News from Law 360. While some Texas lawyers are encouraging property owners to quickly lodge claims for Hurricane Harvey damage before a new state property insurance law takes effect on Friday, the reality is that the potential downsides of the legislation — including a lower interest rate on successful lawsuits against insurers — don’t warrant such swift filings, several attorneys told Law360.
Starting at the beginning of the week, a slew of law firms began to issue alerts on social media platforms recommending that homeowners and business owners file claims for Harvey losses with their insurers prior to the Friday effective date of House Bill 1774, which Gov. Greg Abbott signed into law in May. Among other things, the law reduces from 18 percent to about 10 percent the amount of prejudgment interest an insurer must pay if it is found to have delayed payment on or wrongfully denied a meritorious claim.
Opponents of HB 1774 say the law scales back important deterrents for insurers to comply with statutory deadlines for responding to and paying claims for losses tied to natural disasters. As such, some attorneys say, property owners would be well-served to file Harvey claims before the new law takes effect, so that if those claims wind up in litigation down the road, they will still be subject to current law.
Other attorneys interviewed by Law360, however, question whether the changes in the law are sufficiently deleterious to policyholders to warrant a property owner filing a Harvey-related claim — or even a lawsuit against the insurer — before Friday.
“I don’t think this bill curtails policyholders’ rights enough to warrant prematurely filing litigation in a situation where the policyholder otherwise may be able to avoid it through following a traditional claim process — assessing loss and providing notice, dialoguing with the insurer, and then, determining if a dispute exists that warrants coverage litigation,” stated an attorney from one Texas law firm.
Supporters of HB 1774, which addresses disputes over coverage for property damage tied to hurricanes, hailstorms and other “forces of nature,” touted the bill as a vital tool to reduce abuses of the insurance claims and litigation processes by opportunistic plaintiffs’ lawyers. The law applies only to first-party property policies sold through the private marketplace, and not flood policies backed by the National Flood Insurance Program or policies issued via the Texas Windstorm Insurance Association.
In addition to trimming the amount of prejudgment interest available to policyholders who prevail in litigation against insurers, the new law requires a policyholder to provide written notice of a claim to an insurer 61 days before filing suit. The notice must contain information regarding the damages claimed from the insurer, as well as the “reasonable and necessary” attorneys’ fees incurred by the policyholder.
HB 1774 further provides for limitations on attorneys’ fees awards to policyholders where the damages sought in the presuit notice against the insurer greatly exceed the damages actually recovered at trial. Under the law, policyholders can recover 100 percent of their attorneys’ fees if they recover at least 80 percent of the presuit demand, but if they win less than that, the award of attorneys’ fees will be reduced according to a scale. Policyholders may also forfeit the ability to recover attorneys’ fees if they don’t comply with the notice requirements.
Some attorneys in the Lone Star State say that, with HB 1774’s less policyholder-friendly provisions looming, property owners should act promptly before Friday to ensure that any litigation stemming from their claims will be governed by current law.
“Under the new statute, there is limited disadvantage for insurers delaying or not doing what they should have done,” stated a Texas lawyer whose firm organized opposition to HB 1774 by Texas businesses. “There has to be a consequence for that, and that is why we have these statutes — to make sure carriers do the right thing.”
One Houston law firm also expressed concerns that the new law removes much of the incentive for insurers to promptly evaluate and pay claims, casting the battle over HB 1774 as a “David versus Goliath story from the very beginning.”
“They have taken away David’s slingshot,” the lawyer stated. “The insurance industry doesn’t want people to know that. If an insurance company has properly evaluated and adjusted a claim, or if they have properly denied the claim, then why do they care what the penalty is? What is hurt is valid claims that were improperly adjusted from the beginning.”
But other attorneys say that the potential impact of HB 1774 on Texas property insurance claims has been exaggerated.
The opposing argument can be found at the law360 web site.