The rise of rampant claims litigation against property insurers following hailstorms in Texas has created a “cottage industry” that not only threatens the financial health of the state’s property insurers, it puts insurance consumers at risk as well, says a Dallas-based attorney familiar with the situation.
Steve Badger, an attorney with Zelle Hofmann Voelbel & Mason LLP, says some attorneys, roofers, public adjusters and others are making it their business to try and bilk property insurers following catastrophic events like the hailstorms that hammer the state every year.
In a podcast interview with Insurance Journal, Badger says the situation is one “we’ve never seen before in Texas, and I don’t believe in any other jurisdiction in this area of property damage claims. … This has nothing to do with ensuring that building owners get their hail-damaged roofs properly fixed. … These claims and these lawsuits are all about this emerging cottage industry making money off of the insurance industry. ”
Badger says he at heart he’s a plaintiff attorney with a specialty in subrogation cases, but watching the hail claims situation explode in the past few years motivated him to get involved in the fight against this growing cottage industry.
Insurers are reacting with “increased deductibles, limitations on coverage, and, in some cases, outright exclusions of hail coverage. In the end, the effect here is not just on the insurance industry, but on the Texas building owner, who is ultimately going to suffer,” Badger says.
The industry made an effort to get legislation passed this year that was written to help stem the tide of litigation over property insurance claims in the state. While Senate Bill 1628 by Sen. Larry Taylor of Friendswood passed the Senate it died in the House.
The bill would have, among other things, limited the time frame in which property damage claims and lawsuits over those claims could be filed. It also would have granted immunity from liability to insurance company adjusters, insurance agents and others working on behalf of an insurance company in a claim dispute. All liability instead would be held by the insurer under the bill’s provisions.
The bill did pass the House Insurance Committee but died in the waning days of the legislation. That’s because “it was never placed on the calendar for the full House to consider,” Badger says.
“I am confident that had the entire House had the opportunity to consider the legislation, that a majority of the House would have passed it as well, or at least some version of it. There would have then been a conference committee between the House and the Senate to find a compromise piece of legislation that could be passed by both,” he adds.
Badger says he’s not a lobbyist, “just a guy who is very concerned about what I see happening out there. I was hopeful that we could find a legislative solution to the problem before our clients all turned to a wording solution.
“What I found interesting that did happen was an enormous amount of misinformation and really disinformation about what the legislation would do. The number of absolutely incorrect statements that were put out in the press about the legislation was mind-boggling to me.”
One of the main complaints brought up in opposition was that the legislation was ‘”going to close the courthouse to aggrieved consumers,’ and that is absolutely untrue. There was nothing in the legislation that would take away the rights of the consumer to sue its insurance company who did not pay a meritorious claim,” he says.
Another version of the bill will likely be proposed during the next Texas legislative session in 2017, he says.
“Some of the complaints and argument against the legislation that were proposed earlier this year, those issues will be addressed and legislation will be put forward that hopefully can address the issues and get through the legislature,” he says.
Lawsuits, Roofers and Barratry
The litigation rate over hail claims has risen to between 20 and 40 percent in the state and whereas he might have traditionally had one or two such cases per year he now has hundreds crossing his desk, Badger says. Much of the litigation is over claims that have been settled and paid.
Another problem is that roofers are engaging in the unauthorized practice of public adjusting, promising new roofs, or more money for roof damage claims that have already been paid for.
The illegal practice of barratry also is an issue, with case runners going door to door, appearing at flea markets, or holding meetings in hail affected jurisdiction, soliciting claims on behalf of attorneys, he says.
Unchecked these actions may create an insurance environment in which insurers are forced to limit or eliminate coverage for hail damage and insurance consumers find themselves with fewer and fewer options when it comes to insuring their homes and businesses, Badger says.
In the meantime, he advises insurers to “promptly pay meritorious claims. If something was missed in the adjustment process, you absolutely have to pay those.”
If everything that was addressed properly in the first place, “we will defend the matter aggressively. We will hold our insureds to their burdens, and that’s very important. The burden to establish a covered cause of loss during the policy period is on the policyholders,” Badger says.
As a last resort without a legislative fix, coverage restrictions or outright coverage exclusions may be in order, but “that would be unfortunate,” he says.
“We need to fix the problem a way other than excluding coverage,” Badger says. Otherwise, the result could be that the state ends “up with an insurer-of-last-resort for hail, and a lot of Texans not having hail coverage for real hail damage. That would be too bad.”
Was this article valuable?
Here are more articles you may enjoy.