By: Sanya Mansoor
For longtime San Antonio insurance agent Felipe Farias, being sued has become an occupational hazard. He's been served more than a dozen times in the past four years, mostly over homeowner hail and windstorm claims.
A few years ago, Farias inspected a storm-ravaged home and paid out a claim on a damaged roof. He didn't hear from the homeowner for a year — until he was slammed with a lawsuit. He said he would have been happy to reassess the claim without getting lawyers involved but never got the opportunity.
The barrage of lawsuits is a recent occurrence, according to Farias. He says he has been doing his job the same way for more than two decades. And his assertion is backed up by state data, which shows that in recent years, hail and windstorm claims have become far more likely to result in lawsuits.
In March, Farias testified in support of state legislation that would make it harder for policyholders to sue insurance agents and companies over weather-related damage to property, including hail damage, flooding, tornadoes, hurricanes and lightning.
House Bill 1774 and a similar bill filed in the Senate would reduce penalties insurance companies face when they don’t pay enough, decrease the chances they will have to pay the plaintiff’s attorneys fees and protect individual agents from the negative effects of being personally sued — most notably diminished credit scores.
The legislation has advanced at a steady clip since lawmakers convened in January. The issue made Lt. Gov. Dan Patrick's list of top priorities for the session and Gov. Greg Abbott called it “the newest form of lawsuit abuse” in his 2017 State of the State address earlier this year.
The House is expected to take up HB 1774 on Thursday.
Texans for Lawsuit Reform, a powerful GOP-backed tort reform group pushing the legislation, points to a 2017 Texas Department of Insurance Report that shows from 2012 to 2015 there was a 1,400-percent increase in the number of hail and windstorm claims resulting in lawsuits.
Texans for Lawsuit Reform spokeswoman Lucy Nashed said the vast majority of the suits are being filed by a small group of money-hungry trial lawyers who prey on homeowners and convince them to challenge claims. The proposed legislation would protect the insurance industry, including agents like Farias, from such unfounded litigation, she said.
Absent changes to state law, the tort reform group warns such lawsuits will continue unabated and the long-term effect will be an increase in premiums for all Texas property owners.
“A 1,400 percent increase in anything is an explosion. Those aren’t subtle numbers,” Nashed said. The tort reform group estimates that, since 2012, insurance companies have spent $340 million fighting more than 35,000 hailstorm lawsuits.
The Texas Trial Lawyers Association, which represents lawyers accused of filing frivolous lawsuits, doesn't deny there's been an increase in the percentage of hailstorm claims resulting in litigation, but says there’s a reasonable explanation for the uptick.
Texas had a large number of hailstorms from 2012 to 2015 and the insurance industry denied a higher percentage of claims during that time period, said Lin McCraw, who heads the trial lawyers association, citing the same state insurance report as the tort reform group.
The proposed legislation would encroach on consumer rights, McCraw said, tipping the balance of power heavily towards already powerful insurance companies.
McCraw said insurance companies routinely deny valid claims after catastrophic events and — in those cases — the only option a person or business has to recover what they think they are owed under their coverage is to bring a claim or lawsuit.
“I’ve heard practitioners tell me fighting an insurance company is a David-and-Goliath kind of fight, anyway. This bill would effectively take away David’s slingshot,” he said.
Tort reform advocates and trial lawyers are long-time opponents and the issue has reignited tensions between the two groups. It’s also divided a business community that typically has been united in battles with trial lawyers.
Some non-insurance industry businesses have come out against the bill because it would make it harder to sue over disputes involving property they own. But a significant and diverse number of corporations have endorsed the bill.
A key point of contention between proponents and opponents of the legislation is over provisions stipulating how property owners should go about communicating their intention to sue and who should end up paying attorneys fees.
Under current state law, the property owner only has to prove the insurance company underpaid them by $1 to trigger an 18 percent interest penalty and full payment of attorney’s fees.
The legislation aims to lower the amount insurance companies have to pay in attorneys fees, dropping the definitive 18 percent interest penalty for a sliding scale.
Nashed, the TLR spokeswoman, said the current law incentivizes lawyers to “throw everything and the kitchen sink into the lawsuit” to convince the jury the claim didn’t pay out enough. She said they intentionally jack up their pre-suit demand to increase the odds the insurance company will foot the entire bill.
But consumer groups are particularly concerned about penalty provisions being lowered, which they say inappropriately benefits insurers that deny, delay or underpay claims.
The bill “effectively rewards insurers that cheat their customers by lessening penalties and giving them special privileges under the law,” said Ware Wendell, executive director of Texas Watch, a nonprofit consumer rights group.
Wendell also takes issue with the bill covering all types of weather-related claims — not just hail damage.
Nashed said that's because frivolous lawsuits could just as easily occur in the aftermath of floods, wildfires, hurricanes or earthquakes. The insurance model is similar, she explained.
“If you fix the problem for [only] hailstorms, it’s still there the next time a wildfire comes through,” Nashed said.
Under the proposed legislation, the amount insurance companies have to cover for plaintiffs' attorneys' fees would increase or decrease depending on the extent to which they were found to be at fault in the lawsuit.
The bill also would require a 60-day notice period that signals an aggrieved party's intent to file a lawsuit, which supporters say would ensure the insurer is aware of any dispute and have sufficient time to determine if they want to pay up or go to court.
Both these measures would ultimately hurt clients — not lawyers — since attorneys would still get paid the same amount, said Houston Lawyer Richard Daly, who represented an Amarillo church that was hit by a hailstorm five years ago and sued after receiving what it saw as a low-ball claim.
The tort reform group and lawmakers backing the bill argue it should not be difficult to arrive at an appropriate amount.
Daly disagreed, explaining that early in the process, five engineers could give five different estimates.
He said the plaintiff requests more in their pre-suit demand because it is easier to lower their monetary request in later stages of litigation than it is to add damages.
"The problem is that you have to, with a crystal ball, guess exactly what damages are and predict what the jury will choose two years down the road," Daly said.
Daly's client, Pastor Joe Kirkwood, told lawmakers during the March public hearing on the legislation that he felt strong-armed by his insurance company.
Cornerstone Ministries applied for a claim of more than $230,000, only to have its insurance company deny the request and offer less than $5,000. The church sued in August 2013 and settled a year later. Kirkwood said he felt lucky to find a law firm that agreed to be paid on contingency, since the non-profit didn't have much liquid cash.
State data shows hailstorm-related insurance claims have become 15 times more likely to be challenged in court. From 2010 to 2011, only 0.1 percent of claims resulted in litigation. Over the next four years, nearly 2 percent of claims ended up in court. While small, the increase adds up to millions of dollars in legal costs for insurance companies, according to the tort reform group.
Nashed said insurers who have been slapped with lawsuits without being notified are usually open to resolving those disputes without legal pressure.
But the state insurance report the group cites in making its case for the legislation suggests insurance companies take claims more seriously when lawyers are involved. It shows only one-third of cases get reopened without legal representation. These chances more than double when clients seek help from an attorney, the report found.
A survey of companies included in the report suggests that some companies may already be raising rates in response to hailstorm claims, but the agency’s analysis of the results stops shorts of drawing a direct correlation or asserting a statewide trend. Twelve companies indicated they had raised rates in recent years.
Still, these legal disputes are more necessary than they are frivolous, said Wendell.
"For insurers to cry ‘crisis’ now is like arsonists complaining about the number of fires in the city," Wendell said.
Sen. Kelly Hancock, the North Richland Hills Republican who authored the Senate version of the bill, has dismissed accusations that the legislation was designed to unfairly benefit insurance companies.
“Let me assure you 100 percent, this bill is not written for insurance companies," he said at the public hearing in March.