HB 1774 Should Upset You
New Law Unlikely to Apply to Home Flood Damage Claims, but Will Impede Meritorious Wrongful Denial and Delay Claims
We hope that you and your family are safe. Today, we are back in the office working. We were lucky. We sadly recognize that many Texans were not. We are praying for Houston, for our fellow Texans, and for Louisiana, who will bear Harvey’s punishment now that the storm has moved on.
What happens now? We rebuild. And at this critical juncture, it’s important to take inventory of the situation and figure out what the right next steps are. In its unfortunate way, Hurricane Harvey has shown a light on the state of the law in Texas, as the next several months and years will undoubtedly demonstrate.
In our previous blog post, we addressed rumors regarding HB 1774—the latest Texas insurance law taking effect this Friday, September 1st. HB 1774 will not apply to most homeowners’ flood-related claims caused by Harvey. Those who are fortunate enough to have flooding insurance are most likely covered under a National Flood Insurance Program policy, which will not be subject to state laws like HB 1774. While it is wise to file your insurance claim as soon as possible, many well-meaning people are needlessly compounding the suffering of those who have lost their homes and property by telling them their claim will be denied if not filed by September 1st. In reality, HB 1774 is unlikely to apply to homeowner’s flood claims.
However, now that the storm has passed—at least in Houston—it is very important that you catalog damage to your property and file a claim as quickly as possible because claims are typically addressed in the order that they are filed. Briefly speaking, those with flood damage should:
- Create a written inventory of damaged items with as much detail as you have, such as serial numbers of electronics or VIN numbers of cars and gather any receipts you have for larger, more expensive items (For example, here is FEMA’s Form.);
- Mark the water level on the walls of your house;
- Photograph any items or areas that were damaged, remembering to open drawers, closet doors, and anything else that may hide damaged contents (You do not need to attach photos to file a claim; you can supplement after filing);
- Keep detailed logs of correspondence with (or received from) your insurer;
- Obtain the specifications of your home and provide them to your insurer; and
- Obtain a detailed repair estimate for the damage to your home.
Even though HB 1774 is unlikely to apply to a large number of Harvey claims, we can and should consider the long-term effects on HB 1774. HB 1774 will apply to many property damage claims in the future when covered homes are damaged by disasters such as hail, wind (in some circumstances), and fire. Relative to the previous statutory regime, this bill will harm ordinary consumers and further tips the balance of bargaining power towards insurance companies in three significant ways, among others.
HB 1774 Decreases the Penalty Interest Rate for an Insurer Who Wrongfully Denies a Meritorious Claim.
As discussed before, HB 1774 reduces the penalty interest rate that insurance companies who wrongfully denies paying a claim from a fixed 18% annual rate to a floating rate between 10% and 20%. Today, the penalty interest rate is 10%. HB 1774 provides that the penalty interest rate is 5% plus the Fed’s prime rate with a floor of 5% and ceiling of 15%. The Fed’s prime rate today is 4.25%. Therefore, the floor rate kicks in, and the penalty interest rate is 5% + 5%.
Claims filed in writing to your insurer before September 1 will be subject to the fixed 18% penalty interest rate, rather than the current 10% penalty interest rate. Please contact us using the form on this page if you need assistance with your insurance claim.
HB 1774 Creates a Procedural Obstacle when an Insurer Wrongfully Denies a Claim.
HB 1774 also requires that if and when an insurance company wrongfully denies claim, a consumer must serve notice of the claim with the insurer 60 days before your file a lawsuit providing:
- a statement of the acts and omissions giving rise to the claim,
- the specific amount of money allegedly owed by the insurers, and
- the amount of attorney’s fees you have incurred as of the date notice is given.
This obstacle drives up the cost of litigation for consumers whose claims have been wrongfully denied payment. The result is that the cost increase disincentives lawyers from taking a consumer’s meritorious case. The obvious beneficiaries of this policy are the insurance companies and few individuals who can afford to pay for a lawyer’s high hourly rates.
HB 1774 Arbitrarily Changes the Rule for Recovery of Attorney’s Fees.
Previously, attorney’s fees were awarded to a consumer when he or she prevailed in a wrongful denial claim against an insurer—in other words, the insurer had to pay the consumer as a penalty. See Tex. Civ. Prac. & Rem. Code § 38.001(8), Tex. Ins. Code § 541.152(a). Attorney’s fees were awarded for good reason: the insurer’s bottom line may suffer, but the consumer whose claim has been wrongfully denied has lost their home in a fire, or their car in a flood. Those claims should have been paid.
HB 1774 introduces a scheme in which—where an insurer can show that it should have been served with a pre-suit notice (as discussed above)—the Court may not award attorney’s fees to the consumer.
The law further provides that even where a consumer obtains a judgement against the insurer for wrongfully denying a claim, the consumer must divide the judgment that a jury awards by the amount he or she alleged the insurer owed (i.e., the specific amount of money mentioned above). The consumer only gets his full attorneys’ fees if the quotient equals 0.8 or more. Importantly, if the quotient is 0.2 or less, the Court may not award any attorney’s fees at all.
For example, if you allege that an insurer owes you $100,000 in damages and jury awards you $79,000, you may not receive an award for the full amount of your attorney’s fees. And if the jury awards you $19,000 (meaning that you were wrongfully denied payment), the insurer is not on the hook for your attorney’s fees.
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Although HB 1774 is unlikely to apply to your flood damage, Harvey has raised awareness of the new law. It is important to understand the extent to which the law shifts the balance of power towards insurance companies over the interest of ordinary consumers. Please write to your state representatives if you believe that legislative efforts such as these are hurting your rights.