In the wake of Hurricane Harvey, there has been some confusion about the effect of Texas House Bill 1774 (“H.B. 1774”), which goes into effect on Friday, September 1 and amends certain provisions of the Texas Insurance Code for first-party claims under property policies caused by a “force of nature” (including floods, hurricanes, and rainstorms). This alert provides the key information that commercial policyholders need to know about H.B. 1774 to maximize recoveries under their property policies.

  1. Hurricane Harvey property claims should be reported by tomorrow, Thursday, August 31 to avoid a reduction in the interest penalty from 18% to 10% for any violations of Texas statutory claims handling requirements by the insurer. Texas policyholders who initiate claims under property policies prior to September 1, 2017 can recover 18% interest in the event that a property insurer violates Texas statutory claims handling requirements (e.g., wrongly delaying or refusing payment of an insurance claim). Texas policyholders who initiate claims under property policies on or after September 1, 2017 can recover 10% interest at current market rates for the same violations. Although many property insurance claims are resolved with no allegations of violations of statutory claims handling requirements, and the vast majority of disputed property insurance claims settle before an interest penalty is awarded, the threat of the larger 18% interest penalty could provide additional leverage in negotiating a settlement in the event of a disputed claim. Of course, should a disputed claim result in protracted coverage litigation, the difference between an 18% interest penalty and a 10% interest penalty could be multiples of the full amount of the insurance claim.
  2. Review your policy’s notification provisions before reporting any loss. Before filing any notice or report with your insurer, it is vital to review the notification provisions of your insurance policies. Many commercial property insurance policies allow a brief initial report of loss, to be followed within a period of time (often 60 or 90 days) with a “proof of loss” explaining the details of the loss and the amount claimed under the insurance policy. This process allows policyholders to initiate a claim quickly and fill in the details of the claim later. Given the changes set to occur on September 1, Texas policyholders can use this process to initiate Hurricane Harvey claims before September 1 even if details of the loss are not yet known. However, because some property policies require additional information regarding the loss at the time of initial notification, it is important to review notification provisions before reporting a Hurricane Harvey claim.
  3. In the event that a Hurricane Harvey property claim is disputed, H.B. 1774 adds requirements to be met prior to filing a lawsuit. H.B. 1774 requires policyholders to send a pre-suit notice to an insurer 60 days prior to filing suit alleging that an insurer has violated statutory claims handling requirements. This pre-suit notice must provide details regarding the amount of the loss (i.e., the exact amount alleged to be owed), a statement of acts or omissions giving rise to the claim, and the amount of attorneys’ fees incurred by the time of the pre-suit notice. In addition, H.B. 1774 requires policyholders to permit inspections of the damaged property and limits the amount of attorneys’ fees that policyholders can recover in actions alleging violations of statutory claims handling requirements. Because these changes go into effect for all actions commenced on or after September 1, any disputed Hurricane Harvey property claim that ends up in litigation will likely be subject to these new requirements.
  4. H.B. 1774 is a change to Texas state law. If your insured property is not located within the state of Texas or if your insurance policy is governed by the law of some other jurisdiction, the changes may not affect you. While this message is primarily intended for corporate policyholders with commercial property insurance programs, for individuals and small businesses with insurance provided through the National Flood Insurance Program and the Texas Windstorm Insurance Association, please note that the changes made by H.B. 1774 will not apply to claims handling under those programs, but the changes made by H.B. 1774 will apply to any claims for hurricane or rainstorm damage under any other insurance policies you may have that are governed by Texas law.