The Texas Senate on April 30 passed a bill aimed at stemming the onslaught of property claim litigation that has been occurring with increasing frequency in the state following natural catastrophes.
Advocates of Senate Bill 1628 say it will help keep down costs and ensure the availability of property insurance, particularly in catastrophe-prone areas. Its detractors believe it will make it increasingly difficult for consumers to hold insurance companies and their representatives accountable for fair and timely payment of claims.
The legislation by Sen. Larry Taylor of Galveston was sought by the insurance industry, which has seen a rise in costly — and what they deem unnecessary — litigation over property claims since Hurricane Ike hit the coast in 2008.
In the past few years, hailstorms in particular have generated claim disputes, many of which have arisen well after the claim was paid. Insurers report they have seen from 25 percent to 40 percent increase in post-storm claim litigation.
“This litigation increase or spike has not been generated by consumers unhappy with how their insurance claim was handled,” Taylor said during the Senate debate on the bill on April 29. “Normally if that was the case you would see the number of complaints filed with the Texas Department of Insurance go up. There has been no noticeable increase or change in the number of complaints filed with TDI to correspond with this increasing litigation rate.”
Taylor said the lawsuits are instead generated by “some lawyers, some public adjusters and some roofers. … They are going door-to-door, making phone solicitations, they’re going to flea markets, they’re doing TV and radio ads and billboards to go out and find people that are willing to join in this effort.”
The bill passed was the committee substitute bill approved by the Senate Business and Commerce Committee after two public hearings. The version that now goes to the House for consideration also has a number of amendments that were added on April 29 and 30.
According to the Senate analysis of the bill it: “establishes a clear deadline for an initial claim to be filed; prohibits certain public adjuster activity; requires notice of policyholder suit and proof of loss; creates a practical standard for bona fide disputes; defines actual damages; addresses liability for a person working on the adjustment of a claim on behalf of the insurer; clarifies illegal insurance practices and estimate practices; eliminates improper solicitation by public adjusters and others including but not limited to the purpose of attorney referral; and enforces the current policy appraisal process.”
By early March 2015 around 30,000 residential claims had been filed with insurers over property damage from hailstorms that occurred on March 29, 2012, and April 20, 2012, in Hidalgo County.
Hidalgo County District Clerk Laura Hinojosa told KRGV, a local television affiliate in the Rio Grande Valley, that more than 13,000 lawsuits were filed after the 2012 hailstorms and that there were around 9,300 lawsuits still pending in the county against insurance companies stemming from those storms.
In a April 14 committee hearing, John Stephens, vice president of Legal and Compliance with Waco-based Texas Farm Bureau Insurance Companies, told the panel that in Hidalgo County following those hailstorms, his company had seen as much as a 60 percent increase in litigation over what they would normally expect in a such a storm.
Juan Padron, an independent agent from McAllen, told lawmakers at the April 14 meeting that “agents have witnessed a withdrawal of carriers from our area and these carriers cited the rabid litigation related to the hailstorms in 2012 in Hidalgo County as the reason. A reduction in the availability of insurers is in the best case resulting in significantly increased premiums for consumers. And in the worst case it is stifling the growth of our local economy by making it harder to close on home mortgages and commercial and residential real estate transactions.”
He also said “we’re seeing creative coverages where maybe the roof is not covered at the same level as the rest of the structure. It’s the difference between actual cash value and replacement cost. … Whereas before policies were fuller, more robust policies, now the situation is driving the carriers to create these policies that are in effect less useful for the insured.”
The fact that Texas property insurers have enjoyed healthy profits over the past few years make it difficult for some to believe that insurance companies need much of a break despite the influx of property claim lawsuits.
Texas property/casualty insurers paid out an average 46.4 percent of their premiums to cover property losses in 2014, the Dallas Morning News/Associated Press reported.
“Here we are with insurance companies posting extremely healthy profits for three straight years and four of the last five years,” said Alex Winslow of Texas Watch, a consumer group active in insurance issues. “Insurance companies already hold all of the cards, and now they want to stack the deck against policyholders with valid claims.”
Many people who testified against the bill during the committee meeting said it was too far-reaching in favor of insurers and several senators seemed to agree, particularly Kirk Watson of Austin, John Whitmire of Houston and Rodney Ellis of Houston.
Particular points in the committee substitute bill that rankled dissenters were: language that protects from individual litigation agents, adjusters and others working on behalf of insurance carriers; a definition of actual damages that detractors said would serve to exclude policy benefits and deny the insured the benefit of the contract; and provisions that they say allow for forum shopping by insurance companies who would rather take cases to federal court than state court.
Mike Gallagher, a trial lawyer from Houston told lawmakers that he did very little of this type of storm loss litigation. But, he said, “I’m here because the particular issues in this legislation are so far-reaching. … It grants immunity where none has ever existed before. And it doesn’t grant immunity only to the illegitimate claims, it grants immunity also to the legitimate claims and prevents recovery under the policy.”
Sen. Whitmire also expressed skepticism about the bill. “I’m concerned that you don’t overreach and cut off the individual’s access to a fair and just repair to their home or business after a storm,” Whitmire said during the debate on the Senate floor.
Taylor replied that the bill had been changed to ensure there is no overreach. “I have made a very diligent and sincere effort to make sure this bill is good for consumers and preserves their right to go to court, preserves their right to penalties, yet is not abused by some to the detriment of all by way of the price of insurance going up, losing coverages, those types of things.”
Sen. Ellis, who opposed the bill, expressed concern about overreach, the immunity given to insurance company representatives such as agents and adjusters in the bill and what could be perceived as giving insurance companies more than they deserve.
“We know in Texas that we pretty much kiss the insurance companies as they come in. We put fewer restrictions [on them] in Texas than virtually any state in the country,” Ellis said.
Fifteen amendments were added to the bill on April 29 and 30, 12 of which were adopted along with the bill.
Sen. Eddie Lucio Jr. of Brownsville introduced amendment three, which “would delete the definition of actual damages. … Under the amendment the courts will retain the authority to resolve the meaning of actual damages on a case by case basis over time.”
Taylor agreed to the addition of the amendment three to the bill but rejected amendment four by Sen. Watson.
Amendment four — also voted down by the full Senate — would have eliminated the section that expands “immunity for every insurance employee, agent, representative and adjuster involved from the sale of the policy to the denial of the claim no matter how outrageous the misconduct,” Watson said.
Amendment five by Watson clarifies that the insurer is liable for “any act or omission of the employee, agent, representative, or adjuster related to or arising out of the insured’s claim,” and it was adopted along with the bill.
The Fight Continues
In a statement following passage of the bill, Texas Trial Lawyers Association President Bryan Blevins, said that despite Sen. Taylor’s representation, the association had not agreed to the amendments to the bill and in fact had not seen them before they were approved.
But, he added, “the fact that Sen. Taylor felt the need to constantly refer to TTLA is a testament to the hard work of our organization and our membership in opposing the bill through two hearings and several weeks of hand to hand fighting.”
Blevins said that several members of TTLA were asked to participate in discussions to amend the bill. “A number of the improving amendments voted on today came from that process,” he said.
Blevins made it clear that “TTLA was not and never has been ‘FOR’ the bill” and that the group would continue to fight it in the House.
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