This article was originally published on the Austin American-Statesman
A new Texas Senate bill advances Gov. Greg Abbott’s agenda by seeking to prevent “hailstorm lawsuit abuse.” Senate Bill 10, which pits trial lawyers against insurance companies, overlooks a major cause of hailstorm lawsuit abuse — one that easily can be fixed.
Traditionally, Texas law required insurance companies to bear the cost of investigating insurance claims. Wittingly or not, a growing number of Texas appeals courts now let big insurance companies force policyholders to pay for their own insurance-claim investigations.
Increasingly, your policy is only worth its face value after you spend months and thousands of dollars forcing your insurer to honor it. Many policyholders cannot afford this in the aftermath of a property loss. That’s why they bought property insurance in the first place.
Insurance appraisal clauses seem reasonable. If there’s disagreement over the value of property losses, then either party can invoke appraisal, which forces each party to hire its own appraiser. If those appraisers disagree, then both parties pay an appraisal umpire to settle the difference. Yet appraisals cost loss-suffering policyholders two things that they lack: time and money.
Dallas-based public adjuster Tanya Wolosek helps businesses and homeowners with claims. She says appraisals take a minimum of three months and cost from $500 to $3,000 apiece. Such payouts overwhelm policyholders who expected to be compensated — not billed — after a loss.
While early appraisals can make sense, insurers often invoke them only after they get sued — even as late as the eve of trial. They invoke appraisal to dodge the bad-faith penalties that courts once forced insurers to pay if they failed to settle a claim fairly and promptly.
Now, some courts let insurers dodge penalties if they pay an eleventh-hour appraisal. So insurers can shortchange and drag out claims. If a policyholder does manage to hire an adjuster or an attorney, insurers dodge litigation and penalties by paying a last-minute appraisal — never having had to pay more than they would have had to pay in the first place.
I have appealed such a case to the Texas Supreme Court. In Richardson East Baptist Church v. Philadelphia Indemnity, appraisers eventually agreed that a hailstorm did more than $30,000 in damages to the roofs of the church that I represent. That’s more than three times what the insurer had agreed to pay. Yet the 5th Court of Appeals in Dallas ruled that the insurer’s late-game invocation and payment of the appraisal erased all its liabilities for lowballing and stalling the church for months. This treats the bad actors just like the insurers who promptly pay legitimate claims. The high court in Austin now has an opportunity to make policyholders whole again.
One other solution exists. All these problems are rooted in insurance clauses that let one party unilaterally impose property appraisal on another. The Texas Legislature and Governor Abbott’s Insurance Commissioner, David Mattax, both have the power to make property appraisals voluntary. Peleus Insurance Co. already uses a voluntary appraisal clause that should be a model for all Texas policies. It says an appraisal “may be conducted” only if the insurer and policyholder “mutually agree to resolve the disagreement through an appraisal.”
Many insurance companies argue that appraisals are a low-cost, efficient way to settle claim disputes. In my experience none of these assertions are true. But if appraisal proponents believe what they say, surely they won’t object to making the benefits of appraisals completely voluntary. This would instantly reclaim the deflated values of the property insurance policies held by millions of Texans.