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.