Late Thursday afternoon, a Dallas law firm filed a lawsuit to circumvent a new law that went into effect on Friday, September 1.
The newly passed law, HB1774, was meant to curb hail lawsuit abuse, but after Hurricane Harvey some industry representatives raised concerns that plaintiff attorneys might use the tropical storm as a way to overwhelm carriers with damage claims.
In the complaint, Sunbelt Trees, LLC v. EMC Insurance Companies and Employers Mutual Casualty Company, the plaintiff alleges damage ranging between $200,000-$1,000,000 and loss of use of its tree farm due to Hurricane Harvey and states that while a claim was filed with the defendants, no payment had been made as of the date the lawsuit was filed. In addition, the plaintiff seeks pre-judgment interest, punitive damages and attorneys’ fees.
According to Steven Badger, a partner with Zelle LLP’s Dallas office, there is absolutely no reason that a Hurricane Harvey lawsuit should have been filed prior to September 1st.
“The insurance company hasn’t even adjusted the claim yet,” said Badger. “How could it have breached the insurance policy? How could it have violated the Insurance Code or DTPA? Obviously, it hasn’t.”
Badger added that because the allegations in the lawsuit are baseless, sanctions should be considered for filing a frivolous action.
A vocal advocate against hail lawsuit abuses, Badger isn’t the only one questioning the validity of the premature lawsuit filing.
Two Houston law firms, experienced in representing policyholders in first-party insurance lawsuits, issued a joint statement over the weekend questioning the validity of the lawsuit and others that may be filed early in the claims process.
Jeff Raizner of Raizner Slania and Rene Sigman of Merlin Law Group, both of whom served as plaintiffs’ co-liaison counsel during the Hurricane Ike litigation, stated “although we are unaware of the specific circumstances, a lawsuit this early in the insurance claims process is unfortunate. These folks very well may have a valid insurance claim, but their claim may be compromised by filing a lawsuit this early before the regular insurance claim process has even had a chance to work. We strongly encourage all Texas policyholders and the insurance industry to work together to help our community recover and rebuild. A lawsuit should be the last resort, and everyone’s priorities need to be in the right place.”
According to Badger, the “plaintiff’s perceived need to file a lawsuit prior to September 1st is indicative of the misinformation out there about HB1774.”
Filing suit prior to the September 1 deadline does allow the plaintiff to avoid a new requirement that an insured must provide pre-suit notice of a dispute and submit a detailed estimate of damages, he explained.
“This requirement was intended to encourage the resolution of disputes before lawsuits were filed by requiring attorneys to provide real damage calculations, as opposed to the grossly inflated estimates that are now being submitted,” said Badger. “And even under this provision, only the lawyer’s ability to recover attorneys’ fees is at stake and not the ability of the insured to recover unpaid policy benefits.”
Badger also pointed out that the plaintiff did not sue the claims adjuster.
“As a result, the provision in HB1774 allowing the insurance company to assume the adjuster’s responsibility would have no effect on this matter,” Badger said.
Though filing suit prior to the September 1 deadline does allow for a higher statutory penalty interest rate, according to Badger, this offers no advantage to a policyholder.
Opponents of HB1774 argue that it is unfair to policyholders. Badger says that’s just not so.
“Let’s be factual here. HB1774 only deals with litigation issues and not the claims process. Policyholders themselves will not be sending pre-lawsuit notice letters or filing lawsuits. Lawyers will. One would hope that policyholder lawyers intending to file Harvey lawsuits have the ability to read the legislation and understand that all they need to do is give pre-lawsuit notice setting forth an accurate statement of damages and their reasonable and necessary attorneys’ fees. That’s it,” said Badger. “It’s pretty simple. There are no traps or gotchas for competent and experienced lawyers. Those lawyers who find the legislation too much for them to comprehend ought to consider a different line of work involving less reading and critical thinking.”
He added that some lawyers have suggested that two emergency orders issued by the Texas Supreme Court have extended the effective date of HB1774.
“If that’s the case, I should tell my kids that the ban on texting and driving that went into effect on September 1st is also extended. The two Orders issued by the Supreme Court of Texas only address procedural deadlines in pending lawsuits and statutes of limitations to file new lawsuits, extending such deadlines by up to 30 days. The Orders have nothing to do with the effective date of new legislation. Only a constitutional challenge to the law could impact its effective date,” Badger explained. “But even more importantly, even with this 30-day extension, I can’t imagine a situation where a lawsuit would be appropriate given that the Texas Insurance Code allows insurance companies 30 days to first acknowledge a claim in a designated catastrophe. Again, like the lawsuit filed in Dallas, the insurance companies could not have possibly done anything wrong during this initial 30-day period.”
According to Badger, an increasing number of Texas insurance claims are first reported by lawyers.
“That amazes me. After these lawyers reporting the claim take their 40 percent of the undisputed claim payments, the building owners don’t have enough money left to repair their damages. That’s shameful,” Badger said.
He added that the claims process should go back to the way it used to be, when a building owner reported a claim to the insurance carrier and the insurer was given an opportunity to adjust and settle a claim. Even if an insured needs assistance with a claim, an attorney should be the last resort, he said.
“If a building owner believes it needs help putting its claim together, the building owner can contact a qualified and licensed public insurance adjuster,” said Badger. Reputable public insurance adjusters will evaluate the scope of damage, prepare a real estimate to repair the damage, evaluate coverage, and work cooperatively with the insurance company in getting the claim resolved. We should allow that process to play out. Lawyer involvement should be the last step in the process, not the first.”