This article was originally published on the Houston Chronicle.
Texas law is supposed to protect policyholders from the unequal bargaining power of insurance companies. Traditionally, insurers who failed to settle property insurance claims fairly and promptly were subject to penalties for bad faith, delays, attorney fees and interest. These penalties were designed to prevent big insurance companies from cheating consumers. Those protections are now under siege.
A growing number of Texas judges are gutting these consumer protections by treating eleventh-hour property appraisals as a kind of get-out-of-jail-free card. Faced with insurers who lowball claim settlements or delay payments for months or years, these judges don’t force the insurers to pay any penalties so long as the insurer invokes and pays a last-minute appraisal of the original damage claims.
This judicial trend completely reverses the protections in Texas law. Insurers who used to be punished for not paying claims fairly and timely now are incentivized to lowball and drag out claims — knowing that many policyholders can’t afford to pay lawyers, adjusters and engineers to defend their rights. When policyholders do pay such professionals to press a case to trial, the insurance company uses the last-minute-appraisal game to wiggle off the hook for any penalties. Insurers now have everything to gain and nothing to lose by failing to pay legitimate claims. They have been emboldened to the point where they’ll even gouge a church.
One insurer stiffed Richardson East Baptist Church after a Dallas hail storm ruined the church’s roofs in 2013. The insurer’s representatives, claiming the roofs only required spot repairs, repeatedly put the damages at a third or less of the $32,713 that a roofing company quoted the church for replacing the roofs. Subtracting a $2,500 deductible, the insurer sent Pastor Wayne Lewis a $7,942 check. The church hired its own adjuster, who put the cost at $36,373. The insurer wouldn’t budge. Seven months after the storm, the church filed a lawsuit. Days thereafter, the insurer demanded an appraisal. Mirroring the original roofer’s estimate, two appraisers agreed that the roofs needed replacement, setting the damages at $30,175. The insurer paid the appraisal award, doubling its pre-suit claim payment. Though the church had to pay a slew of professionals to make the insurer honor its policy, a state district judge and an intermediate appeals court ruled that the insurer’s last-minute appraisal payment absolved it of any other liability for stringing out the church’s claim.
Reversing longstanding legal protections, this and similar cases invite insurers to stall and lowball claims unless — and until — they’re on the verge of trial. The Texas Supreme Court is now considering hearing the church’s appeal of this case. This appeal could give the state’s highest court an opportunity to resurrect longstanding consumer protections for property-owning consumers and businesses. Meanwhile, Lt. Gov. Dan Patrick includes curbing “hailstorm lawsuit abuse” on his top-10 list for the 2017 legislative session. Patrick’s diagnosis fails to recognize that policyholders typically hire an attorney only after an insurer has failed to promptly settle a legitimate claim.
The disturbing legal trend described above undermines the real value of every property insurance policy in Texas. Insurance companies wrote $7.8 billion in homeowner premiums in 2015; they paid out 52 percent of that amount to loss claims, according to the Texas Department of Insurance (loss ratios under 60 percent generally are considered profitable). Increasingly, your policy is not worth its face value until you have spent thousands of dollars to force your insurer to honor it. Only the Texas Legislature or the Texas Supreme Court can make policyholders whole again. Betting the ranch on either of these fixes is risky for Texas families and business owners, but it’s their only hope. After all, nobody was covered for this particular insurance disaster.
Loyd heads the San Antonio-based Loyd Law Firm, which specializes in protecting the insurance rights of consumers and businesses.