Understanding Bill 1774

After Hurricane Harvey uprooted and/or destroyed the lives of thousands of Texans, the last thing on the minds of these individuals would surely be to immediately file an insurance claim with their respective carriers.

However, a new law, also known as Bill 1774, went into effect on Sept. 1 with the intent of cracking down on so-called frivolous insurance claims. Bill 1774 also reduces the penalty rates, which insurance companies are typically required to pay to customers, for late payments, in a solution where a policyholder has filed a lawsuit against the insurance company.

Traditionally, after a lawsuit has been filed against an insurance company then, in addition to paying the initial amount of normal coverage, the insurance company also has to pay the policyholder a late fee. These lawsuits are usually filed after an insurance company has refused to pay a policyholder in response to a fair claim.

Texas state law says that this late fee must total 18 percent of the insurance claim. For insurance claims that are filed after Bill 1774 becomes law, this penalty, after being determined by a market-based formula, will be capped at 20 percent.  Before the law takes effect, the cap is 10 percent.

Representatives from the Texas Trial Lawyers Association, especially member Jeff Raizner, believe that Bill 1774 has its benefits, as well as some vices.

“I want to be completely fair, there were some bad actors,” Raizner said.

A 25 year veteran of practicing insurance law in Houston, Raizner applauds the areas of Bill 1774 that enhanced communications of claim issues, as well as the structure for paying attorneys’ fees.  However, Raizner does believe that the penalty changes Bill 1774 enacts are an overreach.

“Much of this new law is a cash grab for the insurance industry,” he said.

Texans for Lawsuit Reform is a group on the other side of the debate over this bill.

“The intent of the bill was to cut off this ‘cottage industry’ that was happening around hailstorms after Ike,  lawsuits that didn’t need to be filed,” spokeswoman Lucy Nashed said.

The Texans For Lawsuit Reform also believes that supporting Bill 1774 will not change much at all since most Hurricane Harvey lawsuits will be flood-related because most Texans do not have pre-existing flood insurance.  In addition, for those Texans who were already covered by flood insurance, these policies are usually with the National Flood Insurance Program, which is under the umbrella of the Federal Emergency Management Agency (FEMA).  Because FEMA is a federal administration, FEMA is not subjected to state law, which makes Bill 1774 inapplicable in this situation.

The author of Bill 1774 is State Representative Greg Bonnen, R-Friendswood, who, in a Facebook post, cited the “false information” that has been cycling through social media outlets as being detrimental to Bill 1774.

As Bonnen claims that Bill 1774 will not change the insurance claim process, he contended that Bill 1774 was written as a response “to a growing trend around the state of lawsuits being filed without pre-suit notice, in some instances before an insurance claim had even been filed, and often without the property owner knowing they had even signed a contract with an attorney.”

Bill 1774 requires for an attorney, who is representing aclaim holderr, to notify the insurance company, if the insurance company does not respond to the policyholder’s insurance claim within 60 days. The insurance company will then be sued by the attorney, on behalf of the policyholder.

Texas representatives, at least 29 of whom represent areas that were hit hard by Harvey, actually voted in favor of Bill 1774.  

State Representative Briscoe Cain, D-Cedar Park, who voted in favor of Bill 1774, said, “I believe that Texans have the strongest consumer protections in the nation against insurers, especially against those that are not accustomed to paying claims.”

However, Briscoe said legal protections will still exist for people who suffer at the hands of greedy insurance companies.

“There’s a lot of misinformation and fear mongering going on right now,” Briscoe said.

At the time of Bill 1774 becoming a law, Briscoe believed that it is “premature to spectacle” exactly how the new law would affect individuals who are filing insurance claims after Harvey.

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