By James Drew
Harvey will be the first test of a controversial new Texas insurance law that takes effect Friday.
Plaintiff's attorneys and a consumer watchdog group are urging people who suffered damages to file written notice of property insurance claims before the law takes effect along with hundreds of other new laws on Sept. 1.
By doing so, those policyholders will preserve their ability to collect an 18 percent penalty interest rate that insurance companies have to pay when they fail to pay a legitimate claim "timely and fully." That interest rate will drop to 10 percent under the new law. The difference could amount to thousands of dollars on a major claim.
The law applies to wind claims, but does not govern flood insurance , which almost exclusively is covered under the National Flood Insurance, Program said state Rep. Greg Bonnen, the Friendswood Republican who sponsored the bill which became law. The measure also does not apply to policyholders with the Texas Windstorm Insurance Association, which provides hailstorm and windstorm insurance in coastal counties, he added.
Plaintiff's attorneys and their allies say they have bigger concerns.
Houston lawyer Steve Mostyn said as some lawyers tell homeowners to file claims before Sept. 1, that won't protect homeowners who receive lower-than expected damage estimates. If homeowners want to file a lawsuit against their insurance company, the new law makes it very difficult for lawyers to collect fees, Mostyn said.
U.S. Rep. Joaquin Castro, D-San Antonio, called on Gov. Greg Abbott to convene a special session to delay the effective date of the law, which also limit the amount of attorney fees homeowners can recover in some cases. An Abbott aide didn't return messages seeking comment.
"We fear this natural disaster is going to be compounded by the man-made disaster of dangerous laws that make it harder to fight insurance companies when they wrongfully deny, delay, or underpay valid claims," said Ware Wendell, executive director of Texas Watch, a nonprofit consumer group with ties to the Texas Trial Lawyers Association.
Lucy Nashed, a spokeswoman for Texans for Lawsuit Reform, a nonprofit group which backed the new law and has championed "tort reform" for several years, accused plaintiff's attorneys of spreading misinformation.
The new law affects lawsuits filed starting Sept. 1, but the regular claims process is not changed, Nashed said.
"Lawsuits are the exception, not the rule. Most people are going to go through their regular insurance claims process and have no dispute. The storm-chasers have always treated these lawsuits like they are the rule and not the exception, and that's not how the process works," Nashed said.
Several people have circulated a Facebook posting that states: "The anti-homeowner Texas legislature recently passed a horrible hurricane bill that adversely impacts property damage claims made by homeowners" and then urges people to file written damage claims from Harvey before Sept. 1.
Beaman Floyd -- director of a trade group which represents Allstate, Farmers Insurance, Nationwide, State Farm Insurance, and USAA -- said he is "extremely concerned" that some people -- reacting to social media -- erroneously think they can't file an insurance claim after Aug. 31.
"On and after Sept 1st, you will be able to file claims. You will be able to file a lawsuit if you are unsatisfied or think your insurance company is not meeting its obligations under the contract," he said.
Last January, in his State of the State address, Gov. Greg Abbott proclaimed that "hailstorm litigation is the newest form of lawsuit abuse," and he urged lawmakers to take action. They sent him a bill, which he signed into law in May that also covers earthquakes or tremors, wildfire, tornado, lightning, hurricanes, and wind.
Backers of the new law say it will crack down on "abusive and unnecessary" lawsuits filed by "storm-chasing lawyers" over insurance claims after hail and other storms. Foes have said it will impact millions of property owners by threatening their access to the courts.
The new law requires plaintiff's attorneys to file a notice with an insurance company more than 60 days before a lawsuit is filed that includes "acts or omissions" causing the claim, the amount alleged to be owed and the amount of "reasonable and necessary" attorney fees incurred. If the pre-suit deadline is missed, plaintiff's attorneys will not be able to collect fees.
'Do the right thing'
Wendell, the executive director of Texas Watch, said the 18 per cent penalty interest rate that insurance companies faced if they failed to pay a legitimate claim "timely and fully" provided an incentive for insurers to "do the right thing on time."
But Lee Parsley, general counsel of Texans for Lawsuit Reform, said the change in the interest rate penalty from 18 percent to an amount equal to the state's judgment rate plus 5 percentage points -- currently 10 percent -- will benefit policyholders.
Parsley said the 18 per cent penalty rate has encouraged lawyers to delay filing lawsuits, so that any court-ordered amount is larger. He said policyholders are better off if a lawsuit is filed sooner, so they get paid sooner.
The Texas Trial Lawyers Association will track how the new law affect policyholders reeling from Harvey.
"There's no doubt that this is a multibillion-dollar event in terms of losses. We hope at TTLA that all of these claims are handled in full, they're handled fairly, and they're paid on time so people can move on with their lives. We will be keeping an eye on any problems that could arise," said Alex Winslow, the group's communications director.
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