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TLR Advocate March 2017
- A Future We Can Be Proud Of
- Bamboozled — The Victims of Hailstorm Lawsuit Abuse
- U.S. District Judge Calls It Like It Is
- What The Hail Is Going On In Texas?
- After Enactment of SB 10 and HB 1774, Texas Policyholders Will Maintain a Wide Array of Remedies Against Insurance Carriers
- Lawsuit Reform Warriors
- Parachuting Plaintiff Lawyers: Proof of Lawsuit Abuse
- The Loss of a Wonderful Friend and Colleague
Diane and I took our ten-year-old granddaughter to Washington, D.C., last fall. While we have visited Washington often, Diane and I experienced it freshly watching Genevieve’s excitement and enthusiasm about our nation’s founding and history.
I was especially pleased when Genevieve, in a recent school essay, wrote of her interest in law and politics. Law is the foundation of government. Without law, government does not exist and society is not stitched together. I want Genevieve and all of my grandchildren to inherit a Texas legal system in which they will be proud to participate—one that is efficient, fair and impartial. One that has integrity and enjoys the trust of the people. Without trust in the law, how does the fabric of civil society hold together? How does commerce function? How are disputes resolved peacefully?
TLR came into existence in 1994 to restore fairness and integrity to a civil justice system that had eroded into a morass of confusion, inconsistency, unfairness and bias. Now, after two decades of repair and restoration, our task is to be vigilant for new assaults on the integrity of our legal system. This year, that requires us to help the Legislature modify the Texas Insurance Code, which is being exploited by a small number of plaintiff lawyers using a mass-tort strategy to extort settlements from property insurance carriers following weather events. Their model is to solicit hundreds or thousands of claimants and file lawsuits alleging bogus or wildly exaggerated claims.
We have seen this kind of abuse before. And in each case, the Texas Legislature moved decisively to prevent ongoing harm. In asbestos litigation, plaintiff lawyers solicited thousands of claimants who had no impairment and then extorted settlements from defendants who could not afford to litigate the cases to conclusion. The Legislature ended this abuse by requiring a claimant to provide a physician’s diagnosis of an asbestos-caused illness before proceeding to trial. Several years ago, a few lawyers exploited flaws in the Texas Windstorm Insurance Association (TWIA) statute to solicit clients following hurricanes to file thousands of lawsuits, many with bogus or exaggerated claims, extorting unjustifiably large settlements from TWIA. The Legislature carefully modified the provisions in the law governing TWIA that had invited the lawsuits, while maintaining rights and remedies that protect policyholders.
In both matters, the Legislature’s task was made easier by a business community that united behind the reforms. Job creators unite behind tort reform measures because abusive lawsuits pursued on a massive or persistent scale undermine our legal system and create burdensome costs that are inevitably imposed on all consumers. All of us should care when our legal system is gamed or exploited because everyone loses when the system is corrupted by greed. The Legislature again has the opportunity to right the balance of justice in Texas, not just for today, but for your grandchildren and mine.
Texans from all walks of life have become pawns in storm-chasing lawyers’ scheme to get rich off hail litigation. These are their stories:
“It was the first home my husband and I bought. I was so proud. It was our investment.”
Unfortunately, when aggressive public adjusters repeatedly showed up at her Laredo home insisting a recent hailstorm damaged her roof, Cynthia Leal fell victim to a stormchasing lawyer’s scheme to get rich off of her family.
“I didn’t think I had any damage, but they talked me into it. They kept saying they were ‘working for the people’ and if I filed a claim, my insurance company would lowball me.”
The unscrupulous public adjusters never actually inspected Leal’s roof or mentioned the possibility of a lawsuit. They only told her that a lawyer would help with her insurance claim, and that it wouldn’t affect her coverage.
So Leal, pressured by the adjusters’ fearmongering and anxious to do the right thing for her family’s home, signed on the dotted line.
And then there was radio silence. She wasn’t contacted by an adjuster or lawyer for months, until she learned over a year later that a lawyer had filed a lawsuit against her insurance company on her behalf—an action she never authorized or wanted.
When she tried to pull the plug on the suit, she was again pressured to pursue litigation even though she made clear it was against her wishes.
“I felt trapped into suing my insurance company. Even after I told them I wasn’t comfortable with it, they insisted.”
Leal was told her lawsuit was going to arbitration. Her insurance company offered $11,000 to settle the claim, but Leal would only take home $800 after the lawyer and public adjuster pocketed their fees.
“They totally bamboozled me.”
Ultimately, Leal was forced to hire another attorney to extricate herself from the litigation.
“It’s a stressful time and you just want to do the right thing, but no homeowner should be taken advantage of like I was. It’s not right.”
Only Trying to Do My Job
“I take a lot of pride in what I do. I’m a homeowner’s adjuster. People pay their premiums and expect good service, so I always try to find coverage for them. But no matter what I did, I got sued.”
Russell Yalowsky and his wife run a family business adjusting property insurance claims across Texas, but getting served with more than 30 lawsuits in 2015 was the tipping point. Today he no longer adjusts claims in the Rio Grande Valley, unwilling to take on the burden of another litigious year like 2015.
Unlike the public adjusters who solicit clients for stormchasing lawyers, Yalowsky is an independent adjuster who contracts with several insurance companies to help resolve customer claims, often working in several states after natural disasters. Typically, only a handful of those claims were disputed. Until recently.
“I hate to turn down work, but 2015 was a nightmare. I thought, ‘well, I paid for the [policyholder’s] roof to be replaced; there’s no way this could end up in court.’ But I was just buried in lawsuits.”
Yalowsky recently testified in a lawsuit in Laredo in which he was a defendant. The trial took an unusual turn when a juror discovered during impaneling that an attorney had filed a lawsuit on her behalf without her knowledge. That trial, Yalowsky says, opened his eyes to the true motive behind these cases—lawyers’ fees.
“The insured had already been paid through the appraisal process. The lawyers spent more time talking about their fees than the claim, and the jury saw right through it.”
The case was ultimately dismissed without any additional award to the plaintiff or their attorneys.
Tim Molony, who runs the adjusting firm that contracted Yalowsky in 2015, said Texas’ litigation environment is unlike any other state.
“In Texas, the bar is perfection and even that isn’t good enough. A thorough, accurately adjusted claim still results in lawsuits. You don’t find that in other states, and adjusters are choosing to work in places where they know they won’t get sued like they do in Texas.”
“When that happens, it’s ultimately the homeowner who loses out. It’s a shame.
“The Court is not to be treated like flypaper—hoping that something sticks.”
So wrote U.S. District Judge Micaela Alvarez, who took the unusual step in December of admonishing the Mostyn Law Firm for its repeated, unsupported, cookie-cutter claims in hail-related lawsuits.
Judge Alvarez had summoned Steve Mostyn to her court in March, asking him to explain why these cases merited the court’s time and resources and why he shouldn’t be sanctioned for his actions. In the months between that hearing and this order, more than a dozen Mostyn cases against insurers were thrown out on summary judgment.
While Judge Alvarez has yet to sanction the Mostyn Law Firm, she has blasted the firm—publicly and on the record—for what can only be seen as a scheme to use mass-tort tactics to exploit and profit from the statutory incentives that are fairly unique to Texas law.
For the past three years, TLR has informed the Legislature and the public about the blatant and widespread abuse of the courts by certain lawyers after hailstorms. Mostyn—who essentially bankrupted the Texas Windstorm Insurance Association pursuing this same mass-litigation model following Hurricane Ike—has taken his show on the road, using hail events throughout Texas to generate self-serving lawsuits.
But he is far from the only unethical attorney chasing storms and taking advantage of Texas homeowners. A new crop of copycat trial lawyers has piggybacked on this cottage industry, looking to cash in on the lucrative combination of attorney fees, penalty interest and no-fault liability that drives this litigation.
So Judge Alvarez’s “Judicial Notice to the Mostyn Law Firm” serves multiple purposes. In it, the judge lays bare the unprofessional, meritless approach that Mostyn takes in pursuing hail-related lawsuits. But she also delivers a warning to other unscrupulous Texas attorneys who have followed in Mostyn’s litigious footsteps.
Unfortunately, only a few of the thousands of abusive hail cases end up before judges of Judge Alvarez’s courage. Nevertheless, all lovers of a fair and impartial judiciary can take heart in the judge’s exposure of these abuses:
“The Court has observed an unacceptable and systematic practice by Plaintiff’s counsel—the Mostyn Law Firm—of filing numerous and unfounded claims.”
“It troubles the Court to see instances in which the insured and insurer appeared to resolve all disputes under the contract, and then years later suit is filed for no apparent reason—putting aside the attorney knocking on the insured’s door.”
“[T]he Mostyn Law Firm finds it worth everyone’s time and energy to lop upon their breach claim numerous extracontractual theories without any apparent justification.”
“[T]he Mostyn Law Firm consistently fails to allege any facts supporting extra-contractual injuries. Instead, they are content to squander valuable time fruitlessly answering decisive motions for summary judgment against them.”
“[T]he Mostyn Law Firm’s practice of systematically pleading and defending extra-contractual claims based solely on payment disputes is both wasteful and futile.”
“[B]eyond merely copying-andpasting these claims from their templates and dropping them into case filings, the Mostyn Law Firm did not bother to specifically bring up, argue, or support these claims in any fashion.”
“It comes as no surprise that the Mostyn Law Firm’s extracontractual claims arise not only unjustifiably, but also uniformly—they are undoubtedly part of a template the Mostyn Law Firm uses in hailstorm petitions.”
“In a bout of cosmic irony, the Mostyn Law Firm has unleashed a hailstorm of its own upon the Court in the form of baseless claims. The Court is not pleased.”
Decades ago, at the urging of plaintiff lawyers who then controlled Texas politics, the Texas Legislature wrote into the Insurance Code perverse incentives for the filing of needless lawsuits to reap higher damage awards and attorney fees. If the Legislature does not eliminate those incentives, then this Mostyn-inspired group of bad actors will continue to feast upon every damaging weather event in Texas. And all Texans will pay the price—not only in higher insurance deductibles and premiums and reduced insurance coverage, but in a degradation of our civil justice system and the erosion of popular trust in it that all abusive litigation necessarily causes.
Lawsuit by the Numbers
Taking a Stand Against Lawsuit Abuse
Senate Bill 10 and House Bill 1774 (hereafter referred to as The Bill) implement common-sense reforms to stop storm-chasing lawyers from exploiting the Insurance Code, while preserving the right of Texas policyholders to sue their insurance companies when they act slowly, unfairly, negligently or in bad faith. After The Bill becomes law, policyholders will still have a strong bargaining position against their insurers, as well as multiple causes of action and extraordinary remedies against insurers who do not pay claims fully and timely.
Prompt Payment of Claims Act (Tex. Ins. Code Ch. 542, Subch. B)
Under current law, if a claim is paid late, the policyholder is entitled to recover an 18 percent penalty interest. Under The Bill, the penalty interest will change from a fixed 18 percent to a floating rate based on the interest rate market. This change conforms the Insurance Code to other areas of Texas law that tie penalty rates to the interest rate market.
Under current law and The Bill, policy holders are entitled to pre-judgement interest on amounts awarded at trial.
Under current law, insurance companies must pay the plaintiff’s attorney’s fees incurred in pursuing a claim that was paid late or underpaid. Under The Bill, the insurance company must still pay reasonable and necessary attorney fees, but those fees are limited if the plaintiff’s attorney made an excessive pre-suit demand, and disallowed altogether if the attorney demanded more than five times the amount owed under the policy.
Current law imposes strict liability against an insurance company—the policyholder does not need to show bad faith or intentionally wrongful conduct to recover penalty interest and attorney fees. The Bill maintains that strict liability against insurance carriers.
Unfair Claim-Settlement Practices Act (Tex. Ins. Code Ch. 541, Subch. B, D)
Under current law, if the insurer deals with a policyholder in an unfair or deceptive manner in the claim-settlement process, the policyholder may recover actual damages and reasonable and necessary attorney fees. Under The Bill, the policyholder may still recover actual damages and attorney fees, but the recovery of the attorney’s fee is limited if the attorney made an excessive pre-suit demand, and disallowed altogether if the attorney demanded more than five times the amount owed under the policy.
Under both current law and The Bill, a policyholder may recover up to three times actual damages if the insurer knowingly committed a violation of the Act.
Deceptive Trade Practices Act (DTPA) (Tex. Bus. & Com. Code Ch. 17, Subch. E)
Under current law, if a carrier acted in a false, misleading, or deceptive manner, the policyholder may recover economic damages and reasonable and necessary attorney fees.
The same is true under The Bill, except the attorney’s fee is limited if the attorney made an excessive presuit demand, and disallowed altogether if the attorney demanded more than five times the amount owed under the policy.
Under both current law and The Bill, if the carrier knowingly committed a violation of the DTPA, mental anguish damages and up to three times economic damages may be recovered. If the carrier intentionally committed a violation of the DTPA, the policyholder may recover both economic damages and mental anguish damages, plus up to three times the total amount of economic damages and mental anguish damages awarded by the jury.
The Bill provides that a policyholder may not sue under both the DTPA and the Unfair Claim-Settlement Practices Act. The DTPA covers mostly marketing violations and has little, if anything, to do with claim-settlement activity.
Other Policyholder Causes of Action
Under both the current law and The Bill, a policyholder may sue her insurance carrier for breach of contract. The only difference is that under The Bill, any recovery of attorney fees will be limited if the attorney made an excessive pre-suit demand, and disallowed altogether if the attorney demanded more than five times the amount owed under the policy.
Under The Bill, a policyholder may also continue to sue her insurance carrier for breach of the common-law duty of good faith and fair dealing, for negligence and for fraud, if warranted by the facts.
Lawsuit reform faces a tough fight this session against certain personal injury trial lawyers, whose ability to profit from abuse of the courts makes them relentless defenders of the status quo. Thankfully, leading the fight on behalf of Texas consumers are two of the Legislature’s most principled warriors—Sen. Kelly Hancock (R-North Richland Hills) and Rep. Greg Bonnen (R-Friendswood)—who have filed companion bills (Senate Bill 10 and House Bill 1774) to protect property owners from slow-paying insurers and from attorneys who engage in unethical or abusive activities. Along with Rep. Larry Phillips (R-Sherman), chair of the House Insurance Committee, and Rep. John Smithee (R-Amarillo), chair of the Judiciary and Civil Jurisprudence Committee, Texans will have strong advocates for a fair and balanced civil justice system in this year’s Legislature.
First elected to the Texas Senate in 2012, Sen. Hancock represents Senate District 9, which includes portions of Tarrant and Dallas counties. He served three terms in the Texas House of Representatives before being elected to the Senate. As a small business owner, Sen. Hancock has consistently been a tort reform champion, and understands the important role fair courts play in keeping Texas’ economy thriving. He is chairman of the Senate Business and Commerce Committee, which was charged during the interim with studying the explosion in hail-related litigation in Texas.
Rep. Bonnen is a practicing neurosurgeon and chairman of Houston Physicians’ Hospital. He has resided in Galveston County for more than 20 years since attending UTMB, where he completed his residency and served as an assistant professor. Rep. Bonnen has seen firsthand the positive impact tort reform has had on expanding access to health care in Texas, especially in high-risk specialties. He was elected to represent House District 24, which includes a portion of Galveston County, in 2012. As a member of the House Insurance Committee in the 84th Legislature, Rep. Bonnen gained knowledge of the litigation abuse of storm-chasing lawyers, which has grown worse in the past two years.
Chairman Phillips is a practicing attorney who has represented Delta, Fannin and Grayson counties in the Texas House since 2003. He has been an active leader on the House floor on many major tort reform bills that improved our civil justice system and are widely commended for helping Texas lead our nation in job growth for more than a decade. In past sessions, Rep. Phillips has chaired the House Transportation Committee and the Homeland Security and Public Safety Committee.
Chairman Smithee, a skilled attorney who frequently appears before the Texas Supreme Court, was first elected in 1984 and represents Dallam, Hartley, Oldham, Deaf Smith, Randall and Parmer counties. Last session, he authored House Bill 3646, which would have reined in the rampant lawsuit abuse by storm-chasing lawyers. As chairman of the Judiciary and Civil Jurisprudence Committee, Rep. Smithee shepherded many important tort reform bills to enactment in the 84th Legislature. Prior to chairing the Judiciary and Civil Jurisprudence Committee, he chaired the Insurance Committee for many years.
Over the past two years, TLR has reviewed thousands of court filings to track the activities of storm-chasing lawyers. The lawsuit-counting project yielded interesting data. For example, the number of lawsuits filed against property and casualty insurers spiked from 392 in 2007 to 10,901 in 2014. A 2,800 percent increase in the number of filings, with no dramatic change in underlying weather events, is a strong indicator that lawsuit abuse is occurring.
Another indicator of lawsuit abuse is that, for the most part, local lawyers are not filing the hail lawsuits. Most of the lawyers who are filing them are headquartered in Houston and San Antonio. They parachute into towns all over Texas after a storm to generate the lawsuits to feed their greed. Storm chasing has become the new ambulance chasing in Texas.
Bell County provides an illuminating example: During the seven-year period from 2006 through 2012, only two lawsuits were filed against property and casualty insurers in Bell County, an average of less than one lawsuit per year. Then things began to change. In 2013, 21 lawsuits were filed—a whopping 7,200 percent increase from the previous seven-year average. But that was just the beginning. An astounding 304 property-claim lawsuits were filed in Bell County in 2014 and 2015 (152 each year). Dramatically, Bell County went from two lawsuits in seven years to 304 lawsuits in two years!
Who dropped this hailstorm of lawsuits on the courts of Bell County? For the most part, the storm-chasing lawyers were from Houston and San Antonio, just like they were in Potter, Ellis, Collin and every other county that has seen a spike in these abusive lawsuits.
This is further proof that this mass-litigation scheme has nothing to do with helping homeowners and everything to do with making storm-chasing lawyers rich.
Justin B. Unruh of Austin, formerly of Amarillo, who served as chief of staff to Rep. Geanie Morrison, passed away on Dec. 27, 2016, at the age of 41.
Justin spent nearly two decades working behind the scenes at the Texas Capitol, never seeking the limelight. While at the Capitol, he helped write and pass major legislation that not only affected Texas, but the entire nation. His success at the Capitol was not mere happenstance, but a reflection of his insight and knowledge, and his courteous and helpful demeanor. No matter what side of an issue you were on, he treated you with respect. He would not have it any other way.
Justin took a brief hiatus from his service at the Capitol from 2006 to 2008, when he served as TLRPAC director. During his time with TLRPAC, he led, among other things, our team’s successful efforts in the runoff election for Sen. Joan Huffman’s seat in Houston in 2008.
Justin lived his life through passion—passion for his profession, his family and friends; passion for fishing, hunting, cooking and cycling; and passion for Texas Longhorn sports (especially football). If he shared one of his passions with you, he considered you family. And if you were one of the people Justin spent time with, you were the better for it. His laid-back demeanor, his personality and his smile—which ranged from a wry grin to a full-face, all-teeth smile—were infectious, and made you desire more time with him.
We are thankful to have known and worked with Justin, and we extend our sincerest condolences to the Unruh family and to Rep. Morrison and her staff.