We like to believe that insurers will do the right thing when tragedy strikes and we sustain big losses at home due to things like fires, floods and hail storms. Our loyalty is sometimes rewarded when the carrier comes out to investigate the claim quickly, adjusts it fairly and makes payment timely.
Other times, however – particularly when a large-scale event like a hurricane rips through a metropolitan area, destroying thousands of homes and leading to billions of dollars in claims – insurers are prone to funny business. After all, there is big money at stake after big storms, and paying claims is not profitable.
There is no better example than Hurricane Katrina. In the wake of the historic storm, thousands of homeowners found themselves displaced and in need of quick, fair settlements to get their homes rebuilt or repaired and their families’ lives back in order. Instead of quick, fair settlements, they got the runaround. Claims were improperly denied or underpaid, and some of the losses were misclassified as fire — instead of wind-related, shifting the burden of payment away from insurers under their homeowners’ policies and over to taxpayers under the government-subsidized flood insurance program.
Untold numbers of lawsuits – both individual cases and class actions – were filed by consumers in the years that followed, and some cases were still being litigated a decade later. Many of these cases were successful, both through multi million-dollar jury verdicts and mega million-dollar class-action settlements. Whistleblowers were involved. Insurers were found liable for fraud and punitive damages. These were not “junk” lawsuits by any stretch of the imagination.
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The Katrina litigation proved once again that the courthouse is the only place where ordinary people can stand on equal footing with large and powerful companies. The damage from Hurricane Harvey is far from over, but there is little doubt that homeowners on the verge of financial ruin will again be forced to seek shelter in the courtroom. Certain claims will get paid timely and fairly, but many will not. This is simple reality – history is bound to repeat itself.
Why, then, would the Texas Legislature have found it necessary earlier this year to protect insurers from the full force of these lawsuits? During the 2017 term, Texas passed HB 1774, which applies to lawsuits filed against insurers beginning last Friday. The new law provides that insurers must be notified 61 days in advance before suit is filed, lowers the interest penalty paid by insurers, and limits the scenarios under which insurers are liable for attorney fees.
In other words, this new Texas law empowers insurance companies facing lawsuits. Even in meritorious cases.
State Rep. Leighton Schubert, the co-author of the legislation, claims that the law was intended to “discourage a feeding frenzy by lawyers and contractors” following natural events in Texas. He stresses that the law does not apply to claims – only lawsuits. But insurers can freely reject claims. They cannot reject lawsuits. Schubert also stresses that the law does not affect flood claims by homeowners, which fall under the government’s flood insurance program. But as Katrina and other major storms have taught us, wind and other non-flood-related damages are substantial when hurricanes strike.
Make no mistake – this new Texas law will only lead to more delays and denials in the wake of what is predicted to be one of the top 10 most costly hurricanes for the insurance industry. The timing of this new law is bad for consumers, but great for insurers.
Blake Shuart is a Wichita attorney.