2/22/17

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:

Affects all first party insurance claims not just hail.

Gives immunity to insurance agents and adjusters, regardless of their conduct.

Requires policyholders to choose between the Insurance Code or the DTPA

before the opportunity to discover and fully evaluate the insurers wrongdoing.

Forces most business insurance disputes into federal court, adding significant
delays and costs to any resolution of their claim.

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.

Disproportionately impacts Texas businesses, especially since it would apply to

business interruption and loss of use claims relating to property damage.

Imposes additional gotcha notice requirements before an insured can seek a

remedy in court, delaying claim filing and increasing out-of-pocket costs.

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.

Prevents policyholders from being made whole by reducing their recovery of

attorneys fees.

Deprives policyholders of legal counsel by creating conflicts in representation

and assigning to insurers a clients barratry claim against their own attorney.

Leg. Adv. Paid For By The Texas Trial Lawyers Association, John L. (Lin) McCraw, III, President
1220 Colorado, Ste. 500, Austin, TX 78701
 BILL ANALYSIS

SECTIONS 1 & 2

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?

SECTION 3

Conforming change.

SECTION 4

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.

SECTION 5

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%).

SECTION 6

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.

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 cant 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
 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 companys 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 attorneys 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 attorneys 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 attorneys 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 policyholders claim despite evidence discovered in pursuit
of the claim or the insurers 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.

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 companys 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
insurance companys request for inspection, a detailed finding of fact in the order is
required.

The Bill Prevents Policyholders from Being Made Whole.

Throughout, the bill seeks to interfere with the attorney-client relationship or deny the
policyholder the right to recover the reasonable and necessary attorneys fees incurred in
the pursuit of the matter.

Sec. 542A.003 The Texas Supreme Court has held that there are eight factors to
consider when a court awards attorneys fees to the other side. 9 This bill gets rid of
all but one and creates numerous points of uncertainty and potential conflict over
the recovery of attorneys fees. Today, a business or consumer seeking attorneys
fees has the burden to prove their attorneys fees are reasonable and necessary. The
additional notice provision requires that the amount of reasonable and necessary
attorneys fees incurred by the claimant be calculated not in relationship to the
attorney-client representation agreement, but hourly not at any contractually
agreed hourly rate but at some customary hourly rate for the same or similar
legal services.

The bill seeks to directly interfere with the attorney-client relationship and to deny
policyholders access to legal counsel when they cant afford to pay fixed hourly
rates.

Sec 542A.007 The trial court may only award attorneys fees on the lesser of (1)
reasonable and necessary attorneys fees determined by the trier of fact, (2) an
amount of attorneys fees awarded under any other law; or (3) an entirely new
method and manner of calculating attorneys fees that involves multiple
calculations and high/low outcomes designed to create uncertainty and conflict
between policyholders, their lawyers and the payment of and recovery of attorneys
fees.

Said most simply, if the policyholder and his attorney fail to guess within 20% of the
amount ultimately awarded by the jury, they will not be allowed to recover their full
attorneys fees.

Sec. 542A.007(d) Assigns a policyholders theoretical claim for barratry under

Section 38.12, Penal Code to the insurance company. Under the bill, the insurer is
granted the right to plead barratry as an affirmative defense and allowed discovery
covered by the attorney-client privilege, depose the trial attorney and actually try
the barratry case concurrently with the trial of the policyholders claim for damages.
Even if the original attorney is conflicted out of the case by these allegations, the
trial court may not award attorneys fees to the claimant if the underlying
allegations (affirmative defense) are proved against the former attorney.

9
Arthur Andersen & Co. v. Perry Equip. Co., 945 S.W.2d 812 (Tex.1997).
 This legislative body has been justifiably tough on barratry passing both civil and
criminal penalties against this despicable practice. Law firms have been shut down;
public adjusters have been curtailed. But, this bill does something different. It gives
the insurance companies the policyholders cause of action for barratry as a tool to
punish legitimate businesses and citizens by denying them the right to be made
whole. Every case will become two. While the business or consumer is attempting to
get fair treatment on their claim, the insurance company will be digging through
their relationship with their attorney or former attorney, hoping for dirt. The
sanctity of the attorney/client relationship is compromised and a claim, if it exists,
that belongs to the client becomes the effective property and advantage of their
insurance company.

Sec. 542A.007(e) Provides one last blow to the policyholders right to be made whole
and the attorney-client relationship. In a case where the policyholder did not
provide the additional notice provided for in Sec. 542A.003, or perhaps just
insufficient notice under that provision, the Court may not award the policyholder
attorneys fees following a Notice of Intent to seek disallowance of Fees. This final
insult would result even after the failure to pursue such notice has been remedied
by abatement of the action pursuant to Sec. 542A.004 and the filing of a compliant
notice under Sec. 542A.003.

The inherent unfairness and true intent of the bill can readily be seen in the fact that
none of the onerous responsibilities or penalties placed upon policyholders are applied to
insurers. In fact, not one single new obligation or responsibility in favor of policyholders is
contained within the twelve pages of revisions and additions. There are no limits placed on
the fees charged by defense lawyers, no good faith requirements of communications and
conduct in the relationship between insurers and their legal counsel nor any penalty
whatsoever for pursuing their new found rights under these provisions in bad faith.

Despite any claims to the contrary, the bill fails to do anything to separate good claims
from the alleged bad claims. Rather, it does all policyholders industrial, commercial, and
residential an extreme disservice.