HURRICANE HARVEY AND TEXAS INSURANCE LAW UPDATE
J. Richard “Rick” Harmon, Jennifer M. KearnsThompson Coe Cousins & Irons, LLPSeptember 29, 2017
Overview
Hurricane Harvey New Legislation, effective 9/1/2017 TDI Bulletins, Court Orders, Deadlines Menchaca Q&A
Hurricane Harvey – Wind SpeedsAugust 25 – 30, 2017
Hurricane Harvey – Storm SurgeAugust 25 – 30, 2017
Hurricane Harvey – RainfallAugust 25 – 30, 2017
Hurricane Harvey – RainfallAugust 25 - 30, 2017
Catastrophic flooding in Southeast Texas and Louisiana
64.58 inches of rain ‐Nederland, Texas
21.88 inches of rain – Smithville, Texas
17.28 inches of rain – Lake Charles, LA
Hurricane Harvey – TornadoesAugust 25 - 30, 2017
29 tornadoes (EF‐0 to EF‐1) confirmed by NWS Galveston County Brazoria County Matagorda County Wharton County Fort Bend County Brazos County Harris County
Texas Counties
Texas Counties
Policy & Coverage Issues
Concurrent Causation Wind v. Flood
1. ALE/Evacuation2. Business Interruption3. Civil Authority
Surface Water Intentional Flooding Interplay: Flood, TWIA,
Private Insurance Pollution, Contamination
Bay House Condominiums (Rachel Denny Clow/Corpus Christi Caller‐Times via AP)
TDI Bulletins
Bulletin B‐0022‐17 Harvey declared a catastrophe
Bulletin B‐0011‐07 Roofer cannot act as adjuster PA cannot solicit clients during the
progress of a loss producing natural disaster PA prohibits from participating in the direct
or indirect reconstruction, repair
Bulletin B‐0021‐17 Denial of flood losses ‐ FEMA assistance
Supreme Court Emergency Order
8/28/2017‐ Emergency Order Authorizing Modification and Suspension of Court Procedures in Proceedings Affected by Disaster All courts in Texas should consider disaster‐
caused delays as good cause for modifying or suspending all deadlines and procedures –whether prescribed by statute, rule or order –in any case, civil or criminal
Expired September 27, 2017
PROPERTY LITIGATION REFORM BILL
PROPERTY LITIGATION REFORM BILL
EFFECTIVE SEPTEMBER 1, 2017
TEXAS INSURANCE CODE CHAPTER 542A
Applies only to real property claims resulting from forces of nature (earthquake, wildfire, flood, hurricane, hail, wind, rainstorm, etc.).
Chapter 542A applies to lawsuits filed on or after September 1, 2017.
Applies to all causes of action.
Does not eliminate duties and deadlines in Chapter 542.
TEXAS INSURANCE CODE CHAPTER 542A§542A.003
NOTICE 60 DAYS BEFORE SUIT
Statement of acts or omissions giving rise to claim.
Specific amount alleged to be owed.
Reasonable and necessary attorney’s fees to date.
If given by attorney, copy to insured.
Failure to comply results in dismissal w/o prejudice.
ADMISSIBLE AS EVIDENCE.
TEXAS INSURANCE CODE CHAPTER 542A§542A.004
INSURER’S RIGHT TO INSPECT
Not later than 30 days after receipt of pre‐suit notice.
If possible, completed not later than 60 days after receipt.
TEXAS INSURANCE CODE CHAPTER 542A§542A.005
ABATEMENT
Insured fails to provide pre‐suit written notice.
Insured fails to provide notice that complies with 542A.003.
Insurance company not afforded right to inspect.
TEXAS INSURANCE CODE CHAPTER 542A§542A.005
ABATEMENT
Insurer has 30 days after answer to file plea in abatement (automatic if not controverted).
Remains abated until 60th day after proper notice provided or 15th day after inspection completed.
COURT CANNOT COMPEL MEDIATION OR ADR UNTIL AFTER ABATEMENT PERIOD.
TEXAS INSURANCE CODE CHAPTER 542A§542A.006
ACTION AGAINST “AGENT”
Includes employee, agent, representative, or adjuster who performs acts on behalf of insurance company.
Insurance company can elect in writing to claimant to accept agent’s liability, if any.
If election made, court MUST dismiss action against agent.
Not available to insurers in receivership.
TEXAS INSURANCE CODE CHAPTER 542A§542A.007
AWARD OF ATTORNEY’S FEES Will be conditioned on claimant’s pre‐suit notice. If total amount awarded is equal to or greater than
80% of amount demanded in pre‐suit notice, award will be full amount that is reasonable and necessary.
If total amount awarded is less than 20% of amount demanded in pre‐suit notice, no award for attorney’s fees.
If the total amount awarded is greater than 20% but less than 80% of amount demanded in pre‐suit notice, attorney’s fee is based on the proportion between the demand and the total amount awarded.
TEXAS INSURANCE CODE CHAPTER 542A§542A.007
AWARD OF ATTORNEY’S FEES
If pre‐suit notice not provided, and “no notice” pleading (plea in abatement) filed within 30 days of answer, no award for attorney’s fees.
This provision is in addition to other statutory methods to reduce or eliminate attorney’s fees awards (i.e., §541.156, TRCP 167).
TEXAS INSURANCE CODE CHAPTER 542§542.060(c)
PROMPT PAYMENT PENALTY FOR 542A CLAIMS
Previously 18% per annum.
Now 5% above prejudgment interest rate (currently set at 5%, so penalty would be 10%).
Accrues on date claim is required to be paid.
Will apply to all claims made on or after September 1, 2017
EFFECTIVE SEPTEMBER 1, 2017
For lawsuits filed on or after September 1, 2017, the pre‐suit requirements of Chapter 542A will apply.
For claims made on or after September 1, 2017, the prompt payment penalty identified in 542.060(c) will apply.
NOTE: claims made before September 1, 2017, for which lawsuits filed after September 1, 2017, are still subject to old statute 542.060 (18%)
Post-Harvey Cases Filed
Cypress Reaveneaux, LLC v. Markel American Insurance Company, et. al.
Case #: DC‐17‐1149 Filed on 8/31/2017 in the 162nd Dallas
County District Court
Post-Harvey Cases Filed
Val Anthony Aldred, et al. v. Harris County Flood Control District, et al.
Case#: 2017‐57831 Filed on 9/5/2017 in the 80th Harris County
District Court
USAA v. Menchaca
USAA Tex. Lloyds Co. v. Menchaca, (Tex. April 7, 2017, rehearing pending)
The Statute at IssueSec. 541.060, Insurance Code
Section 541.060 Texas Insurance Code, includes a list of acts or practices by an insurer that are considered to be unfair and deceptive including: Refusing to pay a claim without conducting a
reasonable investigation; Failing to effect settlement when liability has
become reasonably clear; misrepresenting a material fact or policy provision
relating to coverage; failing within a reasonable time to affirm or deny
coverage of a claim;
Recovery Under Chapter 541
If the insured can prove a violation of §541.060, the insured can recover “actual damages,” court costs and attorneys fees.
If the insured can prove the insurer knowingly committed the violation, the insured can recover an amount up to three times the amount of actual damages.
A question that has been open to debate for years is what are “actual damages” under Chapter 541 claims?
EVOLUTION OF “ACTUAL DAMAGES”
Vail v. Texas Farm Bureau Mutual Ins. Co., 754 S.W.2d 136 (Tex. 1988).
Provident American Ins. Co. v. Castaneda, 988 S.W.2d 189 (Tex. 1998).
United Nat’l Ins. Co. v. AMJ Investments, 447 S.W.3d 1 (Tex. App.—Houston [14th
Dist.] 2014, pet. dism’d). In re Deepwater Horizon, 807 F.3d 689 (5th
Cir. 2015).
FACTUAL AND PROCEDURAL BACKGROUNDof Menchaca
In Menchaca, the insured made a homeowner’s property claim following Hurricane Ike.
USAA investigated the claim on two occasions, and based upon two adjusters’ finding of minimal “covered” damage that did not exceed the policy’s deductible, USAA paid no benefits.
The insured sued USAA for breach of the insurance policy and for unfair settlement practices under the Insurance Code, which were tried to a jury.
FACTUAL AND PROCEDURAL BACKGROUNDJury Answers
Question 1 asked whether USAA “failed to comply with the terms of the insurance policy with respect to the claim for damages filed by [the insured] resulting from Hurricane Ike” – Jury: “No.”
Question 2 asked whether USAA engaged in various unfair or deceptive trade practices, including whether USAA refused “to pay a claim without conducting a reasonable investigation” –Jury: “Yes.”
Question 3 asked the jury to determine the insured’s damages resulting from USAA’s failure to comply with the policy or its statutory violations, calculated as “the difference, if any, between the amount USAA should have paid [the insured] . . . and the amount that was actually paid.” The jury : “$11,350.”
FACTUAL AND PROCEDURAL BACKGROUNDPost Trial Motions
Both parties moved for judgment.
USAA argued that the insured was not entitled to statutory damages because the jury did not find that it failed to comply with the policy.
The insured argued that she was entitled to judgment because the answers to Questions 2 and 3 were not conditioned on a “Yes” answer to Question 1.
FACTUAL AND PROCEDURAL BACKGROUND(cont.)
The trial court disregarded Question 1 and entered judgment in the insured’s favor based upon the answers to Questions 2 and 3.
The court of appeals affirmed. The Supreme Court was asked to decide whether
an insured can recover policy benefits based on findings that an insurer violated the Insurance Code and the violation resulted in a loss of benefits that the insurer should have paid, even though the jury did not find that the insurer failed to comply with the policy.
The Court answered “yes” and enunciated five rules.
The DecisionConfusion and Five New Rules
The Supreme Court admitted that its prior cases on this issue had led to "substantial confusion" among the lower courts and that it hoped to "clarify our precedent" by announcing five rules addressing the relationship between contract claims under an insurance policy and tort claims under the Insurance Code.
THE “FIVE RULES”
1. The General Rule: An insured cannot recover policy benefits as damages for an insurer’s statutory violation if the insured does not have a right to those benefits under the policy.
2. The Entitled-to-Benefits Rule: An insured who establishes a right to receive benefits under an insurance policy can recover those benefits as “actual damages” under chapter 541 if the insurer’s statutory violation caused the loss of policy benefits.
THE “FIVE RULES”
3. The Benefits-Lost Rule: An insured can recover benefits as actual damages under the Insurance Code – even if the insured has no right to those benefits under the policy – if the insurer’s conduct caused the insured to lose that contractual right.
THE “FIVE RULES”
4. The Independent-Injury Rule: If an insurer’s statutory violation causes an injury “truly” independent of the insured’s right to recover policy benefits, the insured can recover those damages under the statute.
The damages are separate from and differ from the benefits under the contract and must be “caused” by a statutory violation and not be “predicated on” or “stem or flow from” denial of policy benefits.
The opinion clearly suggests that this will be a rare occurrence—admitting that “[they] in fact have yet to encounter one.”
THE “RULES”
5. The No-Recovery Rule: An insured cannot recover any damages based on an insurer’s statutory violation unless the insured establishes a right to receive benefits under the policy or an injury independent of a right to benefits.
What do the Rules Mean for the Future?
Resurrection of Vail?
No guidance on when an act of statutory bad faith will be the “cause” of the loss of policy benefits.
POLICY BENEFITS CAN BE TREBLED IF JURY FINDS KNOWING AND INTENTIONAL CONDUCT
LOWER COURTS’ APPLICATION AFTER MENCHACA
Nat’l. Security Fire & Casualty Co. v. Hurst, 2017 WL 2258243 (Tex. App.—Houston [14th Dist.] May 23, 2017) (“In order to recover any damages beyond policy benefits, the statutory violation or bad faith must cause an injury that is independent from the loss of benefits.”)
State Farm Lloyds v. Webb, 2017 WL 1739763 (Tex. App.—Beaumont, May 4, 2017) (holding that the insured could not recover extra-contractual damages beyond the policy benefits for his claim under the Insurance Code because he failed to demonstrate damages independent from the loss of the benefits).
APPRAISAL AND MENCHACA
East Richardson Baptist Church v. Philadelphia Indemnity Ins. Co., 2016 WL 1242480 (Tex.App.—Dallas Mar. 30, 2016, no pet. h.) (affirming trial court’s ruling that the insured’s claim for extra‐contractual damages did not survive timely payment of appraisal award).
Texas Supreme Court denied Petition for Review on Friday, September 22, 2017
APPRAISAL AND MENCHACA
Floyd Circle Partners, LLC v. Republic Lloyds, 2017 WL 3124469 (July 24, 2017)
Appraisal award timely paid by Republic Trial court granted summary judgment As to bad faith cause of action, Dallas Court of
Appeals affirmed trial court’s ruling, citing Menchacaand finding that plaintiff failed to show that Republic failed to timely investigate and/or failed to show that Republic committed an extreme act that caused an injury independent of the policy claim.
APPRAISAL AND MENCHACA
Lee Losciale v. State Farm Lloyds, 2017 WL 3008642 (S.D. – Houston July 14, 2017) Appraisal award timely paid by State Farm Lloyds Plaintiff argued that Menchaca “overruled” the vast
legal authority regarding the effect of full and timely payment of appraisal award
Houston District Court granted MSJ, finding that none of the 5 rules stated in Menchaca apply given full and timely payment of the appraisal award
“The payment of the appraisal award satisfies Plaintiff’s right to receive benefits under the policy and, therefore, there is no “loss of benefits.”
MOTION FOR REHEARING
Opinion presents contradictory standards. Opinion alters causation analysis set forth
by Texas Supreme Court precedent. Suggests liability for policy benefits even
when no breach of contract found. USAA seeks clarification as to how to
submit case to jury.
QUESTIONS?
Jennifer M. Kearns701 Brazos | Suite 1500 | Austin, TX 78701
Ph: 512.703.5032 | Fax: [email protected]
J. Richard “Rick” Harmon700 N. Pearl St. | 25th Floor | Dallas, TX. 75201
Ph: 214.871.8227 | Fax: [email protected]