1,651 days after hail storm, dispute between Amarillo ISD and insurance firm still unsettled as leaky roofs continue causing harm

Jennifer Pedroza was touring her son's elementary school in August when she found the carpet in the library ripped up and a hole in the ceiling.

Water had seeped in through the ceiling and onto a bookcase running beneath a row of windows at San Jacinto Elementary School.

"It came down from the roof, down the windows and it ruined all those books," Pedroza said. "There was mold on the books from water damage."

Pedroza, who said she loved the school and transferred her son there because it has great teachers, said the library had been off limits to students because of mold and a stench.

"It sucks," she said. "It really sucks."

San Jacinto is among 43 Amarillo Independent School District schools in insurance-dispute limbo four years after a massive May 2013 storm struck Amarillo with baseball-sized hail.

Attorneys for the school district say the district's insurer, Travelers, has refused to pay the full extent of damages and has dragged out negotiations, leaving the school district to battle leaky roofs and stave off water damage.

Recently, the district has been mopping up after a rainy season that included one of the wettest Augusts in Amarillo history.

"If Travelers had timely paid the true amounts owed under the policy, the district would not be suffering continuing damage to its campuses," said Kelly Utsinger, lead attorney for Amarillo ISD.

The district has received nearly $12 million in insurance money to make fixes after the storm, but Amarillo ISD argues it needs millions more to make complete roof replacements instead of repairs at a number of locations.

At one point, the divide between the district and its insurer, Travelers, was more than $30 million, court filings show.

A public insurance adjuster hired by AISD pegged losses - to 43 school campuses, the district's headquarters and a maintenance department building - at $45 million, while the insurer's estimate was $14.3 million.

Sticking points include a disagreement on the use of elastomeric coating, a rubberized paint, instead of replacing roofs at 25 campuses - including San Jacinto - and the district headquarters, court filings show.

The district says the coating would trap moisture already in roofing membranes in violation of the city building code.

The insurer has also argued there was no hail damage to the majority of gravel ballasted roofs, while the district said many needed replacing.

Amarillo ISD sued Travelers two years after the storm, in May 2015, attempting to recoup the full amount of the claim, along with penalties. Travelers had failed to properly investigate and pay the claim, Amarillo ISD claimed.

More than a year later, the suit was paused after Travelers triggered an independent appraisal process, a move that attorneys for the district opposed, saying it was an attempt to further delay a settlement as maintenance costs and water damage at schools mounted.

But a federal judge approved the abatement of the lawsuit for an appraisal process, which is underway. Amarillo ISD doesn't expect it to end until the middle of next year.

Revealing rains

Lingering damage became apparent to the public in September when a group of community members extensively toured Amarillo ISD campuses as part of a committee formed by the school board to vet a $100 million bond package that included repairs and upgrades to aging campuses.

The tours came in August, while school buildings were drenched by record rains. That month was the third-wettest August in Amarillo history, when 7.4 inches of rain fell, including 2.4 inches dumped in a single day.

"This summer we had a lot of rain, so we were able to see where all the damaged roofs were because of the extensive water that was collecting," said Claudia Stuart, a retired West Texas A&M University professor who led a group that split up and toured 13 schools.

Stuart said she saw standing water in some areas along with buckets to catch the rain.

More dramatically, the committee also found the gutted library and moldy books at San Jacinto.

"I would say about 80 percent of the schools we saw had some type of roof damage with water leaking into the classroom, into the hallways, into the gymnasiums, into the bathrooms," Stuart said.

Utsinger said the district after the storm had implemented a program of "targeted temporary roof repairs, and when leaks occurred, diligently worked on interior repairs."

But he said the scope of the damage from the hailstorm was "not fully appreciated" until heavy rains in July through October.

He also said the rains prompted roof replacements at four schools.

"After the deluge this fall, the district was no longer able to rely solely upon its targeted temporary repairs while awaiting resolution of its claim," Utsinger said. "Instead, the district had to prioritize its use of the inadequate Travelers payments."

The school board last month re-approved roof replacements projects at Mann Middle School and Woodlands and Wills elementary schools, which were started in 2015 but put on hold due to the lawsuit. The board also voted to move ahead with a roof replacement at Whittier Elementary School, which the district says was damaged during the 2013 storm.

The roof replacement costs at the four campuses are estimated at $4.2 million, and Travelers had estimated the losses at those schools at about one-third of that, or $1.4 million, Utsinger said.

"Travelers in effect offered to pay to replace around 34 percent of the roofing systems on these campuses, without any payments for resulting interior damage," Utsinger said. "Replacing 34 percent of a roofing system has no benefit when the roofing system requires total replacement."

The district at the start of this fiscal year in July had $8.8 million in leftover insurance proceeds from the hailstorm. The unspent money is tucked away in the district's fund balance, essentially a rainy day account, which holds more than $120 million.

Claims delay

Attorneys for Amarillo ISD don't expect a completion of the appraisal process - and a cash award - until at least mid-2018.

A resolution could've been swifter, Amarillo ISD said, but the insurer has sought to delay by unexpectedly triggering the appraisal process late in the game.

The insurance contract allowed either the insurer or district to demand the appraisal if they couldn't agree on the cash value of a claim. Travelers invoked the provision in January 2016.

The appraisal process started this year, with each side hiring an independent appraiser.

The two appraisers have selected a neutral umpire, and together they have been touring buildings hit by the storm. If the appraisers fail to agree on the amount of loss, the umpire will make a ruling, and a written agreement signed by any two is binding.

School attorneys initially fought the move in court, saying appraisal proceedings were expected to last a year to 18 months, which would let school buildings continue to deteriorate and district expenses continue to balloon.

Since the storm, Amarillo ISD had been spending an average of $3,100 more per roof in monthly maintenance, attorneys wrote in an August 2016 court filing.

About 26.5 percent of the total square footage of district campuses had interior water damage, up from about 6 percent before the storm.

The district also projected $750,000 in legal costs for the appraisal process - on top of about $900,000 it had already spent on the lawsuit.

"Invoking appraisal now will lead to the loss of hundreds of thousands of taxpayer dollars in increased expenses, will result in delay causing continued deterioration of AISD's buildings, and will not provide a more efficient alternative to litigation," the filing said.

In a statement to the Globe-News, Travelers said the $11.7 million it paid "is an appropriate amount to properly repair the damaged buildings."

The insurer initially paid $9.4 million and later paid an additional $2.3 million in spring 2015 after additional discussions.

"The customer has not yet substantiated their disagreement with our estimate," Travelers said. "We invoked the appraisal provision in the policy, which will put the matter in front of an independent party, to bring this claim to an agreeable resolution without the need for drawn out and costly court proceedings."

'It's frustrating'

Ware V. Wendell, executive director of consumer advocacy group Texas Watch, said strategically delaying appraisal is a common tactic for insurers looking to avoid a jury trial and gain the upper hand in negotiations.

"It's something that too often is just there to add expense or delay, and insurance companies know exactly what they are doing when they invoke it," Wendell said. "There is really not much downside for them at all."

As the appraisal continues, dealing with persistent leaks has become an annoyance for some teachers.

Aaron Philips, a district teacher and president of Amarillo Education Association, said on rainy days water drips into the hallways at Coronado Elementary School.

"Our custodial staff generally sets out waste containers in those spots since they're known at this point - where it's going to leak," he said.

Phillips later added, "It's frustrating."

Utsinger said the school district intends to resume the lawsuit after the appraisal award and pursue "all available claims," which could include punitive damages.

The suit sought to triple damages because Travelers' failures were "intentional," and it also sought to add an 18 percent penalty to the claim for failing to pay fully and in a timely fashion.

Wendell said Amarillo ISD's situation was an example of bullying by an insurance company that could end up hitting Amarillo residents in their pocketbooks.

"Not only are the insurance companies making it hard for kids to get educated in Amarillo right now," Wendell said, "but taxpayers there may be picking up the tab at the end of the day if the school district can't get paid what its owed from the insurance company."

And, he added, a law passed in Texas this year - which includes replacing the 18-percent slow-pay penalty available to policyholders with a floating rate currently set at 10 percent - will tip the balance further in favor of insurers in the future.

"Shockingly, the insurance industry was handed even more power during this last legislative session," he said. "Texas property owners will unfortunately end up paying the price."