What Does Texas House Bill 1774 Mean for Insurers?
Insurance fraud is a mounting problem across the United States, not only for insurance companies, but for their clients, for whom it drives up costs. With an eye to protecting citizens, some states are enacting legislation intended to discourage fraudulent property insurance claims. If this trend grows, it will be good news for the insurance industry.
One state with new insurance legislation targeting fraud is Texas. In May of 2017, the Texas House approved HB 1774, a bill aimed at reducing fraudulent or meritless property insurance claims in the state. The bill makes it more difficult for homeowners and business owners to sue their insurance carriers over claims of damage from hurricanes, floods, and hail storms. The new law took effect on September 1, 2017, days after Hurricane Harvey swept through much of Texas.
Overall, HB 1774 is positive news for insurance companies that have been victimized by fraudulent or meritless claims. Among other benefits, the law reduces the likelihood that insurance companies will be saddled with plaintiffs' attorney fees and minimizes penalties which may be imposed on insurance companies when a court deems them to have paid an insufficient amount on a claim.
Notably, HB 1774 also provides protections for individual insurance agents from negative outcomes like lowered credit scores when a policy holder sues them personally. Let's take a look at some of the specifics of HB 1774.
When Does House Bill 1774 Apply and What Does it Require?
House Bill 1774 does not apply to two specific categories of claims: those with the National Flood Insurance Program (NFIP) and those with the Texas Windstorm Insurance Association (TWIA). It does, however, apply to most claims made under insurance policies designed to cover homes, commercial buildings, and other real property.
One of the most important requirements of House Bill 1774 is that policyholders now must provide an insurance company notice prior to filing a legal action against the company. In addition to any other notice required by the company or by law, a claimant must provide the insurance company with written notice that states what acts or omissions gave rise to the claim; the identity of any agent who acted or failed to act in such a way as to contribute to the claimant's loss; how much the insurer alleges to be owed on the claim; and the amount of the claimant's reasonable attorney fees.
This written notice must be provided no later than the 61st day before the claimant files a lawsuit against the insurance company. This two-month period gives insurance companies and claimants an opportunity to settle claims out of court, reducing litigation costs and ultimately protecting all parties.
Another noteworthy detail of this legislation is that it makes more stringent the requirements for property inspections related to a claimant's lawsuit. Policyholders must permit inspection of the property upon request by the insurance company. If a policyholder fails to comply with either the notice or inspection requirements, their case may be abated or dismissed with prejudice.
Other Impacts of House Bill 1774
House Bill 1774 is designed to discourage claimants from inflating their claim for damages in this presuit demand. It does so by limiting recoverable attorney fees if the presuit demand significantly exceeds damages awarded at trial. If a claimant recovers at least 80{2121d7d1f05be8a30374b9c826493d8e3b1b28f2f55b23c480f3d79bdce942ac} of the amount originally claimed, they may be able to recover up to 100{2121d7d1f05be8a30374b9c826493d8e3b1b28f2f55b23c480f3d79bdce942ac} of their attorney fees. If the damage award is between 20 and 79{2121d7d1f05be8a30374b9c826493d8e3b1b28f2f55b23c480f3d79bdce942ac} of the claimed amount, the claimant can recover up to the same percentage of attorney fees. If the award is less than 20{2121d7d1f05be8a30374b9c826493d8e3b1b28f2f55b23c480f3d79bdce942ac} of the amount in the presuit claim, attorney fees are not recoverable. This provision should prevent claimants from artificially inflating their initial claim, with the expectation that it would be negotiated downward to a more reasonable figure.
The new legislation also limits the amount of interest an insured can recover in the event that an insurer delays payment of a claim in violation of the Texas Insurance Code. The previous amount of interest allowed was 18{2121d7d1f05be8a30374b9c826493d8e3b1b28f2f55b23c480f3d79bdce942ac}; under the new law, the limit is 10{2121d7d1f05be8a30374b9c826493d8e3b1b28f2f55b23c480f3d79bdce942ac} plus 5{2121d7d1f05be8a30374b9c826493d8e3b1b28f2f55b23c480f3d79bdce942ac} prejudgment interest. While still protecting policyholders, this is a benefit to insurance companies.
House Bill 1774 may limit liability for insurers in other ways as well; one interpretation of the law is that a claimant may sue an insurance company for unfair settlement or deceptive trade practices, but not both.
The passage of House Bill 1774/Senate Bill 10 could become part of a trend among states to legislate in the interest of preventing meritless lawsuits and protect both insurers and policyholders. Be on the lookout for similar legislation in other states.
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