Texas Attorney General Ken Paxton and lawyers representing large and midsized businesses in the state are providing contradictory information about a new law governing people’s rights to legally challenge insurance companies decision in paying property owners in storm-related losses.
Paxton claims lawyers are deliberately providing misinformation about the new law, which goes into effect Sept. 1. He says business owners and homeowners will still have all the protections and rights under the new statute.
Business lawyers say that is simply untrue and that the new law, called HB 1774, clearly limits the ability of victims of Hurricane Harvey to legally challenge insurance companies that do not fully and fairly compensate property owners for their storm-related losses.
Paxton’s public statement, which was forwarded to The Texas Lawbook by a concerned and baffled corporate in-house counsel of a major convenience store chain, states, “Texas policyholders will continue to have strong remedies against insurance companies, whether claims are filed before September 1 or after September 1.”
In separate interviews, the general counsel of three different companies told The Texas Lawbook that they are disappointed in Paxton’s comments and would like to see the implementation of the law delayed due to the property damage claims that will result from Hurricane Harvey and the subsequent flooding.
“The law clearly limits the rights of our company, our franchise owners and our employees to have our day in court if the insurance companies mistreat us,” an in-house lawyer for a convenience store company told The Texas Lawbook.
“The attorney general had a choice here: stand up for the best interest of tens-of-thousands of citizens devastated by the damages done by the floods in South Texas or stand up for the insurance companies,” said the corporate lawyer, who spoke on the condition of anonymity for fear of retribution by the attorney general’s office.
Paxton, in a release issued Thursday, said HB 1774, “does not change the claim filing process or the time lines for filing claims.”
But legal experts who represent dozens of Texas businesses say Paxton’s statement is misleading. They agree that the time requirements for filing a claim with the insurance companies does not change, but that those who file after the new law takes effect have fewer rights and abilities to challenge the insurance companies if the insurance companies deny the claims, pay an insufficient amount on the claims or significantly delay any payments.
More than a dozen of the largest corporate law firms – including Akin Gump, Thompson & Knight and Vinson & Elkins – sent warnings this week to clients that appear to directly contradict Paxton’s statements – or point out concerns with the new law that Paxton declined to address.
Despite Paxton’s statement, the corporate law firms encourage their business clients to file their property claims before the new law takes effect in order to preserve their rights.
Thompson & Knight, in a memo to business clients, states the new law “limits the rights of the insured” and “imposes new restrictions on claims against insurance companies for failing to cover or failing to adequately cover flood, hurricane, wind or rainstorm damage.”
Akin Gump’s memo instructs clients to “report claims for all property damage, including those caused by Hurricane Harvey, by no later than August 31, 2017, in order to avail themselves of the opportunity for an 18 percent interest recovery on any litigated late-paid claims.”
Haynes and Boone partner Ernest Martin Jr., a business insurance expert who knows as much about the law as any lawyer in Texas, told The Texas Lawbook in an interview Monday that many victims of property damage from Hurricane Harvey and the subsequent floods will be negatively impacted by the new law.
“Businesses with commercial buildings – apartment complexes, hotels, hospitals, convenience stores – are all potentially impacted by this law and they have lost a hammer that they once could have used against the insurance companies,” said Martin, who was interviewed days before Attorney General Paxton issued his statement.
Martin and other lawyers agree that there are going to be many Texas business owners who will soon regret not standing up and opposing this law during the past legislative session.
“Designed to curb the exploitation of storm victims and insurance companies by the plaintiff’s bar, the new law significantly undercuts incentives for insurers to act responsibly, while making it more difficult for policyholders to hold insurers accountable for improper delays and failing to pay claims,” according to Dallas insurance law expert Amy Stewart, who issued a white paper on the new law Monday.
Stewart says the new law restricts a policyholders’ ability to sue its insurer in three ways.
“First, it requires pre-suit notice of any claim, with enhanced consequences for noncompliance,” she says. “Second, it limits a policyholder’s ability to bring suit against an insurer’s agent by allowing the insurer to elect to take responsibility for its agent.
“Finally, the law limits a policyholder’s ability to recover its attorney’s fees for prosecuting such a claim and reduces the interest recoverable in connection with delayed payments,” Stewart says.