Hurricanes and Hailstorms – What’s New and What’s True
We’ve seen some misinformation floating around regarding the effect of the recent Hailstorm Bill on insurance claims. The Hailstorm Bill applies to all claims for property damage caused by forces of nature, including earthquake, earth tremor, wildfire, flood, tornado, lightning, hurricane, hail, wind, snowstorm, or rainstorm. The new legislation will apply to lawsuits filed on or after September 1, 2017.
Although all major provisions of the Hailstorm Bill apply to suits filed on or after September 1, 2017, the change in the prompt payment penalty applies to claims filed on or after that date. See H.B. 1774, Section 4(b).
Texas law allows a policyholder to recover interest in the amount of 18% per annum as damages in the event the insurer violates Chapter 542 of the Texas Insurance Code. The new legislation changes that penalty interest rate. Under the new law, the insurer may be liable to the policyholder, in addition to the amount of the claim, for “simple interest on the amount of the claim as damages each year at the rate determined on the date of the judgment by adding five percent to the interest rate determined under Section 304.003 of the Texas Finance Code.” Since the current interest rate under Section 304.003 is 5%, the current penalty interest pursuant to Chapter 542A is 10%. Thus, if a policyholder files a claim with its insurer before September 1, 2017, and later recovers a judgment for breach of contract, the insurer would be liable for 18% per annum in penalties rather than 10%, together with reasonable and necessary attorneys’ fees, even if the lawsuit is not filed until after September 1.
Plaintiff attorneys and public adjusters have been urging policyholders to file their Hurricane Harvey claims prior to September 1, 2017 and some have suggested that failing to file the claim prior to the change in the law will result in dire consequences to the insured. We don’t believe this is the case. The new law does not affect coverage or claims handling and the impact of this timing provision is likely to be relatively minor. However, if disputed claims result in litigation, practitioners will need to carefully track the date the claim was made.