Dallas Fort Worth Insurance Lawyer Blog
The Houston Chronicle published an article in February on a topic that lawyers who handle hail damage claims need to know about. The title of the article is, Insurers, Plaintiffs Lawyers Square Off In Austin Over Hail Storm Bill.
Lobbyists representing insurance companies are pushing legislation they say will prevent premium increases by weeding out “abusive” lawsuits over damages caused by hail and other storms in what is shaping up as a battle royal with consumers and plaintiffs’ lawyers.
Gov. Greg Abbott raised the stakes when he used his State of the State address earlier this week to proclaim that “hailstorm litigation is the newest form of lawsuit abuse.” He urged the Republican-controlled legislature to send him a bill that he can sign into law to limit those types of lawsuits.
The looming clash pits insurance industry lobbyists and their allies from Texans for Lawsuit Reform, the group that has championed “tort reform” for several years, against the Texas Trial Lawyers Association and Texas Watch, a nonprofit consumer group, which contend the industry’s bill is designed to boost profits and restrict consumer access to the courts.
A recent report by the state Department of Insurance said there has been an increase in the rate of hail and windstorm claims in which policyholders sue insurers. Through 2011, the lawsuit rate was about one in 1,000 claims, or 0.1 percent. That has jumped since 2012 to one in 50 to 60 claims, or about 1.5 to 2 percent.
The data did not show a pattern of rate increases, but the Department of Insurance added: “Rates follow losses, however, so companies may not have reflected expected costs for hail litigation in their rates yet.”
Sen. Kelly Hancock, R-North Richland Hills, plans to soon file a new version of a bill limiting hail suits. He is chairman of the Business and Commerce Committee, which likely means the legislation will move faster than two years ago.
The legislation is expected to make major changes to two sections of the state’s insurance code that penalize insurers for unfairly settling claims and not promptly paying them. The bill would make it harder for plaintiffs’ attorneys to name adjusters and agents as defendants to prevent lawsuits from being transferred to federal courts. Such “venue shopping” would be curtailed, the TLR says, by allowing insurance companies to assume the adjusters’ and agents’ liability.
The legislation would lower the penalty interest rate insurance companies have to pay when they have been found to have denied or underpaid a legitimate claim. But it would maintain the state code’s strict liability provision so that property owners can get penalty interest from insurance companies when they fail to pay a legitimate claim “timely and fully.” Property owners would also still be able to receive attorney fees from their insurers.
Beyond penalty interest, the legislation would contain a series of provisions making it harder and less lucrative for plaintiffs’ attorneys to sue insurance companies, according to the TLR.
It would limit and reduce attorney fees when their clients get less than they have demanded in lawsuits and bar the payment of attorney fees if insurance companies can prove that plaintiffs’ attorneys used intermediaries – commonly called “runners” – to recruit clients.
“Hail litigation has spiraled out of control in Texas, mainly because of a small group of bad actors,” said Hancock in a statement.
He added that the bill would “improve transparency, and protect Texas consumers from sky-high premiums without infringing on their right to make an insurance claim or sue their insurance company when it’s not holding up its end of a deal.”
Hancock’s bill is expected to roughly follow an outline that Texans for Lawsuit Reform released recently.
The bill would force plaintiffs’ attorneys to sue either under the state’s Deceptive Trade Practices Act or the Unfair Claim Settlements Practice Act, but not both. And it would require plaintiffs’ attorneys to file a notice to the insurance company before a lawsuit is filed that includes a “realistic demand” for the amount needed to repair or replace damaged property and the amount of attorney fees incurred. If the current deadline – at least 60 days before a lawsuit is filed – is broken, attorneys would not be able to collect fees.
Parsley, the TLR general counsel and lobbyist, stressed that the group’s proposals for the bill would protect the right of consumers to sue insurance companies if those firms do not settle a legitimate claim “fairly and timely.”
But Ware Wendell, executive director of Texas Watch and a lobbyist, said TLR’s plan offers the “illusion of a right without any real remedy” by making it more difficult for property owners to file lawsuits if insurance companies don’t treat them fairly.
“Insurance companies have gotten what they wanted on rates and coverage through the years. Now they are coming for policyholders’ claims protections. We can’t give them another inch. If they succeed, policyholders will be forced to take whatever the insurance company offers, if they even make an offer,” he said.
Wendell said consumers’ rights would be eroded.
“Insurance companies control every step of this process. They write the policy. They send out the claims adjuster, and they face no liability if they do everything right the first time as they should. They have complete control over whether they face liability. Adjust the claim, make the people a fair offer that is 100 cents on the dollar, and there is no suit,” he added.
Beaman Floyd, a lobbyist who is director of the trade group Texas Coalition for Affordable Insurance Solutions, said TLR’s lobbying is aimed at “abuse in the courthouse” while insurance companies will fight the potential for increases in hail and other storm lawsuits to drive up homeowners’ insurance rates and deductibles.
The members of Floyd’s trade group are Allstate, Farmers Insurance, Nationwide, State Farm Insurance, and United Services Automobile Association, known as USAA.
Alex Winslow, a spokesman for the Texas Trial Lawyers Association, said the group would work with its business and consumer allies to fight attempts to roll back the access of policyholders to the courts or reduce penalties that deter insurers from treating consumers unfairly.