With the widespread devastation wrought by Hurricane Harvey through a large swathe of South Texas, insurance companies will undoubtedly be on the receiving end of numerous policy claims from property owners. Although it may initially seem too soon or too insensitive to turn to concerns over property claims while the storm still rages, an important change in Texas law demands timely consideration of the issue.
A new Texas law governing insurance claims, House Bill 1774, becomes effective this Friday, September 1, 2017. This statute adds Chapter 542A to the Texas Insurance Code, titled “Certain Consumer Actions Related to Claims for Property Damage.” The statute specifically applies to claims regarding property damage or loss caused in any part by “forces of nature.” Although the initial focus of the bill was on lawsuit abuse from hailstorm litigation, its broad scope includes weather events such as earthquakes, wildfires, floods, tornados, lightning, and, of timely interest, hurricanes.
Importantly, changes to Texas insurance law include the imposition of stricter pre-suit notice requirements, inspection requirements, and limitations on attorneys’ fees and interest. Further, the new law will reduce penalties against insurance companies that are determined to have failed to pay valid claims, paid less than amounts due, or failed to timely pay claims. With respect to potential litigation, the new law imposes stricter notice requirements for plaintiffs’ attorneys and, in the event the policyholder ultimately prevails, reduces the amount of penalty interest for failing to promptly pay a claim from 18% to about 10% (5% above prejudgment interest established under Finance Code). Insurance companies, therefore, face somewhat less liability exposure under the new law and there are elevated hurdles for plaintiffs to overcome in pursuing litigation.
Therefore, the timing of policyholder claims is critical to the law applicable to the insurance companies’ processing of those claims. That is, for a policyholder to take advantage of existing Texas law, and the enhanced penalties contained therein, the policyholder must file a claim in writing and advise the insurance company of the facts relating to the claim by this Thursday, August 31, 2017. Otherwise, House Bill 1774 will likely govern such claims filed on or after September 1st.
To the extent litigation arises relating to claims for property damage or loss caused in any part by “forces of nature,” including Hurricane Harvey, the timing of the policyholder’s claim will be key to how litigation proceeds and the insurance company’s liability exposure.