The first report of golf ball-sized hail came into the Hidalgo County sheriff’s office at 5:20 p.m. on April 20, 2012. Within minutes, another report arrived of baseball-sized hail in Mission, with the winds blowing 50 miles per hour. Over the next 20 minutes, drivers tried to crowd their cars under business awnings. Windows were shattered. Hail knocked holes in rooftops. Unfortunate animals were beaten to death. The storm was a second wallop for the Lower Rio Grande Valley as it recovered from a similar storm a month earlier. The McAllen Monitor reported that the insurance industry paid out $556 million in claims to homeowners and another $47 million to vehicle owners.
Then the lawsuits began. There were thousands of lawsuits against insurance companies and adjusters, alleging low-ball payments on claims. These lawsuits led to Senate Bill 1628 by Senator Larry Taylor of Friendswood currently on the Intent Calendar for possible debate as early as today.
This legislation has pitted tort reform groups representing the insurance industry against the trial lawyers in what has become a biennial legislative rivalry. What makes this fight different this year is that there are major Texas businesses taking the trial lawyers’ side of the argument: car dealerships with vulnerable inventories of vehicles on open lots, Trammel Crow Residential, Centex Homes, Sovereign Bank and La Quinta Inns & Suites.
“My business clients have no interest in pursuing frivolous claims nor do they ever wish to engage in lawsuit abuse. However, they do expect the legislature to protect their interests against insurance companies which unfairly deny or delay legitimate claims,” wrote Dallas Haynes and Boone lawyer Ernest Martin Jr. in a letter delivered to senators last week on behalf of the businesses. Martin said his clients are worried about the “unintended consequences of a bill that does much more harm to business interests than it does to curb perceived abused in a single category of hailstorm claims.”
At the heart of SB 1628 is an almost visceral fight between the insurance industry, Texans for Lawsuit Reform and trial lawyers whose symbolic leader in storm-damage claims in Steve Mostyn of Houston.
By the second anniversary of the 2012 Valley hailstorms, there had been 2,000 lawsuits filed in Hidalgo County, and the Monitor reported that one local attorney had erected a billboard “evoking fire and brimstone” to remind homeowners that they had to file a claim within two years. By May of last year, there had been 5,972 lawsuits filed, with Mostyn and members of his firm filing 1,612 of them, according to a Valley lawsuit abuse group.
Mostyn had pioneered storm damage insurance lawsuits after Hurricane Ike and reportedly made more than $86 million in legal fees from the lawsuits. Taylor in 2013 blamed trial lawyers – and by implication, Mostyn – for blocking his legislation to reform the Texas Windstorm Insurance Association. During the 2012 GOP primary for state Senate, the Texas Tribune reported that Mostyn either directly or indirectly gave Taylor’s opponent $500,000, while Texans for Lawsuit Reform financed Taylor with $800,000. Taylor won.
The hailstorm legislation on the surface has the look of grudge-match, but it has a potential of affecting insurance companies, homeowners and businesses hundreds of millions of dollars in disputes over weather-related claims.
Some trial attorneys refer to their work as “entrepreneurial law,” while Texans for Lawsuit Reform describes them as “storm-chasing attorneys, the latest wave of ambulance-chasing plaintiff lawyers.” TLR President Richard Trabulsi Jr. blames a sudden growth in hail claims directly on Mostyn.
Other law firms are copying Mostyn and employing a similar storm-chasing strategy following hail events. In addition to advertising for clients, these lawyers have joined with roofers, public adjusters, contractors, and others – some with questionable or no qualifications – to help them find clients, often through door-to-door solicitation. These unscrupulous third parties push homeowners to make claims even after their initial claims have been paid and to hire lawyers to pursue lawsuits that demand payments of many times the amount of their initial claims.
TLR spokeswoman Sherry Sylvester said hailstorm lawsuits have now spread to 44 counties. TLR is urging passage of either Taylor’s SB 1628 or the companion HB 3626 by Representative John Smithee. TLR claims the bills are consumer legislation because without it, insurance companies will raise rates or stop writing hail insurance.
Here are some of the consumers that signed up in favor of SB 1628 when it was heard in Senate committee: Texans for Lawsuit Reform, Texas Civil Justice League, Texas Public Policy Foundation, and insurance companies that included Progressive, Farm Bureau Insurance, USAA, Travelers, Liberty Mutual, State Farm, Germania Insurance Co. and the Independent Insurance Agents of Texas. That’s not exactly a group of homeowners who need roofs repaired or cars undinged.
The legislation gives insurance companies cover by requiring a plaintiff to demonstrate they “knowingly” failed to pay a claim or inadequately paid a claim. It also protects the companies for lawsuits against their adjusters. Under current law, an insurance company that underpays a claim is responsible to pay 18 percent interest on the claim, but under the legislation the interest payment would only apply to the spread between the initial payment and the judicially adjusted amount. Prior to filing suit, the plaintiff will have to provide a signed statement listing actual damages, interests and expenses plus incurred attorney fees. Adjusters also could not collect fees for referring clients to attorneys.
The hoops to be jumped through would be impossible for a low-income homeowner to do on their own and would discourage trial lawyers from taking their case.
Whether the claim was small or large, SB 1628 would put insurance companies in the drivers seat in deciding what claims to pay and how much to pay them. Demonstrating knowing misconduct is almost impossible. Time limits in the bill also would restrict lawsuits over undetected damage. And that is why some big businesses are siding with the trial lawyers.
“I can only conclude that the bill’s sponsor and proponents do not fully appreciate the unintended consequences of the bill,” wrote Dallas attorney Martin.
Moments after I posted this, someone sent me a news release that Taylor put out this morning. So I quote in part: “There have been many untruths and blatant lies regarding the intent of my consumer protection bill…This bill will eliminate catastrophic weather lawsuit abuse while assuring homeowners’ right to receive fair and timely claims payments from insurers…Storm-chasing lawyers prowl strom devastated communities and manipulate the law for attorney fees.”