What Policyholders Should Know About The Texas Hailstorm Bill

In his January 31, 2017 State of the State Address, Texas Governor Greg Abbott called hailstorm litigation "the newest form of lawsuit abuse" and stated his desire for legislation "that limits abusive hailstorm litigation." In response, on February 13, 2017, Sen. Kelly Hancock proposed Senate Bill 10 (the "Hailstorm Bill") and echoed Gov. Abbott's comments. According to Sen. Hancock, hailstorm litigation in Texas had "spiraled out of control" primarily because of a small group of trial lawyers "who abuse the system." These "bad actors" made "legislative enactment... necessary."

The Hailstorm Bill was thus ostensibly crafted to address abusive hailstorm litigation and improve transparency in the handling of hailstorm claims. On May 26, 2017, Gov. Abbot signed the Hailstorm Bill into law, and it goes into effect on September 1, 2017. While several lawmakers touted the Hailstorm Bill as tailored legislation to curb hailstorm lawsuit abuse, aggressive insurers could argue that the Hailstorm Bill affects a broad category of claims, including, potentially, all business interruption claims. For example, carriers could contend that the Hailstorm Bill drastically reduces the penalty for failing to promptly pay a claim; imposes heightened notice obligations, which these insurers would likely use to forestall subsequent bad-faith claims; compares the amount demanded in the pre-suit notice to the amount of damages actually received in an attempt to lower the attorneys' fees that policyholders can recover; and allows insurers to accept liability for adjusters and other agents that would require policyholders to nonsuit those individuals who normally destroy diversity. Consequently, the Hailstorm Bill, in the hands of aggressive insurers, could meaningfully erode a number of rights of Texas policyholders for an undefined and unknown number of claims. As policyholders look to obtain the coverage they rightfully purchased, there are three practical takeaways from the Hailstorm Bill that policyholders should consider.

First, the Hailstorm Bill accomplishes the majority of its objectives through the creation of Chapter 542A of the Texas Insurance Code. Chapter 542A only applies to insurers and agents, which includes an "employee, agent, representative or adjuster who performs any act on behalf of an insurer." Claims against others "engaged in the business of insurance" are not expressly covered by Chapter 542A or its restrictive provisions. While prudent...