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Texas Hail Bill Leads to Policyholder Attorney Hail Marys

Texas Law360
November 5, 2018

By G. Brian Odom and Raven M. Atchison
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Despite vehement opposition from policyholder attorneys, HB1774/SB10, commonly known as the “hail bill,” came into effect Sept. 1, 2017. The hail bill amended the Texas Insurance Code by adding a new Chapter 542A applicable to first-party property insurance claims involving “forces of nature.” The intent of the legislation was to minimize abuses in weather-related litigation and promote early resolution of legitimate disputes, without affecting the protection afforded to policyholders for improper claim denials.

Even before the hail bill’s effective date, there were efforts by policyholder attorneys to skirt its application. This first involved an “emptying of the lawsuit coffers” in August 2017, just prior to the legislation’s Sept. 1 effective date. Specifically, in August 2017, Texas saw a staggering 1,553 new weather-related lawsuits filed across Texas in that month alone.[1] The filing of these lawsuits was a clear effort to avoid the requirements of Chapter 542A. Some lawyers even filed Hurricane Harvey lawsuits, despite the fact that the claims hadn’t even been adjusted yet.[2]

Not surprisingly, the following month the number of new lawsuits dropped dramatically.

Now that Chapter 542A is the law, policyholder attorneys have gotten creative in their efforts to avoid the legislation’s clear provisions and objectives.

A major component of the hail bill was its inclusion of changes to pre-suit notice requirements. Under the new legislation, an insured must provide written, pre-suit notice to the insurance carrier at least 60 days prior to filing a lawsuit or else be subject to penalties. The mandated notice must include “the specific amount alleged to be owed by the insurer on the claim for damage to or loss of a covered property,” and “the amount of reasonable attorney’s fees” incurred up to the date of the notice.[3] The clear legislative intent behind this notice requirement was to require the insured to tell the insurance company what it believes should have been paid on the claim and allow for the award of reasonable attorneys’ fees. Obviously, the objective of this requirement is to promote early settlement of disputes for the benefit of the insured. A recent Northern District of Texas decision noted that if proper pre-suit notice requirements were not satisfied, the purpose of the statute would be frustrated.[4]

Unfortunately, some storm-chasing policyholder lawyers appear more interested in increasing their recovery of attorneys’ fees than protecting the interests of their clients. These policyholder attorneys are taking the position that even when the insurance company pays the specific amount alleged to be owed and attorneys’ fees in response to a pre-suit notice letter, the dispute is not resolved. Yes, even when the insurance company pays the specific amount alleged to be owed, the storm-chasing lawyers still file suit and argue that additional amounts (unspecified in the notice letter) remain payable.

A simple example illustrates the absurdity of this argument. Chapter 542A limits attorneys’ fees if the pre-suit demand figure is excessive compared to actual damages recovered at trial. If the pre-suit notice letter sets forth a demand of $100,000, and the verdict at trial is less than $20,000, no attorneys’ fees are recoverable. If the specific amount alleged to be owed stated in the pre-suit notice letter cannot be tendered in full resolution of the dispute, then every pre-suit notice letter might as well simply state “$1.00” as the specific amount alleged to be owed. The insurance company can tender it, the storm chasing lawyer can reject the payment (then arguing for a payment of an amount not specified in the notice letter), and the lawyer may fully recover attorneys’ fees at trial.

That can’t be right.

And of course it isn’t. The only reasonable interpretation of the legislation as a whole is that it was intended to allow insurance companies to make pre-suit payment of the specific amount of unpaid damages and attorneys’ fees in full and final resolution of the dispute. The insured is protected as the dispute is resolved without the need for litigation. The only issue to be decided is whether the policyholder attorney working on a contingency fee basis charges the insured only the hourly value of their work, as provided by statute, or still takes a contingency fee percentage of the entire payment amount.

It remains to be seen how the courts will interpret this component of Chapter 542A — protecting insureds by promoting early resolution of disputes or protecting policyholder attorney contingency fee agreements.

Another interesting effort to avoid the effect of Chapter 542A involves the situation where the policyholder attorney fails to provide the required statutory notice prior to filing a lawsuit.[5] This issue arose recently in a case originally filed in state court and later removed to federal court. Despite the petition being filed in November 2017, subsequent to the effective date of the hail bill, the insured failed to comply with the pre-suit notice requirements of Section 542A.003(b).[6] The failure to provide the required pre-suit notice resulted in a complete bar on the recovery of attorneys’ fees.

To avoid this bar, nearly eight months after the case was removed to federal court, the insured filed a motion to dismiss its lawsuit without prejudice.[7] The insurance company filed a response, opposing the dismissal on the ground that it would allow plaintiff to simply refile the lawsuit and avoid the bar on attorneys’ fees, causing prejudice to insurance company.[8]

The insured offered several reasons to explain its decision to seek dismissal, one of which was to provide the statutory notice required by Sections 542 and 542A of the Texas Insurance Code.[9] The insured attempted to convince the court to grant its motion to dismiss on the premise that the pre-suit statutory notice would allow the parties a 60-day window to resolve the claim.[10]

The court saw right through the ploy.

The court held that denial of the insured’s motion to dismiss without prejudice was warranted on several grounds.[11] By the time the motion to dismiss was filed, the parties had conducted discovery and filed multiple motions, including the insurer’s motion for summary judgment, which was denied by the court.[12] Further, the insurer had incurred expenses in defending the action and the insured had failed to efficiently and diligently prosecute its claim.[13] Finally, and most significantly, the insured failed to take necessary steps to avoid a cap on its recovery of attorneys’ fees, which had become evident by the filing of its motion for reconsideration on the subject.[14]

Ultimately, it was obvious to the court that the insured and its counsel were simply seeking a do-over in order to avoid the effects of the hail bill concerning recoverable attorneys’ fees. The court saw the “real reason for the proposed dismissal” as the insured’s “desire to pursue their case without a cap on attorneys' fees.”[15] The insured’s Hail Mary failed, and rightly so, as an insured cannot simply ignore the notice requirements of Chapter 542A and then subsequently argue to correct their error by dismissing the case and starting over.

With the anticipated wave of litigation involving Hurricane Harvey disputes, it is likely there will be more creativity as storm-chasing lawyers look for other loopholes to circumvent the requirements and legislative intent of Chapter 542A. But thus far it is encouraging to see courts recognizing the clear intent of the legislation — to promote early resolution of disputed weather- related insurance claims for the benefit of Texas property owners.

Brian Odom is a partner and Raven M. Atchison is a senior associate at Zelle LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Lee Parsley, TLR General Counsel, HB 1774: Where Are We Now?, TLR Advocate, Spring 2018

[2] Denise Johnson, First Harvey Lawsuit Filed to Beat to Beat New Texas Tort Reform Law, Insurance Journal, September 6, 2017.

[3] Tex. Ins. Code § 542A.003(b)(2)-(3); Perrett v. Allstate Ins. Co., No. 4:18-cv-01386, 2018 WL 2864132, at *1 (S.D. Tex. June 11, 2018).

[4] Carrizales v. State Farm Lloyds, 2018 WL 1697584, *4 (N.D. Tex. April 6, 2018).

[5] Sanchez v. Safeco Insurance of Indiana, 2018 WL 4185523 (E.D. Tex. August 31, 2018).

[6] Id at *2. 

[7] Id. at *1.

[8] Id.

[9] Id at *2. 

[10] Id.

[11] Id

[12] Id at *1. 

[13] Id at *2.

[14] Id.

[15] Id.

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