On May 7, 2017, I posted Texas House of Representatives Passes House Bill 1774, noting that the potential law could have a negative impact on Texas policyholders and their representatives, and promising you an update. Last week, the Texas Senate passed the latest version of the bill, and it is now before the Governor for consideration.
To recap, Texas House Bill 1774 adds Chapter 542A to the Texas Insurance Code, and is titled “Certain Consumer Actions Related to Claims for Property Damages.”
In addition to important points I discussed last time, including the imposition of stricter notice requirements, inspection requirements, abatement, and limitations on attorneys’ fees and interest, here are a few more things to note:
I discussed briefly in my last post on this bill that under section 542A.005, an insurer may file a plea in abatement if a claimant fails to comply with either the notice or inspection requirement and that a court shall abate (i.e., stay) the action if it finds that a claimant has been noncompliant.1 It’s also important to know that this stay can be automatic (without court order) beginning on the 11th day after the insurer files its plea under these circumstances:
- The plea is verified and alleges that the claimant did not comply with either the notice or inspection requirements,
- and as long as the claimant does not file an affidavit within the 11 days controverting the allegations.2
Under 542A.005(d), if the claimant elects to file an affidavit to controvert the allegations in the insurer’s plea, the affidavit filed by the claimant must:
- include as an attachment a copy of the document the claimant sent to give notice of the claimant’s action; and
- state the date on which the notice was given.3
Under Section 542A.005(e), the abatement will continue until the later of:
- The 60th day after the date a notice complying with Section 542.003 is given; or
- The 15th day after the date of the requested inspection, photographing or evaluating of the property is completed.4
Not only can the matter be potentially abated, but 542A.003(e) goes so far as to provide that,
[T]o ensure that a claimant is not prejudiced by having given the presuit notice required by this chapter, a court shall dismiss without prejudice an action relating to the claim for which notice is given by the claimant and commenced:
(1) Before the 61st day after the date the claimant provides notice under subsection (a);
(2) By a person to whom presuit notice is given under subsection (a); and
(3) Against the claimant giving notice.
This means that if you fail to wait until the 61st day after providing notice to file a lawsuit as a claimant, or otherwise don’t comply with the notice requirement, your case is subject to dismissal without prejudice. Without prejudice means that—absent statute of limitations issues, and assuming your lawsuit is otherwise ripe—you can re-file suit after the notice requirements are met. However, this is yet another cost and impediment to policyholders and their representatives.
In addition to the procedural hamstrings provided for under the notice and inspection provisions, there are a few more things to note regarding Section 542A.006, which permits an insurer to accept whatever liability an agent might have to the claimant for that agent’s acts or omissions by providing notice to the claimant. I will refer to such an agent as the insurer’s “assumed agent” for illustration purposes.
I previously mentioned the concern that this section could give insurers the ability to remove cases into Federal Court when they otherwise may not be able to, for instance, where the assumed agent is also a citizen of Texas,5 but there are other concerns:
Section(d), at first glance, looks like it protects the claimant because it requires an insurer seeking to keep such a status6 regarding its assumed agent, to make the agent available for deposition, unless the court finds that:
- It is impracticable for the insurer to make the agent available due to a change in circumstances arising after the insurer made the election …
- The agent whose liability was assumed would not have been a proper party to the action; or
- Obtaining the agent’s deposition testimony is not warranted under the law7
I added emphasis to 542A.006(d)(1), because as an attorney who represents insureds, I see that often the process of tracking down an agent or independent adjuster for a deposition can be difficult when he has had a “change in circumstances”– for instance, has switched companies. That said, it seems as though insurers in this situation may be able to avoid producing their assumed agents for deposition where there has been a “change in circumstances,” which undercuts the purpose of this section.
A positive note for policyholders and their representatives, though, is that section (g) does provide that “evidence of the [assumed] agent’s acts or omissions may be offered at trial, and if supported by sufficient evidence, the trier of fact may be asked to resolve fact issues as if the agent were a defendant, and a judgment against the insurer must include any liability that would have been assessed against the [assumed] agent.”8 Simply put, if an insurer is going to assume an agent’s responsibility, they are bound to stick with it all the way through the trial phase.9
However, the bill was designed to curb litigation, and thus, it creates hurdles for policyholders nonexistent under the current law. We will let you know if the governor signs the bill into law so that if you are a Texas policyholder you can be prepared. The bill—if signed into law by the Governor—is not retroactive and would take effect on September 1, 2017.
1 See 542A.005(b).
2 See 542A.005(c).
3 See 542A.005(d).
4 See 542A.005(e).
5 See https://www.propertyinsurancecoveragelaw.com/2017/05/articles/state-legislation/texas-house-of-representatives-passes-house-bill-1774/
6 See 542A.006(a).
7 542A.006(d)(1). (Emphasis added).
8 542A.006(g)(bracketed material added).
9 The only exception would be if the insurer goes into receivership, the court shall disregard any prior election made by the insurer relating to the claimant’s claim. 542A.006(h).