Eight months after Hurricane Harvey made landfall, many Texas families still face a long road home. Only 33 percent of home insurance claims have been paid and a staggering 51 percent have been closed with no payment.
Families are stranded; businesses can’t reopen. Why? Because of a 15-year assault waged by insurance companies and their lobbyists on the rights of property owners.
This insurance industry campaign has undermined policyholder protections designed to keep insurance affordable, guarantee basic coverage, and hold insurance companies accountable for handling claims unfairly.
Some people say they are afraid to make insurance claims in the wake of Hurricane Harvey due to their immigration status, though officials say they have nothing to worry about.
Property insurance isn’t like other products we buy. Mortgage lenders require its purchasers to qualify for their loans, and our laws require we purchase insurance to drive on our roads. The normal laws of supply and demand don’t work here because the demand curve is set. We’re fish in the barrel for insurance companies, which choose the exact wording of the policies purchased.
A previous generation of Texas lawmakers understood the overwhelming power that insurance companies have over us, arming us with a set of strong laws with which to protect our property. These laws have since been destroyed by the insurance lobby.
Insurers were allowed to move away from standardized policies and usher in the passage of Senate Bill 14 in 2003. Its industry-favored “file and use” system gives them much more leeway in the rates they charge us. Rates have only gone up since. When insurance is unaffordable, it is essentially unavailable. Hardworking families and small businesses are forced to make difficult decisions about the types of coverage they can afford and the amount they are able to purchase. Inflated insurance rates ultimately leave too many Texans underinsured in times of crisis.
Insurance is a necessity that is supposed to be regulated at the state level, yet the insurance industry is allowed to cherry-pick the areas of our state in which they wish to sell, leaving others with limited options. Not wanting to face the windstorm risk posed by the coast, a vital area that is a major economic engine for our state, the for-profit insurance industry benefits from the existence of the Texas Windstorm Insurance Association, or TWIA, which insulates them from direct exposure.
TWIA is an insurer of last resort, and for many Texans along the coast, it is their only viable option for coverage, placing these property owners in an especially vulnerable position.
In the wake of Hurricane Ike, after litigation exposed the systematic underpayment and denial of legitimate claims by TWIA, Texas lawmakers passed reforms in 2011. But in the upside-down world that is the Texas Capitol, the reforms punished policyholders, not TWIA. Instead of strengthening the hand of recently abused coastal property owners to hold TWIA accountable, lawmakers restricted their legal rights with the passage of House Bill 3.
It will be no surprise to learn this legislation was pushed by the insurance industry.
When you’re facing a giant in a legal fight, time and costs matter. Delay and expense favor the big guy and wear down the little guy. Having a streamlined process where litigants can promptly and directly take their dispute before a judge and jury of their peers is the best way to resolve matters. Indeed, it is the system our founders gave us to protect our liberty, enshrined in the Seventh Amendment of the Bill of Rights. Anyone who spends any time with the TWIA law will see lawmakers have instead created a convoluted system that looks like a game of Chutes and Ladders gone haywire.
Under these TWIA statutes, property owners are forced to pass through a series of costly gates depending on whether TWIA “accepts coverage in full or part.” Appraisal and mandatory mediation are prerequisites to court, depending on your circumstances. The whole system is so complex and time-consuming that it makes it difficult for attorneys to help property owners. Meanwhile, the insurance industry has its private army of lawyers at the ready.
Complex legal questions are certain to arise following Harvey, but many property owners may, unfortunately, find themselves without legal counsel as they navigate them. If TWIA offers merely a nominal amount for extensive property damage, have they “accepted coverage in part”?
If the TWIA adjuster on the ground says a loss must be covered but the home office overrules him, has the association conducted a “reasonable investigation” of the claim?
These are important questions that many Texans may have to confront without the benefit of legal representation. In that case, you’re a lamb to the slaughter.
Special privileges for insurance companies facing claims by policyholders were placed in the law by the self-styled corporate lobby group Texans for Lawsuit Reform, or TLR, in 1995, requiring policyholders to send notice of their claims 60 days before filing suit.
If someone blows through a red light, T-bones your car and sends you to the hospital, you have the right to file suit against the driver immediately to recover your losses. But insurance companies were given the benefit of a special two-month “King’s X” period under the law.
Remember how delay helps the powerful?
The insurance industry and TLR successfully doubled down on these sweetheart laws during the 2017 legislative session, creating more risk, delay and cost for policyholders who dare challenge their insurance company in court.
With the passage of House Bill 1774, penalties for the slow payment of legitimate weather-related property claims were slashed nearly in half, rewarding the worst insurance companies that string along their policyholders.
Pre-suit notice for these claims is now on steroids, with consequences for your total recovery if you misstate your damages at the outset.
Insurers are now allowed to step into the legal shoes of their agents and adjusters, forcing many cases into our overburdened federal court system, where it takes years to get to trial. All of this means, again, it will be harder to find a knowledgeable lawyer willing to take up your fight against a powerful insurance company.
Do you sense a theme?
Delay, cost and risk wear down property owner and make them more willing to take the offer from the insurer, even if it is only 50 cents on the dollar. You’ve upheld your end of the bargain by paying 100 percent of your premiums and deductible. Isn’t it only fair that insurance companies honor their obligations too?
HB 1774 became known as the “blue tarp bill” because if you give insurance companies more power, you end up with tarps covering homes, businesses, churches and schools instead of new roofs.
If you take a trip to the Texas Coast today, you will see it is blanketed in blue tarps. In Rockport, which took Harvey’s full fury, 25 percent of homes remain unlivable and 33 percent of businesses are closed. A combination of these insurance-oriented laws and a broken federal flood program are imperiling the livelihoods of thousands of our fellow Texans.
What can you do? Visit the areas hit hardest by Harvey and spend your money in their communities. And educate yourself about which lawmakers recently voted with the insurance industry. Until Texans rise up in sufficient numbers and make their voices fully heard, the insurance industry will keep feeding at the trough in Austin.
Ware V. Wendell is executive director of Texas Watch.