2_22_17 Analysis of SB10 (HB 1774) as Filed_FINAL

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Analysis of SB10 (HB 1774) as Filed Texas Legislature 2017
  2/22/17 Leg. Adv. Paid For By The Texas Trial Lawyers Association, John L. (Lin) McCraw, III, President 1220 Colorado, Ste. 500, Austin, TX 78701 SB 10 AND HB 1774 ~ BAD FOR BUSINESS ~ BAD FOR TEXAS This is not a HAIL BILL SB10 and HB1774 apply to all claims “related” to industrial, commercial, or residential property damage including not only the damage to property but also the loss of use or business interruption caused by property damage. Sections 1-5 of the bill apply to   ALL first party claims in ALL lines of insurance - health, life, disability, property, liability, and any other first party claim. The Bill: ã    Affects all first party insurance claims – not just hail. ã   Gives immunity to insurance agents and adjusters, regardless of their conduct. ã   Requires policyholders to choose between the Insurance Code or the DTPA before   the opportunity to discover and fully evaluate the insurer’s wrongdoing. ã   Forces most business insurance disputes into federal court, adding significant delays and costs to any resolution of their claim. ã   Rewards “slow-pay” tactics by slashing penalties for unfair claims practices on all insurance claims including health, life, disability, property, liability, business, and any other first party insurance. ã   Disproportionately impacts Texas businesses, especially since it would apply to business interruption and loss of use claims “relating to” property damage. ã   Imposes additional “gotcha” notice requirements before an insured can seek a remedy in court, delaying claim filing and increasing out-of-pocket costs. ã   Creates an inspection process that allows an insurance company to delay adjusting the claim and forces policyholders to live with their damaged property while they wait for the inspection process to finish. ã   Prevents policyholders from being made whole by reducing their recovery of attorney’s fees. ã   Deprives policyholders of legal counsel by creating conflicts in representation and assigning to insurers a client’s barratry claim against their own attorney.    BILL   ANALYSIS S ECTIONS 1   &   2 ã   Protects Insurance Companies   from DTPA Liability.   Texas businesses and consumers would have to choose between filing their case either under the Insurance Code or the DTPA. Today, the two acts work together, overlapping to provide businesses and consumers with the ability to hold insurers accountable for their wrongdoing in whatever form. Texas law has always recognized alternative remedies. The plaintiff does not get to collect twice, but is allowed to fully discover the case, present the evidence and allow the jury to decide. This bill makes the policyholder choose before seeing the evidence and exposes the lawyer to malpractice if the wrong choice is made. Why are insurance companies entitled to this new form of immunity and given special privileges under the law while consumers and their counsel are forced to consult a crystal ball and wished “good luck?” S ECTION 3 Conforming change. S ECTION 4 ã   Creates More Litigation by Ignoring Current, Clear Guidelines Under Texas law today, there are guidelines in the Insurance Code that the companies have to follow and clear deadlines they must meet with extensions of time built in for the insurance company. These guidelines have worked well for businesses, consumers, and insurance companies for decades. Under this bill, those guidelines are ignored and the vague term “delays payment” is substituted. This change will create more litigation as insurance companies argue about what “delay” really means. What if payment was denied (not delayed) entirely by the insurance company? The bill fundamentally changes the law on what it means to “delay” payment and shifts the focus from bad faith conduct to counting days on a calendar. S ECTION 5 ã   Eliminates Penalty Certainty on Money Wrongfully Withheld on a Claim.   The bill seeks to reward insurance companies when they delay payments on ANY first party claim – on all lines of insurance, including life, health, disability, property, liability,    business, and any other type of first party insurance. Instead of the certainty of an 18% penalty for wrongful conduct, insurance companies can now make a “cost of business” decision with a dramatically reduced penalty. REMEMBER, if an insurance company pays a claim fairly, they NEVER pay a dime of interest penalty. This section of the bill makes it cheaper to underpay claims by reducing the penalty rate from a fixed and certain 18% to an adjusted rate (currently 8%). S ECTION 6 ã   542A.006 - Immunizes agents, adjusters and claims managers from liability no matter how egregious their conduct. The bill grants every insurance representative immunity no matter how outrageous their conduct – an agent lying about policy benefits - an adjuster low balling or unfairly denying a claim – outright fraud by an investigator. Insurance companies act through their adjusters and agents. When these individuals are a party to the lawsuit, they can be deposed in the county where the suit is filed. They can be required to respond to discovery. They are often the real culprits in cases where a business or consumer is not treated right. Under Texas law today, people in the insurance industry, just like all Texans, are responsible for their own acts and can be held accountable for them 1 . The insurers say they will pay what the agent or adjuster would owe but if you CANNOT sue the party then a jury CANNOT assign liability to that party. The bill would statutorily create an “empty chair.” ã   Federal court forum-shopping for foreign insurance companies at the expense of Texas businesses and consumers. This bill sacrifices the interest of Texas businesses and individuals by letting foreign    insurers   “forum shop” and requires cases to be brought in the insurers’ favorite forum – federal court – where civil cases face delays. Texas businesses and individuals are stripped of their right to seek justice under Texas law in a Texas court against Texas wrongdoers. Business claims will be disproportionately affected since the amount at stake always exceeds the federal court minimum of $75,000. Texas businesses and homeowners will now be forced to federal court –   at the whim of the foreign insurer.  The threat of a jury trial encourages insurers to pay valid claims. Most state court cases are resolved within 12 months. 2  Federal courts take almost twice that long to get to trial – 22 months. 3  Delay is the friend of insurers BUT the death of policyholders who have suffered a loss can’t afford to repair their home or get their business up and running. 1  Tex. Ins. Code §541.151 2  http://www.txcourts.gov/media/1436989/annual-statistical-report-for-the-texas-judiciary-fy-2016.pdf   3  http://www.uscourts.gov/sites/default/files/data_tables/stfj_c5_630.2016.pdf      ã   542A.003 – New and Burdensome Notice Requirements for All Property Damage Claims. The law today already requires anyone making a property damage insurance claim to provide notice, in writing, of their claim to the insurance company. 4  If the business owner or consumer is unhappy with the insurance company’s offer and decides to pursue a lawsuit, Texas law now requires a second notice which provides the basis for the claim, the amount of money the insured wants for the claim, and the amount of attorney’s fees they are seeking. The insurance company has 60 days to respond. 5  If the claim is frivolous, the court is required to award the insurance company its costs and attorney’s fees. 6  The bill adds a whole new set of obstacles in the notice requirement. Any agent, adjuster, claims manager, or other insurance employee who has any responsibility for the “bad faith” property damage claim must be identified in the notice. The policyholder must not only identify the amount of attorney’s fees “incurred” but requires a specific hourly calculation of the amount without regard to the contract provisions of the attorney-client agreement. Under the bill, the pre-suit, pre-discovery notice letter can be introduced into evidence in contrast to ALL other “settlement communications” and used to attack witnesses or cast doubt on the policyholder’s claim despite evidence discovered in pursuit of the claim or the insurer’s claim handling conduct. Existing law places the burden of investigation on the insurance company, not the insured. 7  This bill turns that law upside down while invading the attorney-client relationship and the constitutional right of parties to contract. ã   542A.005 - Insurance company has an unrestricted right to inspect, sample or test the property while the business or consumer awaits the outcome. Today, any party can request inspection as part of the discovery in a lawsuit and if the parties cannot agree on the specifics of the inspection either party can ask the court to decide. 8  This established and time-tested procedure would now be replaced with a process designed to delay litigation and increase costs. First, the inspection comes between the notice and the lawsuit. So if a business has a damaged roof or a burned out building, it must wait for the insurance company to complete its inspection. If the consumer objects to the inspection, the bill says the court must decide. How? There is no lawsuit until the requested inspection is completed. If a motion for protection can be filed without a supporting lawsuit, then we are simply adding additional layers of litigation. Finally, if the court grants the insurance company’s request, it need do nothing more than sign an order but should the court have the temerity to rule against the insurer and denies the 4  Tex. Ins. Code §542.051, 542.055 5  Tex. Ins. Code §541.154 6  Tex. Ins. Code §541.153 7  Tex. Ins. Code §541.060 8  Tex. R. Civ. Proc. 196
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