hurricane harvey and texas insurance law update · 2017-10-03 · hurricane harvey – rainfall...

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

[email protected] [email protected]

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

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.


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.


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.


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.


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.


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.


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.


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.


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


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.


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.

hurricane harvey and texas insurance law update · 2017-10-03 · hurricane harvey – rainfall...

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