Insurance. It touches everything you do as a lawyer and, frankly, as a member of the human race.
Insurance suffuses the entire scope of human endeavor: personal, business, private, public and corporate. You purchase it to cover your home, your practice, your car, your body and your vacations. When a business client suffers a loss, you look to insurance (either theirs or a third party’s) to fund recovery for those losses, be they tort- or contract-related.
Insurance accounts for more than seven percent of the world economy. In the United States, net insurance premiums in 2021 totaled $1.4 trillion; somewhat shockingly, given the press devoted to health coverage, property and casualty lines account for 53 percent of that sum. Almost three million people work in the insurance industry, with more than 1.6 million employed directly by insurance companies.
No wonder insurance companies hold such enormous sway over political processes and legislation. And this phenomenon is by no means new. One can make a compelling argument that the very founding of our country was shaped in no small measure by insurance companies. Those interested in a deep analysis of the role insurance played in the transition from British colonies to independent nation should read Underwriters of the United States by Hannah Farber.
Even as our nascent country was being organized, the lex mercatoria, or “law of merchants,” an informal but “revered body of rules, customs, and best practices” central to marine and other insurance contracts of the 18th century, dictated the ground rules for conducting business in the colonies-become-states. Even “relentless centralizer Alexander Hamilton,” Farber wrote, “had the federal republic fixed in his sights but the ‘laws of merchants’ in his back pocket.”
Farber’s assertion that “[i]nsurer’s abilities to intervene in political and legal affairs both at home and abroad were essential to their continued success” is as valid today — and perhaps more so — than 250 years ago. Second only to the pharmaceutical industry in money spent on lobbyists, according to reports, the insurance industry laid out $153 million to influence lawmakers in the U.S. in 2021 and $160 million in 2022.
Think for a moment how crucial insurance, in general, and the claim process, in particular, is to the smooth functioning of every Texas business. If you run a business in Texas, you depend upon insurance to protect you against everything from lawsuits to hail damage to your roof.
When life happens, and your (or your client’s) business is harmed by something you bought insurance to cover, you have reasonable expectations for how the insurance company should act when it is put on notice of the loss. You expect it to treat you fairly, look out for your best interests and live up to the obligations it assumed when it issued your policy. If it fails to meet any of those expectations, the business suffers, over and above the damage experienced to trigger the claim process in the first place.
Texas has a reputation for — indeed, prides itself on — being a business-friendly state. Politicians from the governor to city council members tout the “Texas Miracle” and brag that the state so values its businesses that no other state in the country is as accommodating to the entrepreneurial spirit.
It’s ironic, then, that the Legislature and the courts have consistently chipped away at the rights of Texas businesses vis-à-vis insurance carriers for the past decade or so, making dashed expectations the norm in business/insurance industry relations.
Perhaps all the money the insurance industry spends supporting political campaigns and lobbying elected officials plays a role. Could another factor be that the vast majority of insurance companies operating in Texas are foreign corporations — operating under special rules not bestowed upon Texas-based businesses?
According to the National Association of Insurance Commissioners report, State of Insurance Regulation in Texas: Key Facts and Market Trends, in 2021, 2,040 insurance companies were doing business in Texas (excluding captive carriers).
How many of the more than 2,000 companies were domestic?
Only 412.
Does conducting your affairs in the state of your domicile provide some concern for the welfare of the local business community? Perhaps, perhaps not. In any event, nearly 80 percent of insurance carriers writing policies in Texas would have no way of knowing. They do not fit that description.
Many foreign insurance carriers are adept at manipulating the Texas system. They often force insureds into litigation and then time their payments to restrict the remedies available to policyholders. When chances are good that critical legal issues may be decided against their position, they settle claims at the last minute, depriving appellate courts of jurisdiction to render adverse opinions.
There can be no mistake that in the continuing struggle to foster a flourishing commercial environment in Texas, recent legislation and certain court decisions weigh against Texas businesses and in favor of foreign insurance companies. In our next Texas Lawbook article, we’ll examine some specific legislation in which lawmakers dealt a losing hand to the Texas business community.
Marc Gravely is the founder of Gravely PC, a Texas-based firm devoted to insurance claim and construction defect disputes on behalf of businesses, homeowners associations and related organizations, and governmental entities.
