The Texas Legislature is Never Too Busy to Help Insurance Companies

Satellite image of Hurricane Katrina 2005


The Texas Legislature just spent an entire regular session and one special session focused on such “emergency” measures as where transgender people can pee. They intentionally did nothing about school finance reform, property taxes, chemical security and safety, environmental degradation, water policy, and a whole host of other complex and urgent problems. Having ignored these problems, one would have to conclude the legislature is either not up to the task or likes things the way they are.

Then along came Hurricane Harvey, which may or may not be the worst storm of a lifetime.

Harvey’s damage to property is beyond comprehension, not to mention the loss of lives, the injuries, the disruption of millions of people’s everyday existence, the closing of businesses, the loss of paychecks, and the direct and indirect economic consequences that will go on for years to come.


As people begin to get back to their homes and businesses and assess the damage, they will begin the process of making insurance claims. Most people will be disappointed to learn they are not covered for flood damage unless they are part of the lucky 15% who have a federal flood policy. The insurance industry will be sending what are called “storm teams” to the Gulf Coast. These insurance adjusters will be overwhelmed with claims and their aim will be to settle claims as cheaply as possible or deny claims altogether if a policy exclusion can be found. If history is a teacher, we will see insurance companies denying legitimate claims and offering less than what they should pay. This was true in Katrina, Ike and Sandy. Litigation arising out of those storms has been ongoing for years.


Just in time for Harvey is Senate Bill 10. This statute takes effect September 1st. It received little public notice. This statute, requested by the insurance industry, reduces the liability of insurance companies for unlawful claims settlement practices. The statute does this by amending the Texas Insurance Code and the Texas Deceptive Trade Practices Act. The new law limits the interest, penalties, damages and attorneys’ fees that can be recovered by consumers who are harmed by the unlawful conduct of insurance companies. There are also procedural changes and a prohibition against filing a lawsuit under the Insurance Code and the Deceptive Trade Practices Act simultaneously. This means an aggrieved consumer will have to make an election as to which statute to utilize and that decision could have a big impact upon the outcome of a case. Henceforth, a consumer who prevails in a suit against an insurance company will only be able to recover their attorneys’ fees as computed on an hourly fee basis. This is a major change in the law. Under prior law that existed seemingly forever, an insurance consumer could recover their “reasonable and necessary” attorneys’ fees if they won their case. What was reasonable and necessary was determined by the jury.


Lawsuits involving insurance coverage disputes are usually undertaken by lawyers on a contingent fee basis. This is true because most individuals do not have the financial resources to employ a lawyer on an hourly fee basis. When a lawyer undertakes representation on an hourly fee basis, the lawyer typically requires a retainer up-front, keeps track of the hours spent, bills monthly, expects to be paid monthly, and the client pays all the litigation expenses as they are incurred, which usually include high fees for expert witnesses and much, much more. As an alternative, the contingent fee contract allows the client to pay an attorney a percentage of what they get, if anything, in the future. If the case is lost, the lawyer gets nothing and loses his expenses. If the case is won, the attorney gets the percentage agreed upon. By changing the law to limit the recovery of attorneys’ fees to the amount the attorney would have been paid had he been billing the client and being paid by the client on a hourly fee basis from start to finish, many people who are mistreated by their insurance companies will not be able to hire a lawyer to help them. Of course, this is exactly the result the insurance industry wanted. They want to make it so difficult for consumers to get legal help that they will have to live with whatever decision their insurance company makes. This law is a cynical move to disarm insurance consumers in what was already not a fair fight.


I wonder if the insurance companies said “Thank you” or if they will wait until after their rate hikes are approved?


Photo credit: NASA Goddard Photo and Video via / CC BY