well during a special legislative session, because Perry would have even more ability to push his proposal through the Legislature without the Senate's two-thirds rule in place.

The stalemate continued, though, and a special legislative ensued, as Perry promised.

As the squabble continued, a frustrated A.R. "Babe" Schwartz, watched intently. The former Democratic state senator from Galveston lived through Hurricane Celia in 1970 and wrote the law that created TWIA.

In the wake of Celia — a Category 3 storm that killed 15 people and caused more than $450 million in damages — many insurers stopped writing policies for coastal homeowners. In 1971, Schwartz and other lawmakers created TWIA to provide coverage private companies would not. The association is a pool of private property and casualty insurers that covers wind, hail and storm damage for homeowners in 14 coastal counties and parts of Harris County. How much each insurance company pays into the pool depends on a number of factors, including the geographic breakdown of their own policyholders. In short, every Texan who pays for insurance pays into TWIA to some extent to help coastal residents recover from a catastrophe.

“This is not brain surgery,” Schwartz said of the high-pitched, complex negotiations that lawmakers endured this year. “We’ve done it before.”

Schwartz is now a lobbyist, and he represents the Galveston Windstorm Action Committee. He sat through hours of committee hearings, testified about what the reform proposals would mean for coastal residents and pleaded with lawmakers to boot out the special interests from the negotiating process.

The folks who were forgotten among all the lawyer in-fighting, Schwartz said, were the Texans who live on the coast, who stand to lose their homes and businesses, when TWIA fails to live up to its policy contracts.

“They’re not going to TWIA because it’s the best policy they can get,” Schwartz said. “It’s the only policy they can get.”

Mostyn said critics have greatly exaggerated his role in the negotiations and have inflated how much he made off TWIA specifically and storms more generally. He said he made about $5.3 million for his role in a class-action lawsuit against TWIA. And Mostyn said TWIA cases were only about 16 percent of his hurricane claims business — most of it from Ike. Mostyn is believed to be worth more than $100 million, but he wouldn't give a precise figure.

No individual gave more money than Mostyn in the 2010 elections, according to news reports and figures from the Texas Ethics Commission. He spent about $4 million on the Back to Basics group, which  ran the “Coward” ads and others taking aim at Perry’s alleged high-living at a rental mansion west of Austin and various policy controversies. Mostyn also gave millions, collectively, to loosely connected liberal or Democratic-leaning groups such as the House Democratic Campaign Committee and Texans for Insurance Reform.

Mostyn has not only given Democrats and liberal lobby groups money but has given jobs and legal work to members of the Legislature. Rep. Trey Martinez Fischer, D-San Antonio, who argued passionately against the TWIA bill as a lawmaker, was "of counsel" to the Mostyn firm for three years. He said his work for Mostyn ended in September. Rep. Ana Hernandez Luna, D-Houston, worked for Mostyn's firm for two and a half years, leaving in February 2010, she said. Both said they helped Mostyn on non-TWIA storm cases involving Spanish-speaking policyholders.

"The laws that we pass around here impact everybody the same," Martinez Fischer said.

Two other legislators have done work for Mostyn. One of them, former Rep. Jim Dunnam, D-Waco, was defeated in 2010 but continues to do referral work from Mostyn. Rep. Craig Eiland, D-Galveston, made $627,000 for his part in a class-action lawsuit against TWIA, and he has co-represented hundreds of plaintiffs with Mostyn, including in cases against TWIA cases and some against private insurers.

Eiland played a leading role during House debate on the TWIA bill, arguing passionately and often fruitlessly for changes that would give policyholders a more direct path to a jury trial. He told the Tribune that as a citizen legislator and lawyer from the coast, he saw no reason to step aside and recuse himself from a debate that could impact most of his Galveston district — including his own law practice.

"This applies to almost every one of my constituents. I do the state rep job for six out of every 24 months. When I represent local businesses and homeowners at the courthouse, it's not some backroom deal," Eiland said. "It's done in public, at the courthouse. … I have not tried to hide it up here. By the same token, there is nobody in the Legislature who knows more about how this bill will impact coastal residents than me."

Mostyn said he does not have any state legislators on his payroll currently, but he wouldn't rule it out in the future.

"That’s because of the fact that it’s good for the business in what I’m doing, not to do with what they’re doing on politics or votes on the floor," Mostyn said. "Those guys vote their districts, and their districts are aligned with trial lawyers, and there’s no need for me to hire folks whose districts are already in line with my causes.”

Despite watching most of his political money go down the drain last year, Mostyn said he is ready to spend more as Perry steps out on the national stage in a possible run for the White House. Mostyn said he plans to make available some of the research he has pulled together on Perry as reporters begin diving into his record in Texas.

"We have plenty of information that we’ll be happy to share with anybody," Mostyn said. "I will remain politically active."

Meanwhile, Mostyn's detractors at TLR, who have built a website called The Truth About Steve Mostyn, are sure to keep shining the spotlight on him, too. "Mr. Mostyn has a huge personal stake financially in legislation impacting the civil justice system, especially all matters related to the Texas Windstorm Insurance Association," said TLR spokeswoman Sherry Sylvester. "Certainly, any legislator who is employed or contracted directly by Mr. Mostyn deserves scrutiny for potential conflicts of interest."

And when it comes to Mostyn's plans to take his anti-Perry campaign to the national stage, the governor basically said go ahead. "The governor is not a candidate for federal office. If he wants to start a federal PAC that’s his business," Miner said. "He continues to spend millions of dollars in a fruitless effort."

Steve Mostyn and his wife, Amber Anderson Mostyn, are major donors to The Texas Tribune. The Texas Trial Lawyers Association is a Texas Tribune corporate sponsor.