Texas House Bill 1774 went into effect on Sept.1. Sponsored by 86 Republicans and one Democrat representative, it was presented by its author, Rep. Greg Bonnen (R-Texas), as an attempt to crack down on frivolous lawsuits in a response to increasing rates of litigation since 2012.
The bill institutes a 61-day, pre-lawsuit notice and makes money given to cover attorney fees conditional on how accurately homeowners estimate costs of damages. It reduces the penalty on insurers for making late payouts based on a market formula. As of Sept. 1, the formula decreased the penalty for insurance companies that do not make timely payouts, from 18 percent to 10 percent.
Texas House Bill 1774 was, perhaps, quite tactlessly signed by Texas Republican Governor Greg Abbott shortly before hurricane season. Now, it’s led to fear spreading rapidly about what the law would mean for homeowners affected by Hurricane Harvey. Defenders of the bill, such as Gov. Abbott and David Sampson — president and CEO of the private insurance lobbyist group Property Casualty Insurers Association of America — claim that the law will save homeowners money. This will be accomplished, they say, by allowing insurers to generously pass the money saved on litigation fees down to policyholders by lowering premiums.
They also blame “bad actors” in the trial lawyer community for spreading baseless fears that the law will make it difficult for policyholders to get what they are owed.
Abbot lashed out against detractors who fear the law will undermine consumer rights: “Any claims along those lines are absolutely bogus. The implementation of this bill does not affect the ability of any policyholder to be able to file a claim or have that claim paid.”
Sampson wrote that the claims are “inappropriate scare tactics that are trying to capitalize on a time of widespread pain and misfortune following one of the worst natural disasters in decades.”
Both argue that the law does not apply to the vast majority of policyholders whose insurance does not cover flooding or have policies with the National Flood Insurance Program. They add that most hurricane-related claims are settled in a timely fashion and without litigation.
Defenders of the bill make it clear by their actions that those who do purchase flood insurance, as well as those legitimately victimized by the insurance industry, are collateral damage for their stated goal of combatting frivolous lawsuits.
As the losses in human life and property damage continue to mount in Texas, time will tell if insurers will use the money they save through reduced legal actions to give back to policyholders. But it’s apparent that consumers do not share the faith in private insurers that their representatives espouse.
Supporters of the bill are reluctant to address ways in which the bill could potentially increase the rate of late payouts. Unlike insurers, consumers do not have time on their side. Destroyed homes, shattered lives, homelessness, displacement, water-borne illnesses and other results of the horrific damage represent an immediate crisis to people’s well-being.
Insurers, conversely, are motivated to wait as long as possible to reduce policyholders’ bargaining power. This is the reason an interest penalty existed in the first place: the cost of penalty must counteract the bargaining power an insurer gains delaying payment. A change in law that nearly halves this penalty significantly reduces incentives for paying in a timely fashion. They can simply wait and stomach the interest penalty if they believe a policyholder can be coerced into giving up more than the penalty will cost them.
As special interests and “corporate welfare” come under fire from critics from all over the political spectrum, echoing the hollow words of industry lobby leaders is not a good look for elected leaders like Gov. Abbot. While Texas House Bill 1774 may have the unequivocal backing of corporate lobbyists like Sampson, is sure to remain unpopular amongst the consumers and constituents it expects to pay the price — long after the Harvey has passed.