Texas is known for its prolific weather events – wind, hail, tornadoes and, most recently, Hurricane Harvey – all of which can wreak havoc and cause significant damage to residential and commercial properties. As the locals say: “If you don’t like the weather in Texas, wait five minutes” and the next weather pattern will roll in. But six-12 months after the storm rolls out, Texas is known for another prolific event: the filing of storm litigation cases across the state. While some of these claims have been meritorious, many are not, resulting in clogged courthouses and escalating attorneys’ fees.
Texas House Bill 1774, which became law on September 1, 2017 (codified as Texas Insurance Code §542A, “Certain Consumer Actions Related to Claims for Property Damage”), is Republican-backed legislation intended to address “insurance claims and certain prohibited acts and practices in the business of insurance.” It applies to all first-party property claims that pertain to “damages to or loss of covered property caused, wholly or partly, 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.” Supporters that argue the legislation will reduce unwarranted storm litigation by: (1) weeding out frivolous claims before they reach the courthouse; and (2) giving insurance companies a means to identify and settle meritorious claims before they become lawsuits. Opponents argue the legislation is draconian and unfairly swings the pendulum back too far in favor of the insurance companies.
To accomplish its goals, §542A introduces new pre-suit notice requirements; pre-suit inspection requirements; options for abatement; limitations on actions against individual agents; and restrictions on the award of attorneys’ fees. The key provisions of §542A include:
- An insured must give specific pre-suit written notice specifying his or her damages and attorneys’ fees incurred to date at least 60 days before filing suit. (§542A.003). This provision allows the insurance company to evaluate the claim for potential early resolution. Failure to comply with the pre-suit notice requirement may prevent the insured’s recovery of attorneys’ fees should the claim become a lawsuit.
- Upon receiving pre-suit written notice, an insurance company is entitled to request a pre-suit inspection. (§542A.004). This provision, too, allows an insurance company to evaluate the claim for potential early resolution.
- If the insured does not comply with the pre-suit written notice or pre-suit inspection requirements, the insurer may seek abatement of the case. (§542A.005). This should stop the insured’s attorneys’ fees from accruing while the insurance company evaluates the claim.
- For actions brought against an insurer’s agents – including individual employees, representatives, and adjusters who perform acts on behalf of an insurer – the insurer “may elect to accept whatever liability an agent might have to the claimant for the agent’s acts or omissions related to the claim by providing written notice to the claimant,” which then prevents the plaintiff from suing the agent individually. (§542A.006). Practically speaking, this allows an insurance company to streamline its defense without having to incur additional fees in defending its agents. This provision also eliminates an insured’s ability to add a Texas-resident agent for the sole purpose of defeating diversity to prevent the insurance company from removing the case to federal court.
- Should the case proceed to trial, an insured’s recovery of attorneys’ fees is tied to his original pre-suit written notice specifying his damages. The insured has an incentive to be accurate in his assessment of damages or else risk not receiving any attorneys’ fees (for example, if the judgment awarded to the insured for damage to covered property is less than 20 percent of the amount alleged to be owed for that damage in the original pre-suit notice, the court may not award attorneys’ fees). (§542A.007).
Creating particular consternation is House Bill 1774’s modification of existing Texas Insurance Code §542.060(c), which lowers the interest payment on claims not paid promptly to only 5 percent above the prejudgment interest rate as determined by §304.003 of the Texas Finance Code (which is currently 5 percent) resulting in a current interest rate of 10 percent. Compare this to the prior law’s 18 percent interest rate. As a result of this provision, which applies to all claims made on or after September 1, 2017, Texas saw a barrage of social media posts, lawyer advertisements, and media articles urging insureds to submit all Hurricane Harvey claims before September 1 in an attempt to lock in the 18 percent interest on any claims not paid promptly.
Emergency orders issued by the Supreme Court of Texas to extend procedural deadlines on account of Hurricane Harvey did not impact the effective date of the law, which applies to all claims and lawsuits filed on or after September 1, 2017. While the impact of House Bill 1774 remains to be seen, the basic premise is sound: any claimant, whether in the insurance context or not, should be able to clearly articulate his or her claim and damages before filing suit.