By: Mary Williams Walsh
As floodwaters rose in Houston this week, warnings started to spread on social media: File insurance claims by Friday, or potentially forfeit some of what you’ve got coming to you.
The dire references were to a new Texas law set to take effect on Friday. Among other things, it reduces the penalty insurers pay if they stall claims during a lawsuit. The penalty was adopted in the 1990s as an incentive for property insurers to process claims quickly. The new law shrinks the penalty to 10 percent from 18 percent, shrinking policyholders’ leverage with it.
It sounds like one more setback for homeowners, just when their insurance policies are probably stuck in file cabinets drenched by the record-breaking rainfall.
But the law does not affect most people in Texas whose property has been flooded. Only about 15 percent of homes in Harris County, which includes Houston, have flood insurance, according to an Insurance Information Institute survey.
Of the small number who have flood insurance, the vast majority bought it from the federal government’s National Flood Insurance Program, which is exempt from state laws. Neither the existing Texas penalty nor the new one applies to the federal program.
The law also exempts the Texas Windstorm Insurance Association, the state-run insurer of last resort for wind damage in coastal areas. So most homeowners in the flood zone can safely ignore the warnings, said State Senator Kelly Hancock, who sponsored an amendment to the law that lowers the penalty.
“There is no need to rush to file a claim,” Mr. Hancock, Republican of North Richland Hills, said in a statement.
“Sadly,” he added, “a select few bad actors have circulated misinformation regarding insurance claims to scare property owners, all for the sake of profit.”
Mr. Hancock introduced the amendment this year, after reports that “storm chasers” with sign-up sheets — roofers, lawyers, freelance claims adjusters — had been turning up after hailstorms in the Rio Grande Valley, promising homeowners a bigger insurance settlement if they litigated rather than merely filing claims.
“Of course, they fail to mention that it takes on average eight times as long for a claim to be settled when a lawsuit is involved, drastically delaying repairs,” Mr. Hancock said.
A flurry of lawsuits over black mold in Texas prompted some insurers to stop writing such coverage. A study last year by the state insurance department suggested something similar might be happening with hailstorms.
The Texas Trial Lawyers Association confirmed that the new law had little bearing on flooding, but said people with policies against other kinds of damage may still want to file claims by Friday, just in case. The new law sets the timer for possible insurer stalling on the date the claim is filed.