Earlier this month, a Houston man sued Steve Mostyn, alleging the renowned insurance litigator inflated the price of his storm policy claim by millions and then bailed once the insurer called the bluff, possibly leaving him on the hook for the company’s million-dollar lawyer bill.
Trial lawyers, like Mostyn, using scare tactics on insurance companies to raise the dollar amount as high as possible has become common practice in Texas, says Steven Badger, a commercial insurance attorney for the Dallas law firm Zelle Hofmann.
Badger says the complaint against Mostyn, currently housed in Harris County District Court, illustrates two issues increasing in frequency in mass storm lawsuits.
The first, what Badger calls the progressive claim syndrome, describes how a small dispute inevitably morphs into a larger one once lawyers become involved.
“Lawyers and their teams of experts will significantly increase the alleged cost to damaged items and often add entirely new damage claim components that were never part of the original claim submitted to the insurer,” Badger said.
“It’s a scare tactic and in my view it can amount to insurance fraud in some cases.”
In the case of Tony Nouri, the aforementioned Houstonian who sued Mostyn, a policy claim was submitted to Lloyds of London to repair the damage caused by Hurricane Ike.
When Lloyds gave him roughly a quarter of the $120,000 he sought, Nouri turned to Mostyn, who in turn demanded $3.2 million in damages from the insurer for a commercial building only worth $850,000, court records show.
Detailed in Nouri’s complaint are allegations that Mostyn brought in his own team of experts, who, after inspecting the property, tacked on damages not even caused by Ike.
In the wake of the 2008 hurricane, Mostyn reaped hundreds of millions in fees representing thousands of individuals like Nouri, creating a mass tort model now widely implemented by not just the Houston attorney, but many other trial lawyers who also set up shop after every major hailstorm strike in Texas.
Badger says for the first time ever the insurance industry is dealing with claims for brick damage alleged to be caused by small hail – lawsuits seeking damages to replace all the brick in a home after a hailstorm.
“Allegations of brick damage is not something we’ve previously seen in hail damage lawsuits,” Badger said. “The purpose is the law of large numbers. Attorneys want to jack up the numbers as high as possible and scare the insurers.”
By deceptively escalating the damages, Badger believes some trial lawyers are arguably committing insurance fraud, an unlawful method used to ensure clients receive more money than what is needed to replace what is actually damaged and cover their attorney’s fees.
“Inflating a repair estimate with building components that are not damaged is a material misrepresentation in support of an insurance claim – that is insurance fraud,” Badger said.
Often, plaintiffs are unaware their lawyers have inflated damages or, in some cases, that they are even plaintiffs in a lawsuit at all, giving rise to the second issue the insurance industry currently faces – the ignorant insured situation, says Badger.
“We are seeing with disturbing frequency situations where the insured had no idea he was a party to a lawsuit or aware of the damage allegations being made in the lawsuit brought on his behalf,” Badger said.
“I’ve got a half dozen cases in my office right now where the insured didn’t even know they were parties to lawsuits.”
The strategy for making a storm victim an unknowing plaintiff hinges on the responders, the people providing services following a hail strike.
Roofers and public adjusters enter into agreements with the property owners, who sometimes ignorantly sign up for legal representation with a lawyer who doesn’t bother to first contact them when filing a lawsuit on their behalf, Badger says.
“People aren’t realizing the agreements they’re signing are also attorney representation agreements when those forms are being presented to them by contractors, public adjusters or in some cases by illegal case runners,” Badger said.
Case runners solicit business for law firms – a form of barratry, more commonly called ambulance chasing, which is illegal in the state of Texas.
“The barratry issue is a big issue,” Badger said. “It’s a feeding frenzy out there right now to sign up plaintiffs.
“Case runners are showing up at flea markets, Hispanic meat markets, town hall meetings, everywhere they can – encouraging people with previous hail claims, even those that have been paid, to let them file lawsuits on their behalf with the promise of more money.”
In the end, Badger says that while a few will get settlements and attorneys will get rich, Texas homeowners will be the ones to pay – hit by higher deductibles and restrictions on coverage as a result.
Following the devastating spring hailstorms that occurred in Hidalgo County in 2012, homeowners filed a collective 30,000 insurance policy claims – 22 percent of which blossomed into lawsuits, according to the Insurance Council of Texas.
On average, 1 to 2 percent of insurance claims become lawsuits, says Badger.
The storm caused $250 million in damages. Trial lawyers advertised heavily in the area, and the subsequent lawsuits that soon followed drove the cost up to $600 million, according to ICT.
Badger estimates the Hidalgo County hail claims that actually became lawsuits peeked at 40 percent.
“No wonder carriers are pulling out of south Texas,” Badger said. “It’s just not sustainable.
“The Texas insurance industry pays a billion dollars a year in hail damage claims, so it’s not as though they decided to stop paying claims. But what’s happened now is that there’s this cottage industry of people who have realized they can siphon off a few bucks themselves and make some money.”
The Texas Legislature attempted to address hailstorm lawsuit abuse this past session, but the proposed bills met with heavy trial lawyer resistance and died.
Badger believes the numbers show the problem is not going away and getting worse, and there will be no doubt the hailstorm crisis issue will be presented at the legislature next term.
However, the real key to solving the problem, he says, is public awareness.
“One thing that needs to happen is Texans need to realize the long-term ramifications of what’s going on out there,” Badger said.
“People need to realize thousands upon thousands of hail damage lawsuits are going to have an impact on the Texas insurance marketplace. And if they don’t realize that, the legislative fix is inevitable.”