Introduced on February 13, 2017, Texas House Bill 1774/Senate Bill 10, has been proposed by its sponsors as a way to curb hail storm lawsuit abuse. However, if signed into law, the bill could have a negative impact on Texas policyholders who have suffered any type of property damage relating to a natural disaster, hail or otherwise. The bill came before the Texas House on Thursday, May 4 and Friday May 5, 2017, and was passed by a vote of 92-55. It will now go to the Texas Senate for review before making its way to be signed into law.
The concern policyholders and their advocates should have about the bill is the addition of Chapter 542A, which imposes pre-suit notice requirements, requirements regarding inspections, and certain limitations on attorney’s fees.
Specifically, Section 542A.003 NOTICE REQUIRED provides,
(a) In addition to any other notice required by law or the applicable insurance policy, not later than the 61st day before the date a claimant files an action to which this chapter applies in which the claimant seeks damages from any person, the claimant must give written notice to the person in accordance with this section as a prerequisite to filing the action.
(b) The notice required under this section must provide:
(1) a statement of the acts or omissions giving rise to the claim;
(2) the specific amount alleged to be owed by the insurer on the claim for damage to or loss of covered property; and
(3) 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.
Regarding inspections, section 542A.004 provides that the person who received pre-suit notice may provide a written request to inspect the insured property within 30 days after receiving the notice. It also provides that the inspection is to occur within 60 days of the date the person receives the pre-suit notice if reasonably possible.
Section 542A.005 deals with abatement. It provides that “a person against whom an action to which this chapter applies is pending may file a plea in abatement not later than the 30th day after the date the person files an original answer in the court in which the action is pending” if pre-suit notice and/or inspection requirements are not met.
This section also provides that under certain circumstances an action will be automatically abated without a court order beginning on the 11th day after a plea in abatement is filed, and courts may not compel participation in an alternative dispute resolution proceeding until after the abatement period has expired.
The bill also permits insurance companies to “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” under section 542A.006, and requires dismissal of action against that person with prejudice under 542.006(b) & (c). The practical effect of this section of the bill according to Texas Lawyers John R. Hardin and Gilbert A. Perales, is that it “would give the defendant insurance company the power to eliminate non-diverse defendants and remove to federal court cases that normally could not be removed.”1 While this still wouldn’t apply in all circumstances, (for instance cases where damages are less than $75,000), it is worth noting.
Finally, section 542A.007 provides limits on attorney’s fees. For instance, if proper pre-suit notice is not given, a policyholder may be prohibited from recovering attorney’s fees.
If the claim cannot be resolved and the parties end up at trial, the pre-suit damages figure presented under 542A.003(b)(3), (above), is compared to the damages verdict and if the plaintiff/insured recovers only a portion of the pre-suit damages, attorney’s fees will be adjusted on a scale. For an insured to recover 100% of its attorney’s fees, the jury must award 80% of the insureds’ pre-suit damages demand, while 20-79% of a jury’s award of damages will end up in an award of the corresponding percentage of attorney’s fees. However, if the jury awards just 20% or less of a plaintiff/insured’s demand, the insured recovers no attorney’s fees. The concern for policyholders and their attorneys here is the high risk associated with litigation could create a chilling effect on those insureds who want to dispute their claims.
The bill also places limitations on the interest that can be recoverable under actions applicable to Chapter 542A.
We will continue to update you on Texas House Bill 1774/Senate Bill 10 as it progresses through the legislature.
1 Texas Senate Bill 10 Would Adversely Affect All Insureds, Law360, March 16, 2017 (Last viewed on 5/5/2017, at https://www.law360.com/articles/902674/texas-senate-bill-10-would-adversely-affect-all-insureds).