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Courts Gutting Real Value Of Property Insurance

This article was originally published on the San Antonio Express News.

Texas Senate bill advances Gov. Greg Abbott’s agenda by seeking to prevent “hailstorm lawsuit abuse.” By pitting trial lawyers against insurance companies, Senate Bill 10 ignores the most alarming perpetrator of hailstorm lawsuit abuse: the courts themselves.

San Antonio’s 4th Court of Appeals recently joined a growing number of Texas courts that are using mandatory property appraisals to gut the true value of property insurance policies held by millions of Texas businesses and homeowners.

Traditionally, Texas law protected policyholders from the unequal bargaining power of insurance companies. Insurers who failed to settle claims fairly and promptly were subject to penalties for bad faith, delays, attorney fees and interest. These penalties to discourage big insurers from cheating consumers now are under judicial siege.

Many Texas judges have gutted these consumer protections by treating 11th-hour property appraisals as a kind of get-out-of-jail-free card. Faced with insurers who drag out and lowball claims, these judges don’t impose any penalties so long as the insurer invokes — and pays — a last-minute appraisal of the damages.

This creates perverse incentives for insurers to abuse policyholders. After sustaining a loss, few policyholders can afford to pay lawyers, adjusters, engineers and appraisers to investigate their claim and defend their rights. These days, your policy is not worth its face value until you’ve spent months and thousands of dollars forcing your insurer to honor it. When policyholders do try to secure their rights in court, insurers use the last-minute-appraisal game to wiggle off the hook for any penalties.

That’s what happened in a case that our San Antonio-based appeals court decided in December. After a 2014 storm hammered Candelaria Garcia’s Rio Grande City home, she submitted a claim to State Farm Lloyds. The insurer informed Garcia it would pay nothing because its inspector put the damages at $902 — well below Garcia’s $1,760 deductible. Garcia’s 2015 lawsuit alleged that the insurer breached its contract, acted in bad faith, violated prompt-payment laws and engaged in deceptive trade.

State Farm responded to the lawsuit by invoking a policy provision that forced both sides to hire appraisers to assess the damage to Garcia’s home. Both appraisers put the replacement cost of the damages at $7,836 — nine times the damages assessed by State Farm’s inspector. After backing out depreciation costs and the deductible, State Farm sent Garcia a check for $4,383. Garcia urged the court to penalize her insurer for stalling and low-balling her claim.

But the trial court and the 4th Court of Appeals ruled that State Farm owed her nothing. Such decisions have emboldened insurers to the point where they’ll even gouge a church. I have appealed such a case to the Texas Supreme Court.

In Richardson East Baptist Church vs. Philadelphia Indemnity, appraisers eventually agreed that a Dallas hailstorm did more than $30,000 in damages to the church I represent. That’s more than three times what the insurer admitted it owed. Yet the 5th Court of Appeals in Dallas ruled that the insurer’s 11th-hour invocation and payment of the appraisal erased all its liabilities for dragging out the claim. The high court, which has never ruled on this appraisal scam, now has the opportunity to make policyholders whole again.

This disturbing legal trend undermines the real value of every property insurance policy in Texas. Increasingly, your policy is not worth its face value until you have spent thousands of dollars to force your insurer to honor it. The Texas Supreme Court and the Texas Legislature should act now to level the playing field and make policyholders whole again.

Filed Under: Property Insurance