Even as Hurricane Harvey’s effects continue to unfold, Texas policyholders face another imminent threat. On September 1, 2017, a new Texas law becomes effective that dramatically limits insurance recoveries for Texan individuals and businesses. House Bill 1774 requires policyholders to provide more details when disputing insurance company coverage determinations and substantially reduces the penalties imposed on insurers who unfairly deny, slow pay, or underpay insurance claims filed after August 31, 2017. This anti-policyholder law also imposes additional (and potentially onerous) pre-suit notice and inspection requirements on policyholders; these requirements are all designed to minimize policyholder insurance recoveries. While policyholders may file claims after August 31, 2017, the penalty for insurers who fail to fully honor their obligations will be reduced. This law applies to homeowners and commercial policyholders on all commercial insurance programs (only government insurance programs fall outside the scope of this onerous law).
In light of this upcoming restriction on insurance recoveries, Texas policyholders should immediately ask their brokers or insurance agents to submit their insurance claims on all potentially responsive insurance policies no later than Thursday, August 31, 2017. If your broker or agent’s office is closed due to Hurricane Harvey, ask any affiliated office to immediately submit your claim. If your broker or agent does not have another office or you do not have a broker or agent, immediately submit your claim directly to your insurance company. Use any means available to document your notice submission in writing – whether by email, text, or letter – but undertake all efforts to comply with your policies’ notice requirements as your insurers may use any purported failure to follow the requirements against you.
Submitting notice of a claim will help you preserve your rights in the event of a covered claim. It is better to risk a denial of a potentially uncovered claim than it is to lose coverage rights for an otherwise covered claim, so err on the side of notifying your insurers now.
Once you have dealt with the immediate notice issues created by the impending change of Texas law, you should take these additional steps to obtain any available insurance coverage for the damage caused by Hurricane Harvey:
1.Gather all potentially applicable insurance policies.
Without copies of your insurance policies, it is very difficult to identify potentially responsive coverage. If you do not have copies of your insurance policies available, or your copies have been destroyed, obtain a copy from your broker or your insurance companies. Coverage may be available under a number of different policies and coverages, including property, named windstorm, flood, business interruption, contingent business interruption, loss of utilities, civil authority, automobile (commercial and personal lines), and homeowners’ policies.
2. Identify potential coverage triggers.
Once you have obtained the potentially applicable policies, determine whether coverage is potentially triggered for the losses sustained as a result of the storm. Potential coverage triggers include:
- Property damage or loss (to real or personal property) caused by:
- Flood, if your policy includes flood coverage
- Burst pipes
- Sewer backup
- Extra expenses for mitigation of damages
- Business interruption due to shutdown of your facilities
- Contingent business interruption due to shutdown of your supplier or customer facilities
- Damage or theft by looters
- Loss of power
- Restricted access due to government shutdowns and restrictions
- Damage to automobiles or other equipment
The particular losses incurred may trigger coverage under different policies depending on the structure of your insurance portfolio.
3. Provide notice of claims if you have not already done so.
Once you have identified potentially responsive polices, provide notice of your claims if you have not already done so. Certain policies have strict notice requirements that require the policyholder to provide “prompt” notice as a condition precedent to coverage. Texas requires insurers show prejudice to deny coverage for late notice under a property policy and has historically allowed significant leniency for policyholders providing late notice under property policies. Last year, however, a federal appeals court upheld an insurer’s late notice defense under a property policy where the insured’s failure to provide notice until 19 months after incurring damage caused by a hail storm caused prejudice because the insurer was prevented from investigating the loss. Coupled with similar cases holding that delays of six weeks, three months, and six months are unreasonable as a matter of law, policyholders should be wary of delaying notice of loss, notwithstanding Texas’s historically favorable notice-prejudice case law.
4. Document and mitigate losses.
Depending on the type of coverage, you may be required to provide proof of loss to demonstrate the extent of the insurance recovery. This process can be demanding, so you should be aware of necessary proof of loss documentation when you begin the mitigation and recovery process.
Take necessary, reasonable steps to protect property from further damage. Document the extent and nature of the damage suffered, making extensive use of photographs and video where appropriate. Make back-up copies of documents and photographs. Retain subject matter experts and forensic accountants when appropriate to calculate the cost of repairs and replacements, document extra expenses, and determine lost profits. Where possible, identify and preserve documentation supporting valuation of personal and real property, and avoid costly appraisal disputes with insurers.
Additionally, be aware of your insurer’s right to investigate your property to make its own determinations regarding coverage and the extent of the damage. Often insurers will have a right to physically inspect the property upon request “as often as reasonably required.” Insurers may also have limited rights to sample damaged and undamaged property and a general right to “cooperation” in the investigation and settlement of any claim. Your insurers may also have the right to take your testimony under oath; this process is known as an examination under oath or an EUO. While some amount of cooperation is required, your policy should not grant an insurer carte blanche to review records, interview your employees or experts, or enter your property. Policyholders need to strike a balance between unfettered access and cooperation.
5. Prepare for potential exclusions.
While many insurance policies could provide coverage for losses arising out of Hurricane Harvey, policyholders must be prepared for potential coverage disputes as insurers deny coverage based on restrictive policy language. For example, the special cause of loss form (sometimes called “all-risks insurance”) includes a broad form “water” exclusion that removes coverage for loss or damage “caused directly or indirectly by…flood, surface water, waves (including tidal waves and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not drive by wind (including storm surge).” See ISO Form CP 10 30 09 17. This exclusion applies regardless of “any other cause or event that contributes concurrently or in any sequence of the loss.” Policyholders can mitigate the impact of similar exclusions by carefully documenting losses and limiting claims submissions to exclude losses potentially implicated by broad exclusionary language.
6. Lobby your legislators.
Texas commercial and personal policyholders should urge their lawmakers to repeal this upcoming onerous law, which is particularly ill-timed in light of Hurricane Harvey. Texas law should protect Texans – not penalize them when faced with a disaster. In addition, insurers may argue that the new law’s pre-suit requirements apply even to claims submitted before the law’s effective date – thus further impairing policyholders’ rights.
These are particularly difficult times for all of Texas, particularly Houstonians and other Texans impacted by Hurricane Harvey.