Texas HB 1774, which has been referred to as the “Hailstorm Bill,” has passed in both the Texas House and Senate, and Governor Greg Abbott is likely to sign the bill into law. The bill specifically targets the huge spike in hailstorm-related lawsuits filed since 2012, by attempting to make it harder to bring and litigate weather-related property claims.
Changes to the Texas Insurance Code
If enacted into law, the “Hailstorm Bill” would be effective September 1, 2017, and would add several new provisions to the Texas Insurance Code affecting first-party property insurance claims. Notably, the bill would create a new Chapter 542A for weather-related claims, which would change the requirements for pre-suit notice and inspections, allow for the assumption of agent liability, and limit the amount of recoverable attorneys’ fees. A more detailed analysis of these changes is as follows:
- Notice Requirements – Section 542A.003 now requires insured to provide written notice to its insurer at least 61 days’ notice prior to filing suit. Absent such notice, 542A.007(d) the insured’s attorney may not be able to recover attorneys’ fees after a verified plea in abatement. The pre-suit notice letter must state a specific amount of damages and incurred attorneys’ fees to date. Previously, the only remedy would be to file a verified plea in abatement for the remainder of the 60 days’ notice that was lacking.
- Inspections – Section 542A.004 provides that the person who receives pre-suit notice may provide a written request to inspect the insured property within 30 days after receiving the notice. It further provides that the inspection is to actually occur within 60 days of the date the person receives the pre-suit notice if reasonably possible.
- Abatement – Section 542A.005 provides that if pre-suit notice/inspection requirements are not met, a defendant is permitted to file a plea in abatement up to the 30th day after the filing of its original answer. Additionally, by filing an uncontested, verified plea in abatement alleging that these pre-suit requirements were not complied with, an action is automatically abated beginning on the 11th day after filing of such a motion, without the need for a court order.
- Assumption of Liability - Section 542A.006 allows for insurers to elect to assume 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. An agent includes any employee, agent, representative, or adjuster acting on behalf of the insurer. Once the insurer assumes the agent’s liability, the claims against the agent must be dismissed with prejudice. By allowing assumption of an adjuster’s or insurance agent’s liability, the bill aims to make it easier for insurers to remove cases to federal court.
- Limitation of Attorneys’ Fees – If the policyholder’s attorney fails to comply with the new pre-suit notice requirements, the policyholder may be prohibited from recovering attorneys’ fees. Additionally, if a claim is tried, the amount of recoverable attorneys’ fees will be adjusted. For a claimant to recover all attorneys’ fees, the award must equal at least 80% of the pre-suit damages demand, while a pre-suit demand equaling 20-79% of the damages award allows only for a scaled percentage recovery of attorneys’ fees. Should the award be 20% or less of a claimant’s original demand, the claimant recovers no attorneys’ fees.
- Statutory Penalty Interest – The legislation lowers the penalty interest rate that insurers must pay if they fail to pay “timely and fully” from 18% per annum to a rate of 5 percentage points above Texas’ pre-judgment interest rate, which is currently 5%. For claims to which Chapter 542A does not apply, however, the statutory penalty interest rate would still be 18%.
The bill does not invalidate any potential causes of action that a policyholder can bring against its insurer. Attorneys’ fees are also still recoverable for those cause of action that allow for attorneys’ fees, but the bill tries to discourage claimants from filing grossly inflated demands by providing disincentives for doing so. The pre-suit notice letter is also expressly admissible in evidence, which previously was the subject of debate