By: James Drew
AUSTIN - The House Insurance Committee approved a hotly contested bill on Tuesday that supporters say will protect homeowners and business policyholders from the detrimental effects of unnecessary lawsuits over hail and other storms.
The Republican-controlled panel voted 6-3 along party lines to send the bill to the Calendars Committee, which will determine if it reaches the House floor for a vote.
Opponents say House Bill 1774, the product of extensive work by Texans for Lawsuit Reform, the nonprofit group that champions "tort reform," will tilt the balance of power in the state code to insurance companies, restricting business and consumer access to the courts to resolve disputes.
The lead sponsor of the bill, state Rep. Greg Bonnen, R-Friendswood, said last week that the measure targets "abusive" lawsuits while protecting consumers' right to sue their insurance company if it acts unfairly or in bad faith.
The bill would set new requirements on notices of a lawyer's intent to sue and could restrict attorneys' fees.
In addition to hail, the bill also applies to earthquakes or tremors, wildfire, flood, tornado, lightning, hurricane, wind, snowstorms and rain.
'Pure gravy' for insurers
Existing state law requires a plaintiff's attorney to file a notice with an insurance company more than 60 days before filing a lawsuit. Because the only consequence of not filing that notice is a delay in the lawsuit, some have been filed in which an insurance claim was not made or the amount sought was sharply higher than what the claimant eventually recovered, Bonnen said.
HB 1774 would require the pre-suit notice to include "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, the plaintiff's attorney would not be able to collect fees on the lawsuit.
The bill also would set up a mathematical calculation to determine attorneys' fees based on the amount of any judgment, the amount listed in the pre-suit notice and the court's decision on how much the lawyers are due. If that calculation works out to 20 percent or less, no attorney fees would be owed. If it ends up being 80 percent or above, all of the legal fees would have to be paid. Percentages in between would be paid on a pro rata share.
Ware Wendell, a lobbyist and executive director of Texas Watch, a nonprofit consumer advocacy group with ties to theTexas Trial Lawyers Association, said that if the bill becomes law, insurers will systematically challenge the pre-suit notices, which would restrict access to the legal system for home and business owners. Because plaintiffs' attorneys usually work on a contingency basis, the risk of losing fees could prompt many to stop taking those types of cases, he said.
The bill also 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 5 percentage points above Texas' judgment rate, which currently stands at 5 percent.
"You are near cutting it in half, which is pure gravy for the insurance company - pure profit," Wendell said. "And they're already making billions."
Bonnen said the bill also would allow insurance companies to assume the liability of agents, including adjusters they hire. He said hail and other storm-related lawsuits have named adjusters as defendants in a practice designed to prevent out-of-state firms from moving those lawsuits to federal court, which may be less friendly to plaintiffs' attorneys.
Businesses have lined up on both sides of the bill, but Rep. Larry Phillips, the Sherman Republican who chairs the House Insurance Committee, said lawmakers have revised the legislation to try to address their concerns.
Richard Weekley, Texans for Lawsuit Reform's chairman and chief executive officer, noted after the committee vote that more than 100 legislators are co-sponsors of HB 1774 and its companion bill, Senate Bill 10.
"Texas property owners want strong accountability for storm-chasing lawyers who are abusing the legal system and jeopardizing affordable insurance coverage for us all. We are pleased to see the Texas House take an important step toward making HB 1774 law," Weekley said.
Lin McCraw, president of the Texas Trial Lawyers Association, said the group remains firmly opposed to the bills.
"These bills gut the rights of innocent policyholders by slashing slow-pay penalties, forcing most business property insurance disputes into backlogged federal courts and creating new 'gotcha' trap-door notice provisions. And these bills don't distinguish between valid claims and those that are not," he said.
McCraw said Tuesday's committee vote was "just one step in a long process. TTLA will continue to work with lawmakers so that innocent homeowners, businesses, churches, and schools have the ability to hold their insurance company accountable for wrongfully denying, delaying, or underpaying valid property insurance claims."