For many Texans ravaged by the rain and winds, Hurricane Harvey carried ashore this past weekend, filing an insurance claim for the damage their property sustained is probably the farthest thing from their minds right now. But waiting to submit a claim past Friday could cost them big.
A new law set to take effect Friday aims to crack down on frivolous insurance lawsuits. But House Bill 1774 also reduces the penalty interest rate insurance companies face for late payments if the policyholder files a lawsuit.
If insurance companies are late in paying claims as a result of a lawsuit, they must pay an additional penalty to policyholders. Under current state law, that penalty comes in the form of a fee that totals 18 percent of the claim. For claims filed after Friday, that rate will be determined by a market-based formula that is capped at 20 percent. Currently, the rate would be 10 percent.
While people filing claims by Friday would benefit from the higher penalty payouts in lawsuits, those same cases would be subject to provisions in the new law. Those provisions would decrease the chances insurance companies will have to pay the plaintiff’s attorneys fees in full and protect agents from being personally sued.
Jeff Raizner, a member of the Texas Trial Lawyers Association, which opposed HB 1774, said the law is a mixed bag.
“I want to be completely fair, there were some bad actors,” said Raizner, a Houston trial lawyer who has worked on insurance cases for 25 years. He added that some of what the new law requires addresses that problem – like the strengthened rules on communications regarding claims issues and the structure for paying attorneys' fees.
But he calls the penalty changes an overreach.
“Much of this new law is a money grab by the insurance industry,” Raizner said.
“The intent of the bill was to cut off this ‘cottage industry’ that was happening around hail storms after Hurricane Ike; lawsuits that didn’t need to be filed,” said Lucy Nashed, a spokesman for Texans for Lawsuit Reform. TLR supported the bill and argues that because the bulk of Harvey insurance claims will be flood-related, nothing will change.
For one, most homeowners' policies in Texas don't cover flooding. And for those that do, the policies are often with the National Flood Insurance Program through the Federal Emergency Management Agency, which aren’t subject to state regulations.
During the 85th Legislature this year, HB 1774's author, Rep. Greg Bonnen, R-Friendswood, told lawmakers the legislation would target the "worst lawsuit abuse we have in the state" while protecting the rights of Texans to sue an insurance company.
At least 29 lawmakers who represent areas hit particularly hard by Harvey voted for the bill.
Among those supporters was state Rep. Briscoe Cain, R-Deer Park.
“I believe that Texans have the strongest consumer protections in the nation against insurers” that don't deliver on claims, Cain said.
He said people who are harmed by bad actors in the insurance industry will still have protections under this law.
“There’s a lot of misinformation and fear-mongering going on right now” regarding the legislation, he said, adding that it's "premature to speculate" how it would affect people filing claims related to Harvey.
Jim Malewitz contributed to this report.
Disclosure: Texans for Lawsuit Reform and the Texas Trial Lawyers Association have been financial supporters of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.
Clarification: This story was updated to note that the penalty payments only happen when policyholders file a lawsuit.
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