In light of the property damage in Texas from Hurricane and Tropical Storm Harvey, questions have been raised as to amendments to the Texas Insurance Code contained in House Bill 1774 (HB 1774) and scheduled to go into effect on September 1, 2017. In this alert, we outline the main changes HB 1774 will make to the Texas Insurance Code as they relate to reporting insurance claims or suing on such insurance claims.
- HB 1774 adds Chapter 542A – Certain Consumer Actions Related to Claims for Property Damage – to the Texas Insurance Code. This Chapter will apply to an action against an insurer as to a firstparty real property insurance claim arising out of damage or loss to covered property and caused wholly or partly by “forces of nature.” As relevant to Harvey, this includes property damage caused by floods, hurricanes or rainstorms.
- For these types of claims, Chapter 542A limits the rate of interest a policyholder may be entitled to recover from an insurer under Section 542.060 of the Insurance Code. Section 542.060 provides a policyholder with a right to interest when an insurer does not promptly pay a claim. Currently, that interest rate is 18 percent per year. For “forces of nature” claims, HB 1774 changes the interest rate to current market rates plus 5 percent per year. As of the September 1, 2017, effective date, the initial interest rate will be approximately 10 percent. Thus, the new law initially will lower the available interest rate from 18 percent to 10 percent. Going forward the interest rate will fluctuate with market rates.
- This interest rate change is effective as to insurance claims made by policyholders on or after September 1, 2017. Claims made before this date will continue to have access to the current 18% interest rate.
- As to “forces of nature” claims, HB 1774 also adds pre-suit notice and reporting requirements for policyholders as to actions (e.g., lawsuits) filed on or after September 1, 2017. If a policyholder sues an insurer as to such a claim on or after September 1, 2017, these new pre-suit notice and reporting requirements will apply. These new requirements provide that a policyholder must make particular pre-suit written notice to its insurer regarding its insurance claim no later than 61 days prior to suing its insurer. This notice is to include the amount alleged to be owed by the insurer and the amount of attorney’s fees incurred by the policyholder. HB 1774 then potentially limits the attorney’s fees recoverable from an insurer based on this pre-suit notice.