By: Aaron C. Christian
Texans are still reeling from the effects of the fierce mid-February winter storm that lashed the entire state with snow, ice, and record-breaking sub-freezing temperatures. As temperatures plunged, demand for electricity skyrocketed as expected. Unexpectedly, more than 40% of the state’s electric generating capacity tripped offline around the same time. Millions of Texas homes and businesses were plunged into the cold and dark for hours, even days, as temperatures dipped below 10 degrees Fahrenheit. Then, as the weather slowly warmed, frozen water pipes ruptured causing likely billions in property damage.
While power and water have largely been restored, the scope of damages and the allocation of liability is only beginning. Dozens of lawsuits have already been filed. Wrongful death lawsuits against electric power providers and ERCOT (Electric Reliability Council of Texas). Class actions with allegations of price-gouging and deceptive trade practices. Property damage and loss of business claims. And soon to come are lawsuits by power generators and/or distributors against natural gas pipelines and producers that were unable to fulfill contracts to deliver gas. Many companies, including gas producers and pipelines, power generators and distributors, and power providers are also facing, or likely to face, government inquiries and investigations. Finally, regulators and lawmakers, taking heat from constituents, are likely to propose and enact new laws and regulations affecting entire industries.
Key to many liability determinations will be a series of reports from government regulators and industry groups, including FERC (the Federal Energy Regulatory Commission) and NERC (North American Energy Reliability Corporation), on past grid failures in Texas caused by severe cold weather events. An August 2011 report from FERC and NERC, focusing on a similar, though less severe, February 2011 cold weather event found the vast majority of “the generator failures (by MWh) were due directly to weather-related causes, including frozen sensing lines, frozen equipment, frozen water lines, frozen valves, blade icing, low temperature cutoff limits, and the like.” The report also explained that despite adequate warning of the winter storm, generators’ winterization procedures were “either inadequate or were not adequately followed.” The report also referenced similar winter storm events in 1983, 1989, 2003, 2006, 2008, and 2010 and noted that the 1989 event caused similar failures of the electric grid.
Claims asserted will include negligence, gross negligence, breach of contract, and likely occasional fraud or other innovative claims. Most plaintiffs will seek recovery for property damage, loss of business, or losses and legal expenses associated with defending against claims for which the party incurring those costs seeks to shift to a third party. Some plaintiffs, particularly in personal injury or wrongful death cases, are likely to seek punitive damages as well. Of course, insurance claims associated with property damage and loss of business caused by ruptured pipes are also growing and some are likely to be litigated when insurers refuse to pay or to cover the entire loss.
Both insurance and legal claims for lost business or business interruption due to the power outages and pipe ruptures will be far more complex and challenging than claims for property damage. Business interruption claims, as a practical matter, require detailed documentation, theoretical projections of lost income, as well as educating the insurer, a court, or a jury about the details of a business’s operations and how its losses can be connected to the power outages.
At A+J we will continue to monitor this explosion of litigation and the major decisions on key legal issues that will have far-reaching impact beyond the confines of the specific lawsuit in which those questions are decided. If your business suffered loss or damage or is facing claims associated with the winter storm and power outages, we are here to help you navigate these challenges.