Law’s Ambiguity a Source of Mixed Messages Over Texas Cat Claims Statute

Ambiguity surrounding a Texas law that goes into effect on Sept. 1 has insurance industry representatives and attorneys who represent insurance policyholders sending conflicting messages to insureds who may have suffered property damage from Hurricane Harvey.

HB 1774 was originally introduced as a response to widespread litigation over insurance claims disputes following hailstorms but during the legislative process this year it was expanded to include losses to insured property “by forces of nature, including an earthquake or earth tremor, a wildfire, a flood, a tornado, lightning, a hurricane, hail, wind, a snowstorm, or a rainstorm.”

Some attorneys are recommending that clients who know they have suffered property damage due to Harvey should file notice of a claim with their insurers before the effective date of the new law, warning that policyholders will lose certain protections under HB 1774 that they currently have under existing laws.

Insurance industry representatives, such as the Independent Insurance Agents of Texas, the Insurance Council of Texas and the Property Casualty Insurers Association of America (PCI), say that’s not so, that the claims process has not changed and that insureds will continue to have full access to the courts should a dispute arise with their insurer.

The Texas Department of Insurance has issued a clarification about the bill and Harvey storms claims stating: “The claims filing process and deadlines aren’t changing September 1. House Bill 1774 from the last regular session does not change how homeowners file a claim, deadlines to file claims, or how insurers process claims. … Property owners with covered damages maintain the same rights to an insurance claim whether they file their claim before or after September 1.”

Insureds that intend to file an action against an insurer over a claim have to give written notice to the insurer of the intent to file “not later than the 61^st day before the date a claimant files an action …,” the law states.

Another provision of the bill states that “penalty damages go down from 18 percent to 10 percent if an insurer wrongfully denies or delays coverage. So, it really takes a lot of the bite out of what our former penalty damage statute provided,” said Jim Cooper, a Houston-based attorney with the law firm, SmithReed.

Additionally, under the bill, attorneys’ fees may be reduced or denied if in the course of a disputed claims process the amount of property loss is incorrectly stated.

“Let’s assume the insurance company either doesn’t pay the claim or pays less than the policyholder is owed, before filing suit the insured has to make a demand on the insurance company for a specific amount of money. And if they are not completely accurate, if they cannot predict their entire loss at the beginning of this process, and it later turns out that the jury awards less than what they demanded, then the recovery of attorney’s fees starts declining based upon that difference.

“There is no precedent for that type of law anywhere in Texas. … This is a unique feature and to apply this to people who are suffering from hurricanes or hailstorms seems inappropriate to me,” Cooper said.

Ernest Martin, a Dallas-based attorney with HaynesBoone said “the statute is a little confusing, because in one place it refers to actions that are filed before or after Sept. 1. But in another section, it talks about claims that are made before and after Sept. 1.”

That’s one reason why attorneys are advising clients to go ahead and file notice of a claim before Sept. 1.

Guidance issued by the IIAT says that HB 1774 “goes into effect on September 1, 2017, and applies to lawsuits filed after that date.”

But in one section, the language of the statute reads: “Section 542.060(c), Insurance Code, as added by this Act, applies only to a claim, as defined by Section 542A.001, Insurance Code, as added by this Act, made on or after the effective date of this Act. A claim made before the effective date of this Act is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose.”

“542.060c is from the prompt pay statute,” Martin said. “That’s the statute that has the 18 percent damage that can be assessed if the carrier misses certain deadlines. So this section 542.060 … the prompt pay statute, makes the reference to claims. Whereas in subparagraph A, it references 541.156, which doesn’t make any logical sense because that section has to do with settlements.”

Because of that discrepancy within the statute, Martin said he thinks it’s advisable “that companies and individuals that do have property losses that they do report their claim to their carrier before Friday. Because like I said, the statute in one place refers to claims being made before the effective dates and after the effective dates.”

In an opinion piece published on Insurance Journal affiliate, Claims Journal, Gary Wicket, an insurance trial lawyer and a partner with Matthiesen, Wickert & Lehrer, S.C., stated: “The only valid reason to file a claim before September 1 is that an insured could possibly benefit from the old interest rate of 18 percent as opposed to the statute’s new interest rate of 10 percent (Prime is 5 percent currently, plus 5 percent under the statute). That interest rate only comes into play, however, in the rare case that a lawsuit against the insurer is filed, that suit goes to trial, and there is a finding of delay in payment under the Texas Prompt Payment Statute found in the Texas Insurance Code, § 542.051, et. seq. Therefore, the hysteria revolves primarily around a needle in a haystack, with lawyers tweeting sky-is-falling rhetoric in order to get their names out there for public consumption.”

According to Joe Woods, vice president, state government relations for the Property Casualty Insurers Association of America (PCI), policyholders don’t lose any protections under HB 1774.

“The new law does not bar access to the courts nor does it prevent consumers from retaining legal counsel. Consumers still have all legal remedies available under the consumer protection laws in the event an insurer engages in bad faith conduct. The Texas Department of Insurance is available to handle any complaints about insurers. The new law does not take away any right to sue and does not diminish any cause of action that a person has against an insurance company,” Woods said in a PCI press release.

Woods added that it’s important for policyholders to work with their insurance companies and agents “to access the services needed to handle a claim and take the proper precautions to make sure they are not taken advantage. Texans should also seek information from the Texas Department of Insurance and other official sources. If consumers believe that an insurer is not meeting the terms of the policy, they should know that they have the right to take legal action, including filing suit.”

Still, Woods advises policyholders whose properties have been damaged by Harvey to “contact your insurer as soon as possible to start the claims process, and work with your adjuster to identify all damages and coverages.”

HB 1774 does not apply to policies issued by the Texas Windstorm Insurance Association or to coverage provided through the National Flood Insurance Program.