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On when you should file a Harvey-related claim

It may or may not ultimately make a difference, but a new law that goes into effect on September 1 is about insurance claims and lawsuits.

For many Texans ravaged by the rain and winds Hurricane Harvey carried ashore this past weekend, filing an insurance claim for the damage their property sustained is probably the farthest thing from their minds right now. But waiting to submit a claim past Friday could cost them big.

A new law set to take effect Friday aims to crack down on frivolous insurance lawsuits. But House Bill 1774 also reduces the penalty interest rate insurance companies face for late payments if the policyholder files a lawsuit.

If insurance companies are late in paying claims as a result of a lawsuit, they must pay an additional penalty to policyholders. Under current state law, that penalty comes in the form of a fee that totals 18 percent of the claim. For claims filed after Friday, that rate will be determined by a market-based formula that is capped at 20 percent. Currently, the rate would be 10 percent.

While people filing claims by Friday would benefit from the higher penalty payouts in lawsuits, those same cases would be subject to provisions in the new law. Those provisions would decrease the chances insurance companies will have to pay the plaintiff’s attorneys fees in full and protect agents from being personally sued.

Jeff Raizner, a member of the Texas Trial Lawyers Association, which opposed HB 1774, said the law is a mixed bag.

“I want to be completely fair, there were some bad actors,” said Raizner, a Houston trial lawyer who has worked on insurance cases for 25 years. He added that some of what the new law requires addresses that problem – like the strengthened rules on communications regarding claims issues and the structure for paying attorneys’ fees.

But he calls the penalty changes an overreach.

“Much of this new law is a money grab by the insurance industry,” Raizner said.

“The intent of the bill was to cut off this ‘cottage industry’ that was happening around hailstorms after Hurricane Ike; lawsuits that didn’t need to be filed,” said Lucy Nashed, a spokesman for Texans for Lawsuit Reform. TLR supported the bill and argues that because the bulk of Harvey insurance claims will be flood-related, nothing will change.

I’m not a lawyer, and I’ve thankfully never had to file an insurance claim related to storm or flood damage. This explanation on Facebook from someone who is a lawyer strongly suggests that HB 1774 won’t affect the vast majority of people:

First and foremost, HB 1774 does not change the insurance claims process. A person making a claim with her insurance company after September 1, 2017 will go through the same process as a person making a claim before September 1, 2017.

The new law applies to a lawsuit that is filed against an insurance company by a policyholder when the policyholder’s insurance claim is not timely paid or is underpaid, or when the insurance company acts in bad faith in dealing with the policyholder’s claim.

Lawsuits are the exception, not the rule. The vast majority of Texans will go through the regular insurance claims process without needing to file a lawsuit.

Even under HB 1774, Texans continue to have the strongest consumer protections in the nation against insurance companies. This includes the full recovery of amounts owed under an insurance policy, plus penalty interest, court costs, and attorney fees. Additionally, if the insurance company acts fraudulently or in bad faith, Texans may recover triple the amount of their actual damages, which is unchanged by the new statute.

The only advantage to filing a claim before Sept 1 is that IF the insurance is slow to pay or underplays, their penalty interest will be a floating rate between 10-20%, rather than a stagnant rate of 18%. Lawyers may worry about that change in rate, but you shouldn’t. It doesn’t impact your coverage.

The primary purpose of the new statute is to require written notice of a dispute before a lawsuit is filed (so that the insurance company can adequately address the claim before a lawsuit is even needed). If a lawsuit is filed, it would happen months or years after the initial claim was made with the insurance company. Nothing in the new law passed by the Legislature earlier this year requires that the initial insurance claim be made in writing or by a specific date.

For what it’s worth, the new law will not apply to most claims or lawsuits arising from Harvey, as I understand it, because most of the policyholders’ claims will be for damage caused by flooding. These claims will be made under the federal flood insurance program and governed by federal law. The new law will not apply to lawsuits pursued against the Texas Windstorm Insurance Association (TWIA), which is subject to an entirely different statute governing post-disaster lawsuits. TWIA provides insurance for many people affected by Harvey directly on the coast.

I guess I would say that if you do have a claim to file, and you can do it by Thursday, go ahead and do it then. It probably won’t matter, but it probably won’t hurt. RG Ratcliffe and Mother Jones have more.

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