By: Josiah Neeley
When you ignore a problem long enough, sometimes it just goes away. And sometimes, it gets even worse.
Two years ago, the Texas Legislature heard testimony about a simmering crisis of abusive litigation that was stemming from hail insurance claims. Trial attorneys were filing lawsuits on a massive scale and often on dubious grounds, and then relying on loopholes in Texas law to run up their fees.
Legislation was introduced to deal with the growing problem, but the bill died during the end-of-session stampede. As a result, Texas has had two years to see whether the spike in hail litigation was just a short-term fluke that would resolve itself.
Instead, the problem is spreading. In 2015, complaints were focused mainly on Hidalgo County, which still lies at the center of the growing crisis. According to recent analysis by the Texas Department of Insurance, or TDI, 27 percent of all claims that arose out of a 2012 hail event in Hidalgo County involved a public adjuster or attorney, compared with 2 percent or less for most other events. But similar litigation trends have been seen in the Panhandle, Southwest and other parts of the state.
When attorneys and public adjusters enter the mix, claims are filed later and take longer to resolve. Preliminary data collected by TDI and presented to the Legislature recently showed that claims where an attorney or public adjuster is involved are filed, on average, 160 days after the occurrence, compared with 54 days where no attorney or public adjuster is involved.
The difference is even more striking when it comes to claims resolution. On average, claims that don't involve an attorney or public adjuster are resolved within about 95 days, while claims involving an attorney or public adjuster took a whopping 625 days to close, on average. Unsurprisingly, these drawn-out attorney-involved claims also cost substantially more. The average combined loss and adjuster cost for claims with an attorney or public adjuster was between $26,000 and $34,000, while claims without an attorney or public adjuster cost, on average, about $8,000.
Of course, it could be that people are more likely to call an attorney for particularly contentious or complicated claims. But it’s also the case that current Texas law encourages delays. Texas statutes impose an 18 percent interest rate on claims that are not paid within 60 days and provide for generous attorneys fees. While intended to provide an incentive for insurers to pay claims promptly, the provisions can have the opposite effect — letting attorneys run up the bills by dragging out the legal process.
These costs add up. Between 2000 and 2015, Texas property insurers had a slight overall underwriting loss of 0.3 percent. By contrast, in 2016, TDI has projected an underwriting loss in the residential property market of 30 percent. These losses inevitably lead to higher premiums and deductibles for consumers down the road.
Texas can’t afford to let this situation fester for another two years. While Texans should retain the right to sue if they have a valid claim that isn’t being resolved, Texas statutes should be reformed to remove the incentives for protracted litigation.
Josiah Neeley is director of the R Street Institute, a think tank that advocates free-market solutions.