Texas Passes Bill to Curb Hail Litigation

by Traub Lieberman Straus & Shrewsberry LLP

Texas governor Greg Abbott recently signed legislation designed to curb the state’s recent spate of hail litigation against homeowner’s insurers. The new legislation, House Bill 1774 (and its counterpart Senate Bill 10), will require Texas insureds to provide their property insurers with notice at least 61 days prior to filing any lawsuit to recover indemnity for damage caused by forces of nature, including hail, wind, tornados, and lightning. The notice must provide a statement of the acts or omissions giving rise to the claim, the specific amount alleged to be owed by the insurer on the claim, and the amount of reasonable and necessary attorney’s fees incurred by the insured. If the insured files suit without providing the required notice, the insurer is entitled to abatement of the action. Once the insured provides notice, the insurer has 30 days to send a written request to inspect the property. If reasonably possible, the inspection must be completed within 60 days of receipt of the pre-suit notice. Abatement of an action will continue until the later of the 60th day after the date of notice or the 15th day after any requested inspection is completed. The notice and abatement requirements are designed to facilitate settlement of claims outside of court.

House Bill 1774 also places new limits on recoverable interest and attorney’s fees. Under existing law, an insurer that fails to comply with Texas’ Prompt Payment of Claims statute will be liable for 18% annual interest on the amount of the claim. The insurer also must pay the insured’s reasonable attorney fees. Under House Bill 1774, simple interest is determined by adding five percent to a fluctuating prime rate set forth in the Texas Finance Code, which can vary between 5 and 15%. Recoverable attorney’s fees must also be reasonable and necessary in bringing the action. Recoverable attorney’s fees will also be reduced by the percentage that the final adjudicated value of the claim is less than amount demanded in the pre-suit notice if the final adjudicated value of the claim is less than 80% of the pre-suit demand. Further, if the final adjudicated value of the claim is less than 20% of the pre-suit demand, the insured will not be entitled to attorney’s fees at all. In other words, if the pre-suit notice significantly inflates the value of the claim, recoverable attorney’s fees will be diminished. The bill’s adjustment of recoverable fees is designed to incentivize insureds’ adjusters and attorneys to be more realistic in their pre-suit estimates and demands.

Finally, House Bill 1774 permits an insurer to elect to accept the individual liability of its “agents”—defined as employees, agents, representatives, or adjusters who perform any act on behalf of the insurer—for violations of the Prompt Payment of Claims statute. If the insurer makes such an election and the agent is also named as a defendant in the insured’s lawsuit, a court must dismiss the agent from the action with prejudice.

House Bill 1774 will go into effect September 1, 2017.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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