By: James Drew
AUSTIN – The Texas House on Friday approved a bill that backers say is needed to rein in "abusive and unnecessary" lawsuits over insurance claims after hail and other storms. Opponents counter that the measure will impact millions of property owners by threatening their access to the courts.
The House voted 92-55 to send HB 1774 to the Senate, which is expected to approve it. In his State of the State speech, Gov. Greg Abbott said "hailstorm litigation is the newest form of lawsuit abuse" and urged legislators to send him a bill that he can sign into law to limit those types of lawsuits.
The bill requires plaintiff's attorneys to file a notice with an insurance company more than 60 days before a lawsuit is filed that includes "acts or omissions" causing the claim, the amount alleged to be owed, and the amount of "reasonable and necessary" attorney fees incurred. If the pre-suit deadline is missed, plaintiff's attorneys would not be able to collect fees.
In addition to hail, the bill also applies to earthquakes or tremors, wildfire, flood, tornado, lightning, hurricane, wind, snowstorm, and rainstorm.
A state report concluded there has been an increase in the rate of hail and windstorm claims in which policyholders sue insurers. Up to 2011, the lawsuit rate was about one-in-1,000 claims. That has jumped since 2012 to one in 50 to 60 claims, a 1,400 percent increase.
The data did not show a pattern of rate increases, but the state Department of Insurance added: "Rates follow losses, however, so companies may not have reflected expected costs for hail litigation in their rates yet."
Texans for Lawsuit Reform, the nonprofit group which has championed "tort reform" for several years, said the House took strong action to stop lawsuit abuse, protect property owners, and ensure access to affordable property insurance.
"By putting consumer protection first, the House has brought us one step closer to shutting down abusive lawsuit mills and stopping storm-chasing lawyers from hijacking Texans' property insurance," said TLR spokeswoman Lucy Nashed.
Texas Watch, a nonprofit group with ties to the Texas Trial Lawyers Association, said the bill slashes penalties for insurers that wrongly delay weather-related claims, pushes cases into federal court where it takes twice as long to receive justice, and threatens access to justice by increasing costs, delay, and risk for those wronged by insurers.
"The bill has broad implications beyond hail claims and would impact millions of Texas property owners if signed into law," said Ware Wendell, Texas Watch's executive director.
Also, the legislation would lower the penalty interest rate that insurance companies have to pay when they fail to pay a legitimate claim "timely and fully" – from the current 18 percent to a rate that would float 5 percentage points above Texas' judgment rate. That rate currently is 5 percent. As a result, the penalty rate would drop from 18 percent to 10 percent.
Insurance companies would be able to assume the liability of adjusters that they hire. TLR and insurance companies have said plaintiff's attorneys have named adjusters as defendants in hail and other storm lawsuits. The goal is to prevent out-of-state insurers from moving those lawsuits to federal court, which may be less friendly to plaintiff's attorneys, the bill's backers have said.
Friday's vote on third reading largely was perfunctory. The bill's lead sponsor, state Rep. Greg Bonnen, R-Friendswood, accepted an amendment to ensure that insurance companies are on the hook when they assume the liability of an adjuster and a jury awards a judgment in favor of the plaintiff.
The debate and maneuvering stretched over several hours Thursday night as a parade of Democratic lawmakers – and three Republicans – offered 24 amendments. Only three became part of the bill. The House rejected 18 amendments at the urging of Bonnen, who told a few colleagues that they didn't understand the measure. The House then voted 91-55 to approve the bill on second reading.
"After the passage of this legislation to prevent unnecessary, abusive suits, Texans will still be able to sue their insurance companies anytime they need to if they don't pay their claim fully or quickly or if they act in bad faith," Bonnen said.
Among the sharpest criticism of the bill came from state Rep. Charlie Geren, R-Fort Worth, who was among three Republicans who voted against it Friday. The GOP controls the chamber over the Democrats by a 95-55 margin.
"If the problem truly is about some lawyers that are committing barratry, then the State Bar of Texas – the toothless tiger – should be addressing those attorneys," said Geren, referring to allegations that plaintiff's attorney have used runners to line up hailstorm cases. "This bill does not fix the problem," he added.
State Rep. Ken King, R-Canadian, unsuccessfully tried to amend the bill to limit its provisions to only hailstorm claims filed by homeowners.
"This was sold to us as hailstorm litigation abuse," said King, who added he had not heard allegations that lawsuits were improperly filed by plaintiff's attorneys over insurance claims after wild fires or ice storms.
After Friday's vote, Beaman Floyd – a lobbyist whose trade group represents Allstate, Farmers Insurance, Nationwide, State Farm Insurance, and USAA – said: "As massive hailstorms have pounded Texas in recent years, we've seen homeowners with storm damage become victimized again by opportunistic lawyers and others who see the consumer's misfortune as a payday for themselves."
But Alex Winslow, a spokesman for the Texas Trial Lawyers Association, said the bill does not address alleged fraud.
"Instead, HB 1774 guts the rights of Texas property owners. It takes a one-sided approach that benefits out-of-state insurance companies at the expense of honest Texas property owners, slashes slow-pay penalties, and imposes new hurdles and higher costs on Texas home and business owners," Winslow said.