TEXAS INSURANCE LAW ALERT: Storm Claim Litigation Reform Statute: Texas House Bill 1774
House Bill 1774 (H.B. No. 1774) was signed by Texas Governor Greg Abbott on May 26, 2017, enacting Chapter 542A of the Texas Insurance Code and modifying other existing statutes. H.B. No. 1774 was designed to address lawsuit abuse arising out of Texas weather-related property claims. A summary of the bill follows.
Chapter 542A Applies to Weather-Related Property
Chapter 542A applies to first-party insurance lawsuits filed on or after September 1, 2017, that arise out of claims made under property policies for damage or loss to real property or improvements in which the policyholder asserts any of the causes of action commonly pled in Texas first-party insurance lawsuits, including:
- Breach of contract;
- Negligence, Misrepresentation, Fraud, or Breach of a common law duty (such as the duty of good faith and fair dealing);
- Violations of the Texas Insurance Code unfair settlement practices statutes (Texas Insurance Code Chapter 541);
- Violations of the Texas Prompt Payment of Claims Act (Texas Insurance Code Chapter 542); and
- Violations of the Texas Deceptive Trade Practices Act.
Application of Chapter 542A is limited to lawsuits arising out of weather-related property damage claims caused in whole or part by forces of nature, including earthquakes, wildfires, tornadoes, lightning, hurricanes, hail, wind, and rainstorms.
Presuit Notice Requirements
Not later than the 61st day before the date a claimant files a lawsuit to which Chapter 542A applies, the claimant must give written notice that provides:
- 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 claimant, calculated by multiplying the number of hours actually worked by the claimant’s attorney, as of the date the notice is given and as reflected in contemporaneously kept time records, by an hourly rate that is customary for similar legal services.
If an attorney or other representative gives the presuit notice on behalf of the claimant, the attorney or representative is required to provide a copy of the notice to the claimant and include in the notice a statement that a copy of the notice was provided to the claimant. The notice is admissible in evidence in a civil action.
A claimant is not relieved of the obligation to provide notice under other laws, such as the Texas Deceptive Trade Practices Act, although the Chapter 542A notice can be combined with notices required under other laws.
Presuit notice is not required if giving notice is impracticable because the claimant has a reasonable basis for believing there is insufficient time to give the presuit notice before the limitations period will expire or if the action is asserted as a counterclaim.
Right to Inspect
An insurer or other person who receives presuit notice may, within 30 days of receipt of the presuit notice, send a written request to inspect the property that is the subject of the claim at a reasonable time.
If reasonably possible, the inspection must be completed not later than the 60th day after the date of receipt of the presuit notice.
Insurers and other defendants are entitled to an abatement of the lawsuit if a plea in abatement is filed within 30 days of filing an original answer and:
- presuit notice was not received; or
- a presuit inspection was requested but a reasonable opportunity to inspect was not provided.
The lawsuit will be automatically abated without a court order beginning on the 11th day after the date a plea in abatement is filed if the plea is verified and is not controverted with an affidavit filed by the claimant. The abatement continues until the later of:
- the 60th day after the date compliant presuit notice is given; or
- the 15th day after the date the requested inspection of the property is completed.
The parties cannot be compelled to participate in an alternative dispute resolution proceeding until after the abatement period.
Accepting Agents’ Liability
An insurer that is a party in a lawsuit to which Chapter 542A applies may elect to accept whatever liability an agent might have to the claimant for the agent’s acts or omissions related to the claim by providing written notice to the claimant. “Agent,” as defined by the statute, means an employee, agent, representative, or adjuster who performs any act on behalf of an insurer.
If an insurer accepts the agent’s liability before a lawsuit is filed by the claimant, no cause of action exists against the agent related to the claimant’s claim, and if the claimant nevertheless files a lawsuit against the agent, the court shall dismiss the action against the agent with prejudice.
If an insurer accepts the agent’s liability after a lawsuit is filed by the claimant, the court shall dismiss the action against the agent with prejudice.
The insurer’s election cannot be conditioned in a way that will result in the insurer avoiding liability for any claim-related damage caused to the claimant by the agent’s acts or omissions. The election to accept an agent’s liability is irrevocable.
The provisions of Chapter 542A limiting recovery of attorney’s fees will not apply if an insurer elects to accept an agent’s liability but fails to make that agent available at a reasonable time and place to give deposition testimony unless the court finds that:
- it is impracticable to make the agent available due to a change in circumstances arising after the election was made;
- the agent would not have been a proper party to the action; or
- obtaining the agent’s deposition testimony is not warranted under the law.
Evidence of the agent’s acts or omissions may be offered at trial and the trier of fact may be asked to resolve fact issues as if the agent were a defendant, although an insurer’s election to accept the agent’s liability may not be made known to the jury. A judgment against the insurer must include any liability that would have been assessed against the agent.
Limitations on Recovery of Attorney’s Fees
If a defendant pleads and proves that the defendant was not given a presuit notice stating the specific amount alleged to be owed by the insurer at least 61 days before the date the lawsuit was filed by the claimant, the court may not award to the claimant any attorney’s fees incurred after the date the defendant files the pleading with the court. Otherwise, the amount of attorney’s fees that may be awarded to a claimant is the lesser of:
- the amount of reasonable and necessary attorney’s fees determined by the trier of fact to have been incurred by the claimant in bringing the action;
- the amount of attorney’s fees that may be awarded to the claimant under other applicable law; or
- an amount calculated by dividing the amount to be awarded in the judgment for property damage by the amount alleged to be owed on the claim in the presuit notice, and multiplying the amount calculated by the amount of reasonable and necessary attorney’s fees determined by the trier of fact to have been incurred by the claimant in bringing the action.Attorney’s fees will not be awarded if the amount calculated by dividing the amount to be awarded in the judgment for property damage by the amount alleged to be owed on the claim in the presuit notice is less than 0.2. A corresponding percentage of attorney’s fees will be awarded if the amount calculated is at least 0.2 but less than 0.8. The full amount of attorney’s fees will be awarded if the amount calculated is equal to or greater than 0.8. Stated another way:
- If less than 20 percent of damages claimed presuit are awarded, no attorney’s fees are recoverable.
- If 20 to 79 percent of damages claimed presuit are awarded, the corresponding percentage of attorney’s fees are recoverable.
- If at least 80 percent of damages claimed presuit are awarded, 100 percent of attorney’s fees are recoverable.
Amendments to Chapter 542 Prompt Payment of Claims Statutes
The new law amends existing Chapter 542, commonly known as the Prompt Payment of Claims Act (PPOC), to create a separate interest damages provision that applies to claims in litigation to which Chapter 542A applies.
If Chapter 542A applies and there was a violation of PPOC, the insured will be entitled to interest as damages that will effectively range from 10% to 20% per year. The rate is calculated by adding 5% to the prime rate as published by the Federal Reserve System, if the prime rate is between 5% and 15%. If the prime rate is below 5%, as it is currently, then 5% will be used in the calculation instead of the prime rate. If the prime rate is higher than 15%, then 15% would be used in the calculation instead of the prime rate.
If Chapter 542A does not apply, or if Chapter 542A applies but the property damage claim was made before September 1, 2017, the current 18% interest rate will continue to apply.
Chapter 542 has also been amended to state that attorney’s fees must be both reasonable and necessary to be recoverable for PPOC violations, and to state that prejudgment interest is recoverable on the claim in addition to PPOC interest.
To be directed to H.B. No. 1774, click here.
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