Texas Legislature Sets Limits on Exorbitant Plaintiffs’ Attorney Claims

A few years ago, a Texas Department of Insurance study revealed a sharp rise in wind and hail claims over the previous five years after bad storms. The number of wind-hail claims involving attorneys or public adjusters had multiplied by nine, and the number of policyholder lawsuits had multiplied by 14. More than half of the additional suits had been filed in South Texas. Alarmed, some insurance companies raised their homeowner’s insurance rates, and others pulled out of the state altogether. After seeing the study, members of the Texas State Legislature suspected that lawyers handling South Texas weather-related cases were using extreme weather events as a pretext to file exaggerated damage claims. That hunch was reinforced by lawyers’ failing to provide any notice to insurers before filing lawsuits, a tactic aimed at procuring higher settlements.

To prevent a crisis of insurance availability, the  Texas state legislature passed the Hailstorm Bill, which became Texas Insurance Code Section 542A. The new law applies to first-party property insurance claims involving so-called “forces of nature” such as earthquakes, wildfires, floods, tornadoes, lightning, hurricanes, hail, wind, snowstorms, or rainstorms. The law’s purpose is to minimize abuses in weather-related insurance matters while protecting policyholders from improper denials of coverage.

Pre-suit Notice

The new law imposes a waiting period designed to encourage earlier out-of-court settlements. A policyholder must provide written notice to the carrier at least 61 days before filing suit. The letter must state a specific dollar amount of damages and the amount of attorneys’ fees incurred to date. After receiving notice, the insurer may conduct a pre-suit inspection of the property to make its own damage assessment.

If the policyholder files suit without providing the required notice, their attorney will be prohibited from recovering attorneys’ fees.

Additional Limitations on Attorney’s Fees

The new law also limits the attorneys’ fees awarded if the pre-suit demand proves to be considerably higher than the amount recovered at trial. It sets a sliding scale based on the size of the jury award:

• For a lawyer to recover all their attorney’s fees, the jury must award at least 80 percent of the amount of damages claimed.
• If the jury awards between 20 percent and 79 percent, the corresponding percentage of attorney’s fees will be awarded.
• No attorney’s fees will be allowed if the jury awards less than 20 percent of the amount claimed.

The intent, of course, is to encourage more realistic pre-suit demands, leading to faster settlements.

Prompt-payment Penalties Reduced

The law also reduces the amount of interest a policyholder can receive if the insurer fails to pay what is owed promptly. The prior law, passed in 1991, allowed an 18 percent interest penalty. Its purpose was to penalize bad actors in the insurance community, but it had the unintended consequence of providing lawyers with an incentive to delay filing suit until the last possible moment to increase the amount of interest awarded. The Hailstorm bill lowered the amount to 10 percent–high enough to pressure insurance companies to promptly fulfill their duties but not so high as to become a moral hazard.

The increased frequency and strength of Gulf storms in recent years make it likely that many more homes will be damaged, and their owners will have to file insurance claims. We’ve already seen Colin this year, and weather experts expect that Danielle, Earl, Fiona, and Gaston will develop as the season continues.

Get Help From an Experienced Insurance Claims Attorney in Texas

If your insurance company has refused to pay a claim and you believe the denial was in bad faith, you’ll want to consult a law firm specializing in insurance claims. Contact Manfred Sternberg & Associates through our website or call 713-547-5460.