First-Party Insurance Claims
First-Party Insurance Claims in Texas for Property Damage
Anyone that has access to the television or internet has most likely seen advertising from insurance companies. These advertisements are often funny and include famous celebrities or characters who endorse that insurance company to increase likeability. But those advertisements also contain slogans like “You’re in Good Hands” or “Like a Good Neighbor” to convey the message that insurance companies will take care of you if you file an insurance claim in the wake of an event that damages your property. Unfortunately, that is not always the case.
Rather than help customers in a time of need, insurance companies frequently employ tactics to maximize their profits. Insurance companies advertise to sell more policies. The more policies an insurance company sells results in more premiums from policyholders. The more premiums that an insurance company collects equals more money for the insurance company to invest and earn interest on. Because insurers pay claims out later, they increase profitability on maximizing the difference between premiums collected and claims paid later. This is referred to as insurance float. It is one of the ways that Warren Buffett became one of the world’s richest people. It is also why insurance companies compete so aggressively with each other in advertising to gain your business.
Insurance companies employ two primary tactics to maximize the difference between premiums collected and claims paid. First, by reducing the amounts that they pay for valid, covered claims. Second, by delaying payment of those claims for as long as possible to continue earning interest on premiums.
These concepts are important to understand why insurance companies fight so hard to deny, delay, and underpay to cheat policyholders on perfectly valid claims. These insurance companies often use adjusters who understand that their job is to ensure the insurance company keeps as much money as possible in its pocket. These adjusters, whether the one inspecting your house or fielding your calls, are not only paid by the insurance company but also trained to use tactics to minimize payouts, drag claims out, and frustrate policyholders so they give up. The more policyholders that give up the fight means less insurance company payouts—and more profits to the insurance company.
Because insurance companies have such deep pockets, they not only pay trained adjusters to find creative ways to minimize payouts, but they are able to hire some of the best, and most expensive lawyers to defend them in court. Policyholders should be able to obtain the same representation so they can go toe-to-toe with the insurance companies. The attorneys at Armstrong & Lee LLP are experienced in litigating these claims and are capable and willing to go toe-to-toe with the insurance companies and their lawyers.
If you are a policyholder that experienced an insurance claim that was denied, delayed, or underpaid and you want to fight your insurance company to obtain your benefits that your insurance company promised you under your policy, contact us by calling (832) 709-1124 or send us a message using the form below.
This page concerns first-party insurance claims for property damage. Visit our other pages to learn about first-party insurance claims involving underinsured and insured motorists or personal injury protection and medical payments coverage.
First Party Insurance Claims for Property Damage
The following are examples of common first-party insurance claims:
- Commercial and Residential Claims
- Foundation or Structural damage
- Automobile claims
What Recourse is Available to a Policyholder?
Depending on the facts, each case could assert up to three different causes of action against an insurance company for improperly adjusting an insurance claim. Breach-of-contract, bad faith, and violating the Texas Prompt Payment of Claims Act. Our goal is to make our clients whole while, at the same time, force the insurance company to pay for the costs of hiring an attorney as required under Texas law.
An insurance policy is a contract between you and your insurance company. In exchange for your premiums, an insurance company promises to pay benefits under your policy for covered damages that exceed a policyholder’s deductible. When an insurance company refuses to pay for covered damages entirely or underpays an covered insurance claim, breach-of-contract is a cause of action designed to make your insurance company pay the correct amount—or in other words, make you whole under your policy.
Additionally, both you and your insurance company have obligations under an insurance policy. These obligations are different depending the insurance company and the specific policy, but an insurance company can breach an obligation under its policy as well. For example, an insurance company usually has an obligation under the policy to pay within a certain amount of time. A failure to do so can also result in the insurance company breaching the contract.
In addition to the requirements in an insurance policy, insurance companies must also comply with Texas law. In Texas, insurance companies cannot adjust claims using unfair or deceptive trade practices. The focus of a lawsuit for bad faith is not only on the outcome of the insurance company’s adjustment but the actions the insurance company took to get there. In other words, we look to the insurance company’s actions or inactions it took and whether it followed its own policies or procedures. Some examples of unfair settlement practices are:
- Misrepresent a provision in the insurance policy.
- Failing to promptly and fairly settle a claim where liability is reasonably clear.
- Failing to provide a reasonable explanation of why the insurance company denial of a claim or offer to settle a claim.
- Failing to make a claims decision within a reasonable amount of time.
- Refusing to pay a claim without conducting a reasonable investigation.
- Failing to adopt and implement reasonable standards for the prompt investigation of claims.
- Forcing a policyholder to file lawsuit to recover an amount due under a policy by offering substantially less than the amount ultimately recovered in a lawsuit.
Texas Prompt Payment of Claims Act
Insurance companies must also investigate and pay claims within a timely fashion by law. While the law is titled “Texas Prompt Payment of Claims” it imposes obligations on insurance companies beyond payment. For example, insurance companies must meet the following deadlines when adjusting a claim in Texas:
- Within fifteen days from receiving notice of a claim, an insurance company must:
- acknowledge receipt of the claim,
- commence any investigation, and
- request any items, statements, and forms required from the policyholder.
- Within fifteen days after receiving from the policyholder all required items, statements, and forms, the insurer must give notice that it either:
- rejects the claim, or
- accepts the claim.
- If an insurance company rejects the claim, it must explain its reasons why.
- If an insurance company accepts the claim, it must pay within five business days.
Depending on the particular violation—and whether the insurance company accepted or rejected the claim—an insurance company may owe statutory interest and attorney’s fees.
Frequently Asked Questions
Q: What Actions Should I Take After My Property Sustains Damage?
Answer: You should report your claim as soon as possible with your insurance company. You can do this several different ways. You can call your insurance agent and tell them you want to report a claim. Your agent should relay your claim information to your insurance company. Or you can contact your insurance company directly. Make sure that you record your claim number if your insurance company provides it to you.
The most important action you can take next is to document the damage if possible. The easiest way to do this is take as many pictures and photographs as possible that records the exact time and date you did so.
If you don’t have a physical or electronic copy of your insurance policy contact your agent or insurer to find out how you can obtain a copy.
Your insurance company logs every activity it performs on your claim. You should do the same. Make sure to take notes on every interaction, conversation, or communication you have with any insurance representative (whether in person or over the phone) to ensure you have an accurate log of what occurred. Saving all written correspondence from the insurance company is equally as important.
If you want to make repairs, you can. Just make sure you notify your insurance company so it can send someone to inspect the damage before you make repairs. If you make repairs without providing notice, the insurance company may deny your claim. If you make repairs, make sure you keep your receipts and documentation related to the repairs and provide the documentation to the insurance company if required.
Sometimes obtaining repair bids help the insurance company understand the scope of the damage. If you obtain a bid to repair or replace damaged items, make sure you keep them and submit them to your insurance company if required. If you have a contractor you would like to use or has given you a bid, sometimes it helps to have that contractor available when the insurance company inspects your property so they can communicate about damages. This, however, is not without risk as some insurance companies will improperly deny claims because they understand the contractor likely wants the insurance company to pay money so they can get paid to perform the repairs.
If you can mitigate your damage, you should. For example, if your roof has a leak, you should make sure that the roof is tarped over the leaking area to prevent further damage. If you can afford to hire a contractor to help, you should do so. Insurance companies often use the excuse that a policyholder made damages worse by failing to mitigate.
Q: What is a deductible?
Answer: A deductible is an agreed upon amount in your insurance policy that you must pay before an insurance company will pay a claim. In the homeowner’s insurance context, the deductible will usually be small percentage (1%, 2%, or 3%) of the policy’s limits.
For example, if your home is insured for $300,000 and your deductible is 1%, your deductible would be $3,000. That means your property would need to sustain at least $3,000.01 in damages from a covered event for an insurance company to pay you $0.01 in policy benefits.
Under the same hypothetical, if your covered damages were $10,000, then you would be obligated to pay $3,000 and the insurance company would be obligated to pay you $7,000 (the amount of damages above your deductible).*this hypothetical does not take into account replacement cost value or actual cash value.
Q: What is the difference between an ACV and RCV coverage?
Answer: The difference between an ACV and RCV coverage is how the company values your damaged property. An RCV policy pays for the cost to fix the damaged property. By contrast, an ACV policy pays for damaged property as-is—or in other words, it subtracts depreciation from the RCV amount to account for age and normal wear and tear.
For example, if your policy’s deductible is $3,000 with RCV coverage and it will cost $10,000 to replace your roof due hail damage, the insurance company would pay you $7,000. Under the same hypothetical, if you have ACV coverage, then the insurance company would subtract your $3,000 deductible and an additional amount for depreciation before issuing a payment. The amount of depreciation will depend on the age and condition of your roof. If the depreciation was $1,500, then the insurance company would subtract your deductible ($3,000) and depreciation ($1,500) from the damage ($10,000) before issuing a payment for $5,500.
To complicate things further, for policies with RCV coverage, most insurance companies will only pay the ACV amount until you prove to the insurance company that you replaced or repaired the damaged property. After you prove that you made the necessary replacements or repairs, the insurance company will release the remaining amount to you. This unfortunately creates problems in catastrophes with major damage because the policyholder will often have to pay out of pocket for extensive repairs before the insurance company will reimburse the RCV value. It also enables the insurance company to hold onto your money longer so it can continue to earn interest.
A great deal of policyholders have no idea if they have RCV or ACV coverage. Often, policyholders will buy a policy that has a cheaper premium believing they get a deal, when, in reality, that policy only affords ACV coverage. Not only that, but insurance companies will sometimes apply RCV and ACV coverage to different specific items, like fencing. It ultimately will depend upon the specific language in your insurance policy.
Q: How long will a first-party insurance case take from inception to resolution?
Answer: It depends on the facts of the case. Most importantly, how much damage the property sustained, if (and how much) the insurance company already paid, and which insurance company is involved. Although these factors vary, some timelines in a first-party case do not.
60-Day Notice Requirement. Texas law requires attorneys that litigate first-party insurance cases to provide specific notice to an insurance company to encourage settlement before suit is filed. It takes time to compile the information necessary to provide the notice required by law to an insurance company. And once an insurance company is notified of our intent to sue, we must wait at least 60 days.
Within the first 30 days of providing notice, an insurance company may request, in writing, to re-inspect the damaged property. If the insurance company does so, then the policy holder must provide that company access to the property. The purpose is to give insurance companies a chance to reevaluate its prior decision. Often, rather than revaluating its prior decision, an insurance company just sends an expert or engineer out to create an expert report for the ensuing litigation.
Q: What damages are recoverable in a first-party insurance case?
Answer: In Texas, you can recover the benefits owed under your insurance policy and potentially attorney’s fees, exemplary damages, and penalty interest on the amounts the insurance company owes. The amount of damages will ultimately depend on the facts of each case.
Q: How long do I have to file a first-part insurance claim?
Answer: It depends on the cause of action and the insurance policy. For a breach-of-contract claim, under Texas law, you have four-years from the date the insurance company breaches the contract. This date is usually the day the insurance company made its claims decision to deny or underpay. By contrast, for a bad-faith cause of action, the deadline is two years from the date you discover the unfair or deceptive act occurred. And for the Texas of Prompt Payment of Claims Act, you must file your lawsuit two years from the date the insurance company violates a deadline in the law.
While these are the legal deadlines to file a lawsuit, an insurance company can shorten the deadline to file a lawsuit in its policy as long as the deadline is not less than two years. You should contact an attorney at Armstrong & Lee to determine the exact deadline to file a lawsuit for your case.
Q: What is Appraisal?
Answer: Almost every homeowner’s insurance policy in the State of Texas contains an appraisal provision. Appraisal is a process designed to set the “amount of loss” for a claim. In other words, appraisal determines how much claimed damage a property sustained from a specific claim. For example, if a policyholder’s home sustained damage from a hailstorm, then appraisal is designed to determine the amount of damage to that home from that hailstorm.
A) How does Appraisal Work?
Answer: Typically, both the policyholder and the insurance company appoint independent and impartial appraisers to assess the amount of loss. Each party usually bears the cost of paying their own appraiser. If the two appraisers cannot agree upon the amount, the parties split the cost of an “umpire” to resolve the dispute between the appraisers. Depending on the insurance policy, an umpire can be agreed upon by the two appraisers or appointed by a judge. That means umpires can vary from property adjusters, to experienced appraisers, or simply someone in the legal field: usually mediators or former judges. Two signatures, either from both appraisers or one appraiser and the umpire, are necessary for a binding and valid appraisal award.
B) When does a claim go to appraisal?
Answer: Typically, appraisal provisions permit either the policyholder or the insurance company to invoke appraisal to assess the amount of loss. Depending on the insurance policy, this usually must be done in writing to notify the other side. Accordingly, appraisal occurs whenever the policyholder or insurance companies requests it in writing.
Appraisal usually occurs before any lawsuit is filed. In fact, some insurance policies prevent policyholders from filing a lawsuit until a claim has gone through the appraisal process. This is designed to frustrate, delay, and add more expense for a policyholder to recover their policy benefits. After all, the insurance company can refuse to pay an appraisal award.
Appraisal can also occur after a lawsuit has been filed. While some insurance companies place restrictive language in policies to prevent policyholders from invoking appraisal after filing suit, most insurance policies have no restrictions on when a case can go to appraisal. Courts, on the other hand, do. Once in litigation, sometimes courts will require an “impasse” between the parties before permitting appraisal. Further, some courts will prevent a case from going to appraisal if someone waits too long to invoke it. For example, an insurance company cannot delay for two years and wait until the eve of trial to invoke appraisal to push that trial date back.
C) Can my insurance company or myself refuse to participate in appraisal?
Answer: Generally, the answer is “no.” The Texas Supreme Court made clear that appraisals should be enforced. Even though appraisals should be enforced, insurance companies often take advantage of policyholders’ lack of knowledge regarding the law. Without an attorney, insurance companies often refuse to participate in appraisal when only dealing with a policyholder.
As mentioned above, this answer may change depending on the insurance company and if a lawsuit has been filed. Some insurance companies put restrictive language in their policies to prevent policyholders from invoking appraisal after a lawsuit has been filed. The attorneys at Armstrong & Lee know which insurance companies typically use this language and advise our clients as to whether invoking appraisal or proceeding with a lawsuit is right for each case.
D) What if I disagree with the outcome of an appraisal award?
Answer: You can try to set the appraisal award aside in court, but it is difficult to do. Once two signatures—either from both appraisers or one appraiser and an umpire—are on an appraisal award, the amount of loss is binding on both parties. A signed appraisal award is presumed valid. As a result, the burden rests on the party seeking to set aside the award making the process difficult. In fact, Texas courts have only provided a few scenarios that warrant setting aside an appraisal:(1) the award was made without authority, (2) the award was made as a result of fraud, accident, or mistake, or (3) the award was not made in substantial compliance with the terms of the insurance policy. Because of the difficulty in setting aside appraisal awards, it is imperative to hire an appraiser that understands these pitfalls and knows exactly what an appraiser can, and cannot do, when conducting an appraisal. That way, it is done right the first time.
E) Do insurance companies pay appraisal awards?
Answer: Sometimes. The law in Texas for insurance companies is constantly changing. As it stands right now, insurance companies can summarily dismiss both breach-of-contract and bad faith causes of action if it fully and timely pays an appraisal award. But an insurance company cannot dismiss a cause of action under the Texas Prompt Payment of Claims Act. Insurance companies must make a decision in each case as to whether it should pay an award or not. Given the law in Texas, insurance companies often pay appraisal awards to dismiss certain causes of action.
The inverse is also true sometimes—insurance companies will sometimes refuse to pay. Sometimes an insurance company will refuse to pay an entire appraisal award or a portion of an appraisal award. The insurance company may make a calculated decision based on the circumstances that it can defeat a case in court without paying the award.
Additionally, sometimes an award assesses damages from a claimed event that is not covered under the policy. For example, insurance companies often use cosmetic damage exclusions for metal roofs. While the language varies depending on the policy, generally, it permits an insurance company to refuse to pay for cosmetic—as opposed to functional—damage to a roof. For example, an insured may file a claim for hail damage to a metal roof. While the appraisers must assess the hail damage to the roof, the insurance company may internally determine that the damage is not covered under the policy and refuse to pay the award.
F) What is the purpose of appraisals?
Answer: If an insurance company can attempt to refuse appraisal and can choose whether to pay, then you may ask what is the purpose of appraisal? The simple answer is that it streamlines a case at trial because the actual damages to property are fixed. This prevents the factfinder (judge or jury) from making the determination of damages. This process usually requires the factfinder (judge or jury) to listen to each party’s hired experts who testify on different amounts of damage. Appraisal eliminates this “battle-of-the-experts” over the issue of damages that often requires a factfinder to pick one expert or the other. Appraisal resolves that issue so damages do not need to be determined in court.