Texas Department of Insurance Issues Additional Bulletins Relating to Hurricane Harvey

Last week, we wrote a post about a number of bulletins of potential interest to property insurers issued by the Texas Department of Insurance concerning the appropriate conduct of those involved in the insurance claims process in the aftermath of Hurricane Harvey. The Texas DOI has continued its response to Hurricane Harvey, issuing two new bulletins in the last week.

Bulletin B-0021-17: This bulletin addresses situations in which an insured has suffered a flood loss that is not covered by their property insurance policy. In such a situation, and where insurers are responding to flood inquiries and flood claims from their insureds, the Texas DOI is encouraging those insurers to provide additional information to their insureds about potential assistance from the Federal Emergency Management Agency (FEMA). The bulletin also encourages insurers to provide their insureds with contact information for FEMA, including the www.disasterassistance.gov website.

 Bulletin B-0022-17: This bulletin concerns the time limits imposed by the Texas Insurance Code on insurers responding to claims arising from Hurricane Harvey. The bulletin states that the Texas DOI has issued an order determining that “the weather-related event that occurred August 25, 2017, through August 31, 2017” in more than fifty enumerated Texas counties “is a catastrophe for the purposes of claim processing.” As a result of that determination, claims resulting from Hurricane Harvey in those counties are subject to the additional time allowed for claims processing authorized by Texas Insurance Code § 542.059. That section of the code provides, among other things, that in the event of a catastrophe, claims handling guidelines imposed on insurers are extended for an additional fifteen days.

We will provide summaries of any further bulletins from the Texas Department of Insurance relating to property insurance as they are issued.

New Texas Insurance Code Chapter 542A, Effective September 1, 2017, May Reduce The Number of Harvey Lawsuits

Recently, the Texas legislature acted to curb abusive lawsuits filed by insureds as a result of hailstorm and other property insurance claims.  According to the Executive Director of The Texas Coalition for Affordable Insurance Solutions (TCAIS), the sheer quantity of abusive lawsuits filed against insurers in Texas was affecting the “availability and affordability of homeowners insurance in [a] state where consumers suffer more loss from natural hazards on an ongoing basis than anywhere else in the country.”

In May of 2017, the Texas legislature voted to pass House Bill 1774, which provides a number of changes to the landscape for a broad range of property damage claims resulting from “forces of nature,” including “earthquake or earth tremor, a wildfire, a flood, a tornado, lightning, a hurricane, hail, wind, a snowstorm, or a rainstorm.”  The new law modifies Section 541.156(a) of the Texas Insurance Code (Settlement Offers), and adds a chapter (“Chapter 542A”) to Section 542.060 (Liability for Violation of Subchapter).  While the new law was not passed with Hurricane Harvey specifically in mind, the new law will undoubtedly be implicated in property damage claims arising from Hurricane Harvey and its aftermath, as it requires certain preconditions to filing a lawsuit against an insurer, and affects what types of damages an insured is entitled to recover.  A summary of some of the key changes imposed by Chapter 542A is provided below.

The modifications to the Settlement Offers Section 541.156(a) of the Texas Insurance Code apply to all actions filed on or after September 1, 2017.  The provisions that are the subject of the addition of Chapter 542A apply to “actions,” i.e., lawsuits filed in court against insurers in which a claim was submitted to the insurer on or after September 1, 2017.  As to timing of a lawsuit, for claims that are submitted on or after September 1, 2017, insureds will be required to give an insurer at least 61 days written notice before filing a lawsuit on their claim.

Chapter 542A provides strict guidelines as to what information must be included in an insured’s written notice to the insurer prior to filing suit (a statement of the acts or omissions giving rise to the claim, the specific amount of money alleged to be owed by the insurer for property damage, and a statement identifying the amount of attorneys’ fees incurred by the insured with a calculation of the number of hours worked as of the date of the notice in accordance with contemporaneous time records).  The insured must allow the insurer an opportunity to inspect the damaged property if the insurer requests an inspection within 30 days of receiving the Chapter 542A pre-suit notice.  The new law provides that a lawsuit will be abated (with few exceptions) for failing to comply with the notice and opportunity to inspect requirements.  In addition, insurers who plead lack of notice within 30 days of filing their answers may prevent the insured from recovering attorneys’ fees.

Chapter 542A also provides insurers with an avenue to federal court that had, in the past, been difficult if an insured sued both the insurer and an insurance agent or adjuster.  In some cases, insureds have named an agent or adjuster as a defendant in order to attempt to prevent insurers from removing a case to federal court based on diversity of citizenship.  The new law allows the insurer to assume the alleged liability of the agent(defined to include an adjuster), which, if exercised in accordance with Chapter 542A, will result in the dismissal of the lawsuit against the agent and/or adjuster, and thereby potentially permit removal to federal court.

The new law also outlines the circumstances under which an insured may recover attorneys’ fees, damages, and penalties for delayed payment by an insurer.  Attorneys’ fees may be awarded to successful claimants, but the recoverable amount is designated as the “lesser of” three options: (1) the amount found by the trier of fact; (2) the amount that may be awarded under other applicable law; or (3) the amount calculated by: (a) dividing the property damage judgment amount by the amount alleged in the pre-suit notice; and (b) multiplying that number by the total amount of attorney’s fees determined by the trier of fact.  Chapter 542A provides some outlines to the “lesser of” calculation, which in sum, encourages insureds to allege realistic attorneys’ fee demands in their Chapter 542A pre-suit notices.  Finally, Chapter 542A provides that penalties for late payments by an insurer are to be determined by adding 5% to the interest rate set forth by § 304.003 of the Texas Finance Code, which can range from 5-15%, and changes monthly.

The clear intent of Chapter 542A is to curb the stream of abusive lawsuits against insurers in Texas.  Hurricane Harvey will likely be the first test of the efficacy of this new legislation.

Texas Department of Insurance Issues Bulletins Relating to Hurricane Harvey

With flood waters yet to fully recede, and the cleanup and recovery efforts from the damage caused by Hurricane Harvey and its aftermath in southeast Texas just beginning, the Texas Department of Insurance issued a number of bulletins on August 26, 2017 relating to the storm. Several of those bulletins, summarized below, are of particular interest to property insurers.

Bulletin B-0011-17: This bulletin focuses on several portions of the Texas Insurance Code concerning claim adjustment and claim adjusters. The bulletin first notes that, in emergency circumstances such as those presented by Hurricane Harvey, insurers are permitted to use nonresident and emergency adjusters to handle claims. The bulletin then discusses Insurance Code § 4101.251, which prohibits an adjuster from handling a claim involving roofing damage if that adjuster is also involved in the roofing business. Similarly, a roofing contractor may not adjust claims for a roofing loss for which they are also providing roofing services. The bulletin also discusses the requirement that public adjusters be licensed, that public adjusters may not solicit clients during a disaster, and that public adjusters not be directly involved with the repair or rebuilding of any property for which they are providing adjusting services.

 Bulletin B-0017-17: This bulletin serves as a reminder to insurers and their employees that, under Insurance Code § 543.001, no insurer, representative, or any other person may misrepresent the terms and provisions of a policy. The bulletin also notes that those insured under a dwelling or homeowners policy are entitled to choose who repairs their property. Finally, the bulletin notes that unfair claims settlement practices are prohibited, and, that “[n]ot attempting in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability has become reasonably clear” constitutes a prohibited unfair claim settlement practice.

Bulletin B-0018-17: This bulletin “encourage[s]” insurers who deny coverage for wind losses to inform policyholders of potential coverage under the Texas Windstorm Insurance Association if the loss occurred in a TWIA coverage area. The TWIA is an insurer of last resort created by the Texas Legislature for certain geographic portions of the Texas seacoast where the Commissioner of Insurance has made a determination that windstorm and hail insurance is not otherwise reasonably available.

Bulletin B-0019-17: This bulletin “encourages insurers to provide relief to those residents and policyholders who have been temporarily displaced, including the suspension of any vacancy provision in the policy, to allow for continuing insurance coverage.” The bulletin further notes that it is not intended to impact the application of a vacancy provision when a policyholder has permanently moved from their home or business.

Given the extensive nature of the damage and the likelihood of coverage issues arising from Hurricane Harvey, it is likely that further bulletins will be forthcoming from the Texas DOI.  We will provide summaries of any further bulletins relating to property insurance as they are issued.

Connecticut Supreme Court Reaffirms Court’s Limited Power To Review Appraisal Awards

The Connecticut Supreme Court recently handed down an important decision reiterating the high bar to overturning arbitration awards while, at the same time, clarifying a portion of the applicable statute providing for vacating an arbitration award as well as a prior ruling concerning the timing of payment of heldback depreciation.

In Kellogg v. Middlesex Mutual Assurance Company, the plaintiff insured her historic property under the defendant’s restorationist policy. Unlike traditional homeowners policies, the restorationist policy had no policy limit; rather, if repairs were completed, it provided for the full replacement or restoration cost of the property without deduction for depreciation. The insured property was damaged when a large tree fell on the roof and chimney during a storm. When the parties could not agree as to the amount of the loss, the insured submitted the dispute to appraisal. Following seven site visits, the submission of voluminous materials, and hearings with multiple witnesses concerning the correct amount of the claim ($1.6 million v. $476,000), the umpire and the insurer’s appraisal awarded the insured nearly $580,000 on a replacement cost basis. The insured filed an application with the Connecticut Superior Court to vacate the arbitration award under Conn. Gen. Stat. § 52-418. Following an eight day trial that covered the entirety of the claim and appraisal process, the court vacated the award and ordered a new arbitration hearing. Continue Reading

Suit Limitation Period In Standard Flood Insurance Policy Is Not Tolled By Filing In State Court: Hurricane Irene Claim Dismissed By Fourth Circuit

The terms and conditions of the Standard Flood Insurance Policy (“SFIP”) are specified by regulations promulgated under the National Flood Insurance Act (“NFIA”). One of the terms in the SFIP provides that the insured cannot sue the flood carrier unless the insured has complied with all requirements of the policy and the insured must “start the suit within one year after the date of the written denial of all or part of the claim, and . . . file the suit in the United States District Court of the district in which the covered property was located at the time of the loss.”

The Fourth Circuit recently determined that an SFIP insured is time barred from filing suit if the date that the suit was filed in federal court is more than the allowable year specified in the SFIP even if the insured filed an action in state court within the one-year periodWoodson v. Allstate Ins. Co., Docket No. 16-1935 (May 3, 2017). In Woodson, the insureds suffered damages to their home as a result of Hurricane Irene, and submitted a claim to Allstate for flood damages pursuant to their SFIP.  Allstate denied the Woodsons’ claim for flood damage on February 28, 2012, and the Woodsons filed suit in in state court on February 27, 2013 alleging breach of contract, and violation of the North Carolina Unfair and Deceptive Trade Practices Act. Continue Reading

District of New Jersey Dismisses Third Party Claims Sounding in Policy Handling on Preemption Grounds

A federal court in New Jersey recently dismissed state law claims brought by third party plaintiffs, including the insured’s broker, against a Write Your Own insurance carrier. The claims at issue in Residences at Bay Point Condo. Ass’n v. Chernoff Diamond & Co., LLC, Civil Action No. 16-5190, 2017 U.S. Dist. LEXIS 56451 (D.N.J. Apr. 13, 2017) arose out of damage sustained to a condominium complex during Storm Sandy. The insured, and later its broker, claimed that Standard Fire had failed to advise that the National Flood Insurance Policy had been written on the wrong form. After the loss, Standard Fire reformed the policy and applied a co-insurance penalty.

Moving to dismiss the third party state law claims against it, Standard Fire argued that such claims were preempted by federal law. The court agreed, turning first to the Standard Flood Insurance Policy (“SFIP”) provision regarding jurisdiction, which states that “all disputes arising from the handling of any claim under the policy” are governed by FEMA regulations, the National Flood Insurance Act, and Federal common law. Noting that federal courts have previously distinguished between claims sounding in policy procurement, which are not preempted, and claims sounding in handling, which are preempted, the court found the broker’s claims to be grounded in policy handling. Central to this determination was the status of the insured’s coverage at the time of the interaction with the Standard Fire. The condo complex’s claims, and consequently the third-party broker’s claims, arose while the condo complex was insured by Standard Fire, leading the court to conclude that the claims related to handling. Continue Reading

Appraisal Award Unenforceable Where Suit Limitation Period Expired Prior To Filing Suit: New York County Dismisses Storm Sandy Coverage Suit

Suit limitation provisions in insurance policies shorten the statutory period of time that a plaintiff may bring a suit against an insurer for certain causes of action. A New York court recently held that an appraisal award issued a few months after the suit limitation expired was unenforceable where the insured failed to file suit before the suit limitation expired. MZM Real Estate Corp. v. Tower Ins. Co. of New York, 2017 N.Y. Misc. LEXIS 1292 (Apr. 7, 2017). MZM incurred damages as a result of Storm Sandy on October 29, 2012. The Tower insurance policy contained a typical suit limitation provision stating that no one may bring action against the insurer unless suit is filed within two years “after the date on which the direct physical loss or damage occurred.” In November 2012, Tower Insurance paid $4,000, the undisputed amount of the claim. On October 28, 2013, over a year after the date of the loss, MZM demanded appraisal. On February 2, 2015, an unsigned appraisal award was issued in the amount of $170,129. Tower refused to pay the appraisal award on various grounds, including that the award included amounts that were not covered by the insurance policy. Continue Reading

Innocent or Unintentional Mistake in Application is Irrelevant: NY’s Second Department Finds Rescission Appropriate and Affirms Summary Judgment Based on Insurer’s Claim of Misrepresentation

When an insurer finds that the insured misrepresented a material fact in an application for insurance, the insurer may rescind the policy of insurance, and take the position that no coverage exists for a claimed loss. In a recent case analyzed by New York’s Second Department, Otsego Mutual rescinded its policy of insurance with the insured after a fire loss and after Otsego Mutual determined that the insured stated in the application for insurance that the property at issue was a two-family dwelling, when in fact it was a three-family home. Estate of Gen Yee Chu, et al. v. Otsego Mut. Fire Ins. Co., 2017 N.Y. App. Div. LEXIS 1516 (Mar. 1, 2017). Otsego Mutual established that it would not have issued the policy of insurance if it had known that the property was a three-family home. The insured testified that he believed that the house was a “legal two-family dwelling.” Continue Reading

New Jersey Appellate Division Applies Anti-Concurrent Causation Clause to Bar Combined Flood/Sewer Backup Claim

Frequent readers of the blog will appreciate that disputes involving the application of anti-concurrent causation language in the context of claims for flood or water damage have appeared with some frequency in recent years. This increased level of cases is due in large part to the damage caused by Hurricane Irene in 2011 and Hurricane Sandy in 2012. One frequently-litigated issue concerns what, if any, coverage is available under a policy with anti-concurrent causation language when a single indivisible loss is caused by a covered peril and an excluded peril. Recent decisions in New Jersey suggest a solid consensus that such a claim is not covered. Continue Reading

What Is Prompt Notice? Second Circuit Analyzes Late Notice In New York

Property insurance policies typically require that, once an insured suffers a loss, the insured report the loss to the insurance carrier promptly. The purpose of such a provision is to allow an insurer to investigate a claim close in time to the occurrence so as to protect itself from fraud, take early control of the direction of the claim to anticipate where that claim might lead, and to ensure that it has adequate reserve funds in place.  Naturally, the question often becomes how much time may elapse after a loss to make a delay in reporting unreasonable, and whether an insured may be excused from compliance with such late notice provisions by pleading lack of prejudice to the insurer, lack of sophistication, or some other, similar, mitigating factor. In Minasian v. IDS Prop. Cas. Ins. Co., 2017 U.S. App. LEXIS 1079 (2d Cir. Jan. 19, 2017), the Second Circuit found that a reporting delay of three months ran afoul the policy’s reporting requirement, and resoundingly rejected the insureds’ arguments that certain extenuating circumstances should excuse their compliance with the policy’s post-loss notice requirements. Continue Reading